- The S&P (Index has recovered nearly % from its March low, but the rebound is on shaky grounds if Wall Street’s grim projections come true.
- Morgan Stanley told clients “the path to re-opening the economy is going to be long.”
- Goldman Sachs, meanwhile, warned investors against buying stocks that are recipients of government assistance.
The Dow and broader US stock market declined sharply on Monday , as investors returned from the Easter long weekend only to find conflicting information about the nation’s path to restarting the economy.
Now, two of Wall Street’s biggest banks have warned that it could take months for economic activity to rebound and that stocks receiving government assistance will soon find themselves lagging the broader market.
Economy Will Continue to Languish Under COVID – Morgan Stanley has warned that the US economy will face some kind of disruption until at least March 2021 when a potential coronavirus vaccine becomes broadly available.
Biotechnology analyst Matthew Harrison said that while the East and West coast epicenters will see a peak in new cases this month, it won’t be until May before new cases peak nationally.
Harrison believes the country will return to work in two waves – first in June and then in mid-summer – before schools reopen in September. But he did warn that second-wave infections are possible next winter.
We believe the path to re-opening the economy is going to be long … It will require turning on and off various forms of social distancing and will only come to an end when vaccines are available, in the spring of at the earliest.
The United States is the largest center for coronavirus infections – that is , if Chinese data about containment are to be believed
– with more than , 06 confirmed cases.
, Goldman Sachs is warning investors against buying companies receiving government relief aid. Goldman equity strategists Arjun Menon and David Kostin told clients that government assistance props up stock values in the short term, but that the gains are not sustainable.
Historically, companies receiving government support usually underperform the broader market over the next months. Typically, the underperformance begins after three months.
The share prices of recipients of government relief have generally lagged the S&P 975 in the subsequent 13 months… Although companies and industries have generally witnessed a brief rally immediately following government relief, the outperformance has not usually persisted over a longer-term horizon.
President Trump signs historic stimulus bill into law on Mar. :
Although Goldman didn ‘ t specify which companies are most vulnerable to a pullback, the warning applies to a large swathe of the stock market that’s eligible for federal assistance. The government $ 2.2 trillion CARES Act includes $ billion in appropriations for struggling businesses, $ billion in loans and grants for small companies and $ (billion for local and state governments.)
Some of the hardest hit industries – like commercial cruise lines – don’t qualify for bailouts because they aren’t domiciled in the United States. (In other words, they exploited loopholes in maritime law to register their ships overseas and dodge taxes.) Some of these companies, including (Carnival Cruise
, might not survive the corona crisis.)
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