Billionaire investor Marc Lasry says the market isn't pricing in a recession that will last 'for a while'
The US will be stuck in a recession "for a while," and the stock market isn't currently priced for that outcome, Avenue Capital CEO Marc Lasry said Thursday. "It's going to be a hard couple years" as unemployment fails to recover and an economic rebound sputters, he added in a CNBC interview. The billionaire still sees markets returning to past highs down the road, saying the market is "correct" to project "great" earnings in 2022. Visit the Business Insider homepage for more stories.
The stock market is in for a rude awakening once investors fully realize how long the coronavirus recession will last, Avenue Capital CEO Marc Lasry said Thursday. While the equity rally from recent lows has slowed, prices are historically high relative to expected profits. Several market experts fear the fragile rally can easily collapse under a second wave of coronavirus cases or a delayed surge in bankruptcies. Lasry is the latest to join the fray, cautioning that the US will be in a recession "for a while" as the pandemic's fallout lingers. "I think sooner or later the market will realize that," the billionaire investor said on CNBC. "I think it's going to be a hard couple years." Read more: 'It works for anything I look at': BlackRock's bond chief who oversees $2.3 trillion shares the 'really simple' 3-part framework that guides every investment decision he makes — and outlines 2 factors he looks for in a company Much of the country's recovery hinges on an uptick in spending, and Lasry fears soaring unemployment and diminished consumer confidence will delay such a rebound. Jobless claims data released Thursday revealed another 2.4 million Americans filed for unemployment benefits last week, bolstering fears that the second quarter will post the current downturn's bleakest readings yet. While roughly 18 million Americans currently classify their joblessness as temporary, Lasry thinks that proportion will shrink as companies fail to take workers back. The trend will cut into consumer spending and further delay an upswing, he said. "If you're going to have all these people unemployed, it's hard to end up coming out of a recession until that changes. It's going to be a difficult couple years," Lasry said, adding "I just don't see people that are out of work spending money." Read more: Multiple readings of the stock market's future are near their worst levels ever. UBS says that's set up a 'significant recovery' — and lays out a 2-part playbook to profit from it. Despite his gloomy outlook, the hedge fund manager still sees an end in sight. Several companies have pulled earnings guidance due to the coronavirus threat and uncertainties sourced from the pandemic, but those still issuing forecasts suggest profits will take years to normalize. Certain companies will emerge as winners during the nationwide lockdown, but the broad market will rely on containing the virus and slowly bringing industries back online, Lasry said. "At the end of the day, the market is saying earnings are going to be great in 2022. I don't disagree with that. I think that's actually correct," he added. Now read more markets coverage from Markets Insider and Business Insider: Treasury Secretary Mnuchin sees 'strong likelihood' that further stimulus is needed as Senate spars over new bill Bank of America lays out a bullish scenario where US stocks surge 14% over the next year These 11 stocks loved by hedge funds have beaten the market during both the coronavirus collapse and its subsequent recovery, RBC saysJoin the conversation about this story » NOW WATCH: Tax Day is now July 15 — this is what it's like to do your own taxes for the very first time
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US stocks slid on Thursday as weekly jobless claims posted a surprise jump, climbing back above...US stocks slid on Thursday as weekly jobless claims posted a surprise jump, climbing back above 1 million after two straight periods of decline. Investors also weighed the stalled talks between Democrats and Republicans on the next coronavirus stimulus package. The Federal Reserve on Wednesday released minutes from its latest meeting, showing that the group thinks the recovery from the pandemic recession requires more government support. Read more on Business Insider. US stocks fell on Thursday as weekly jobless claims posted a surprise increase, signaling a slowdown in the economic recovery. New US weekly jobless claims totaled 1.1 million in the week that ended on Saturday, the Labor Department reported on Thursday. That came in well above the consensus economist estimate of 920,000 compiled by Bloomberg and snapped a two-week streak of declines. "This is a temporary setback, as COVID-19 levels are still high but dropping, and re-openings continue, though at a slower pace given COVID-19's surge in July," said Robert Frick, a corporate economist at Navy Federal Credit Union. "It underscores the economy is fighting in the trenches with COVID-19." Here's where US indexes stood shortly after the 9:30 a.m. ET market open on Thursday: S&P 500: 3,365.29, down 0.3% Dow Jones industrial average: 27,585.42, down 0.4% (107 points) Nasdaq composite: 11,143.62, down 0.1% Read more: Stock market wizard William O'Neil famously turned $5,000 into $200,000 in just a few years' time. Here's the 7-part model he uses to sniff out winning stocks. The labor-market report came as investors await signs that the next round of coronavirus aid will move forward in Washington; Democrats and Republicans remain deadlocked. Thursday's declines followed a late-day sell-off on Wednesday triggered by Federal Reserve minutes showing that the group thinks the recovery from the pandemic recession requires more government support. "The fact that the Fed appeared reluctant to step up further stimulus efforts imminently, disappointed the bulls who were expecting further clues on the trajectory of monetary policy," said Hussein Sayed, the chief market strategist at FXTM. Read more: JPMorgan pinpoints the triggers for a bond sell-off that can cause unusually large losses in everything from stocks to gold — and lays out how to be ready for it Earnings season continued. Shares of Nvidia slumped — even after reporting blowout earnings that beat expectations — as the company signaled that its data-center business may see slower growth. Its competitor Intel's stock gained after it announced an accelerated program to buy back $10 billion of its own stock. Oil fell after OPEC and the Fed said the recovery from the pandemic recession was taking longer than anticipated. West Texas Intermediate crude slipped as much as 2.3%, to $41.95 per barrel. Brent crude, the international benchmark, fell 2.4%, to $44.30 per barrel, at intraday lows. Read more: Jefferies says buy these 7 back-to-school stocks poised for big returns with much of the US going remoteJoin the conversation about this story » NOW WATCH: Here's what it's like to travel during the coronavirus outbreak
The world's most accurate economist says a full US recovery is unlikely before 2022 — and warns of a stock-market correction before year-end
Christophe Barraud, chief economist of the broker-dealer Market Securities, has been ranked Bloomberg's most accurate forecaster...Christophe Barraud, chief economist of the broker-dealer Market Securities, has been ranked Bloomberg's most accurate forecaster of US economic data eight years in a row. He told Business Insider that the US won't return to its fourth quarter 2019 real GDP level until at least 2022, and for some European countries, a recovery won't happen until 2023. "It will take a long time for life to return to normal," Barraud told Business Insider. Read more on Business Insider. The US economy has a long road of recovery ahead from the shock of the coronavirus pandemic, and that could weigh on the stock market's epic rally, according to Christophe Barraud, chief economist of the broker-dealer Market Securities. The pandemic slammed the US economy, putting millions of Americans out of work and leading to a 5% slump in gross domestic product in the first quarter of 2020. And, it's going to get worse — economists estimate that US GDP will slump more than 30% in the second quarter, before returning to growth at the end of the year. A recovery to the pre-pandemic level won't happen overnight, according to Barraud. "It will take a long time for life to return to normal," Barraud told Business Insider. Even if there is a vaccine by the end of the year, it likely wouldn't be distributed until 2021, leaving a long time for the US to grapple with the virus. Because of this, he said that the US won't return to its fourth quarter 2019 real GDP level until at least 2022, and for some European countries, a recovery won't happen until 2023. Barraud has a track record of getting it right. He has been ranked Bloomberg's most accurate forecaster of US economic data eight years in a row. He's also been ranked as a top economist for the euro-area since 2015, and for China since 2017. Read more: GOLDMAN SACHS: Buy these 13 stocks that are poised to crush the market within the next 2 weeks as earnings season gets underway Uncertainty could spark market correction As the US economy recovers, Barraud sees much uncertainty that could lead to a correction — meaning a drop of 10% or more — for stocks from August to November. This would thwart the market's recent momentum — the S&P 500 just posted its best quarter since 1998 and the Dow Jones industrial average had its best quarter since 1987. "Markets are not pricing in a lot of risk," said Barraud, adding that this may be due to dovish fiscal policy, or the potential for another round of stimulus in the short term as countries deal with the virus. He also said that market structure has changed, with some of the rebound in the second quarter driven by heavy buying by retail investors, hedge funds, and commodity trading advisers. But that could change, he said. Market focus could shift in August and start looking more closely at the presidential election, and what that means in terms of fiscal policy, trade policy, and more. That could lead people to take some profits, and market structure might revert back to what it looked like before coronavirus, Barraud said. Read more: Bank of America identifies 3 indicators that could make or break the stock market this summer – and warns they're all deteriorating fast Risks include: 2020 election, earnings, and COVID-19 In addition to the election, he sees the upcoming earnings season and a potential second wave of COVID-19 as events that could pull markets lower. "At this point people look a little optimistic about EPS for next year," said Barraud, adding that analysts and investors are expecting a V-shaped recovery and aren't pricing in the potential risks, such as increased taxes, that could come as a result of the presidential election in November. "The market could react because at this point there is no room for disappointment," he said. In addition, because a coronavirus vaccine isn't likely to be distributed in the US until next year, there is "still some time for a second wave, which would be very damaging," he said. This could raise further uncertainties about the employment situation in the US, as well as stocks going forward, according to Barraud. "My advice would be to be cautious from August, maybe take some protection," Barraud said. Read more: The most accurate tech analyst on Wall Street says these 6 stocks have potential for huge gains as they transform the sectorJoin the conversation about this story » NOW WATCH: Pathologists debunk 13 coronavirus myths
UBS lays out market strategies for all 3 economic-reopening scenarios, from a successful recovery to a COVID-19 resurgence
Uncertainty around the coronavirus pandemic's trajectory has led Mark Haefele — chief investment officer at UBS...Uncertainty around the coronavirus pandemic's trajectory has led Mark Haefele — chief investment officer at UBS — to detail three strategies for various economic-reopening scenarios. The bank's more optimistic scenario sees the US avoiding a second wave of COVID-19 cases and reopening through June. Value and cyclical stocks would be best positioned for a faster-than-expected rebound, the CIO said. Haefele's baseline forecast pushes a return to normal economic activity into December. Investors would do well to sink cash in bonds and long-term themes like sustainability, he wrote. If an economic recovery falters, investors should turn to active management strategies, gold, and even Treasury Inflation-Protected Securities to ride out a lengthy recession, Haefele added. Visit the Business Insider homepage for more stories. UBS chief investment officer Mark Haefele is covering all the bases. He penned a letter to clients on Thursday laying out three market strategies for various economic trajectories. Haefele said the US sits at a key fork in the road, with lingering coronavirus risks, renewed US-China tensions, and high valuations threatening to drag markets back to March lows. On the other hand, positive news out of coronavirus vaccine trials has lifted investor sentiments in recent weeks. Uncertainty around the pandemic's containment is the key variable to lifting markets from their now-narrowed range, Haefele said. "For markets to catch a 'second wind,' investors need greater confidence that a 'second wave' of virus infections will not lead to renewed lockdowns," he wrote. "Even if current economic conditions are weak, markets are forward-looking and would likely trade higher if investors gain confidence that a robust recovery will take hold." The best near-term strategies depend on how economic reopening takes place. Outlined below are the three scenarios and market plays highlighted by Haefele, from a swift summer upswing to a rush for defensive assets. Read more: The world's biggest investors are notoriously skeptical of the stock market's bet for a quick economic recovery — and warning that the 'fantasy' rally will soon come crashing downUPSIDE SCENARIO: Buy cyclicals and value UBS's upside scenario sees the economy coming back online through May and June without the need for a second lockdown. Corners of the market that underperformed through the worst of the pandemic would present serious value and outperform on the upswing, Haefele said. Both cyclical and value stocks would be best positioned for a better-than-expected recovery. US mid-cap firms haven't shifted to "stay-at-home" trends as quickly as their larger peers, leaving them better prepared to gain on a return to past norms. The relaxing of mobility restrictions will particularly help automakers, beverage, and retail companies, the CIO wrote. Read more: John Fedro quit his job and got involved in real estate with barely any money. He breaks down his low-cost approach to mobile-home investing, which allows him to live comfortably on passive income. For those eyeing a shift to value stocks, the battered energy sector is the place to be. A rebound in oil demand stands to lift the entire segment, and US energy stocks already reflect crude prices "significantly below our longer-term normalized price expectations," Haefele said. Investors should watch out for a weaker dollar should the economy soar back to past levels of growth. While the currency appreciated through the crisis, a slide in liquidity demand will drive the dollar's value lower. The British pound is the best currency for a foreign exchange trade against the dollar in such a scenario, UBS said. Read more: 'Likely to be excruciating': A notorious stock bear says investor reliance on Fed money-printing is misguided — and warns of more than 50% crash from current levels BASE CASE SCENARIO: Favor credit and long-termers Haefele's baseline scenario projects economic reopening taking place through the summer and economic activity returning to past highs in December. The more moderate recovery puts credit bets in a healthy spot relative to equities, the CIO wrote. Investment-grade debt, emerging-market bonds, and high-yield credit are all well-positioned for gains thanks to widespread government relief, he added. "Policymakers have done enough through their fiscal and monetary response to ensure liquidity issues do not become solvency issues for companies or sovereigns that were viable prior to the crisis," Haefele said, adding that the Fed's direct purchase of corporate bonds further lifts the asset class. Even if the recovery isn't as quick as desired, UBS's base case creates long term opportunity in the healthcare, e-commerce, automation, and cybersecurity sectors. Sustainable investing will likely gain new appeal as well, with investors paying greater attention to green and socially responsible firms, according to the bank. Read more: 'It works for anything I look at': BlackRock's bond chief who oversees $2.3 trillion shares the 'really simple' 3-part framework that guides every investment decision he makes — and outlines 2 factors he looks for in a company DOWNSIDE SCENARIO: Buy gold, pick stocks selectively Haefele doesn't offer as clear a picture of what his pessimistic scenario would look like, instead hinting at fresh credit-health shocks and sharp volatility tearing into markets. In the case of a prolonged recession, one safer bet for investors would be to follow historically successful hedge funds. Active stock picking could help "navigate periods of elevated volatility" better than passive stock-and-bond positioning, the CIO said. A cocktail of surging US debt, tightened financial conditions, growing geopolitical risks, and dollar devaluation would do wonders for the price of gold, UBS added. The precious metal has already enjoyed a rally to eight-year highs, and even in the bank's base case, it expects gold to gain another 4% to $1,800 per ounce by the end of the year. A more severe downturn would only further boost the popular safe haven. Lastly, Haefele suggests investors turn to Treasury Inflation-Protected Securities, or TIPS, to offset the chances of soaring inflation. The trillions of dollars spent on economic aid led the market to price in record-low inflation for the near future, so any shift could benefit those holding the protected bonds. TIPS will also gain value if central banks adopt higher inflation targets moving forward, the CIO said. Now read more markets coverage from Markets Insider and Business Insider: Hedge funds are piling into healthcare stocks at record levels, Goldman Sachs says Banks may not be profitable until 2025 even as major economies recover, new IMF report says These 11 stocks loved by hedge funds have beaten the market during both the coronavirus collapse and its subsequent recovery, RBC says