Re-Opening the Economy Won’t Do Stocks Much Good, Says Yale Expert

Portent: Chinese consumers remain fearful about going out after lockdown lifted, ex-Morgan Stanley honcho Roach warns.

The stock market is bouncing back nicely from its painful February-March wipeout, amid optimism that the economy will recover in light of moves to lift lockdowns across the United States.

Not so fast, says Yale University senior fellow Stephen Roach, a well-known China expert who used to be Morgan Stanley’s Asia chairman. Reason: Open it, and they will not come. In other words, consumers likely will have no appetite to risk venturing from their homes to shop and work.

“Chinese consumers remain fearful of going out in public, shopping, going to movies, and enjoying activities that put them in close proximity with their neighbors,” he said. “Consumer behavior is not all that dissimilar in populations subjected to an unprecedented shock in their health security.”

Nevertheless, the S&P 500 has rallied from its March 23 low, despite yet another surge in jobless claims, which hit 33 million this week. The benchmark closed Thursday up 1.1%, an advance mirrored by the other two indexes, the Dow Jones Industrial Average (up 0.89%) and the Nasdaq Composite (positive 1.41%). Some states are making plans to open up for business in coming weeks, at least partially.

A Monmouth University poll this week found that the public, by a 2-1 ratio, was more concerned about lifting restrictions too quickly than too slowly. But President Donald Trump is concerned about the continued economic fall that the coronavirus has set in motion. “We have to get our country open again,” he said.

No doubt, there’s a terrible problem with mounting unemployment. “We’re going to see a terrible employment report this week,” Roach said, referring to the Friday jobs report that showed employers axed 20.5 million people in April. “How much of that could come back as these service industries are going to have their footprints reduced?”

The Federal Reserve’s commitment to supporting the US financial apparatus, which includes buying corporate bonds, is another driver for investor hopes. Add in prospects for medical advances that thwart COVID-19.

“The market has moved up sharply, anticipating probably an imminent cure or a vaccine and drawing a lot of comfort from the Fed that has opened liquidity spigots as never before. And, we’ve had massive fiscal stimulus,” Roach told CNBC. “It’s a green light for the markets.”

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