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Trump’s Impatience Could Trap You in a Stock Market Tailspin

Last Updated September 23, 2020 1:49 PM
Francois Aure
Last Updated September 23, 2020 1:49 PM
  • President Trump is once again talking about reopening the U.S. economy.
  • But CNBC commentator Josh Brown is worried this could ignite a sell-off.
  • Do investors need to fear another stock market crash?

Donald Trump is aggressively pushing to reopen portions of the U.S. economy as early as May 1. That’s seemingly bullish for the stock market, but the president’s plan has at least one prominent analyst extremely worried.

Ritholtz Wealth Management CEO Josh Brown fears that Trump’s lockdown exit strategy could reignite the stock market crash that many investors thought was in the rearview mirror.

Trump Pounds the Table on Reopening the U.S. Economy

Stock market bulls have responded positively to the decisive efforts of U.S. officials at the state and federal levels to crack down on the spread of the coronavirus.

Dow Jones, stock market crash,
The Dow Jones rallied sharply off its lows when Donald Trump started taking the coronavirus outbreak seriously. | Source: Yahoo Finance 

Given the slowing of the spread of COVID-19, an anxious President Trump with one eye on November and the other on sliding poll numbers has amped up his plan to kickstart economic activity as soon as possible.

Donald Trump, Stock Market Crash, Coronavirus
Source: Donald Trump via Twitter 

Will the Stock Market ‘Sell the News’ When Trump Gets His Way?

Unfortunately, the timeframe Trump is touting is so rapid that it has CNBC commentator Josh Brown worried that the stock market won’t respond well when the economy does reopen.

Speaking on “Markets In Turmoil,” Brown ominously warned that this development could actually be a negative catalyst for the stock market.

He said,

We are all talking about the reopening of the economy as though it’s a positive catalyst. What if it’s a negative catalyst? Try to imagine a scenario where people are faced with the choice of staying home or going to a restaurant and having to lift a mask up… how many people are going? Imagine the airlines – what if they have to fly half the amount of people?”

It’s almost a guarantee that economic activity is going to change. The question is to what degree. And households being spooked by the reality of a “new normal” is only one of the risks investors may not be pricing in.

Perhaps the most dangerous threat to the stock market is the possibility of a second wave of COVID-19 infections.

Brown says that could “crush” the stock market:

The worst thing that can happen is we start to roll back stay-at-home orders, people get too comfortable, and we have a resurgence [of coronavirus]… What would that do to the stock market? It would crush investor sentiment.

White House Not Alone in Impatience to Reopen Economy

While there is a marked difference in rhetoric between President Trump and Governors Newsom (California) and Cuomo (New York), they are all talking about exit strategies .

New York has shown apparent stabilization in new cases of COVID-19, while California’s early and decisive action kept its curve relatively flat.

Stock Market Crash, New York, Coronavirus
New York’s coronavirus outbreak appears to be trending in the right direction. | Source: Charlie Biello Via Twitter 

Eurozone nations are also considering their options, with member nations Spain, Austria, Italy, and Denmark all starting to ease lockdowns .

Throw into this mix that China has been reporting some decent data as the world’s second-largest economy emerges from its deep freeze.

There is no question this has been a big boost to Wall Street. Investors have looked at the progress and gotten excited about a quicker than anticipated recovery.

All this optimism is what scares Josh Brown, and his point is a compelling one.

Coronavirus Second-Wave Could Be a Black Swan

Stock markets crash when equities are not adequately priced for risk. And by all accounts, the Dow Jones is behaving like it will be business as usual in a few months.

It is not likely that this will be true under the best-case scenario, and a second wave of the illness is a potential black swan if markets take it for granted.

Trump’s scheme to aggressively resume activity is a high-risk tactic, and his decision to put his daughter and son-in-law on the panel charged with crafting the White House’s lockdown exit strategy  has been met with derision.

Then there’s the issue that the White House probably doesn’t have the authority  to order any state economy to reopen, with litigation inevitable if he does.

All these signs point to a staggered open at best, with the nature of life’s “new normal” depending on your home state or even town.

And if any of Josh Brown’s warnings come true, another leg lower in the stock market remains very much on the table.

Disclaimer: The opinions in this article do not represent investment or trading advice from CCN.com