Investors are greedy and overly-optimistic right now. They expect a much easier economic recovery once the government lifts coronavirus restrictions. This is according to both a former and a current head at Morgan Stanley, at least.
“The fear … of missing out, or another term for that traditionally has been greed, right? It is definitely playing a role in the current market,” said Andrew Harmstone, head of global balanced risk control strategy at Morgan Stanley Investment Management.
The markets saw a huge rally in April that has carried over into May. However, Harmstone says that it occurs because investors choose to look past the economy's situation.
“People still think that things are going to go back to normal, or what they were recently, quite quickly,” Harmstone said. “But in fact quite a bit of damage has been done,” he added.
It's possible for the country to open and yet consumer demand won't return. Given this, he believes a wave of bankruptcies and corporate downgrades may appear. This is the“real cost of the damage that has been done will become visible, and markets will respond accordingly.”
Steven Roach, a Yale University senior fellow and former Morgan Stanley Asia chairman, says that if investors looked at China, it may serve as a preview of how our country will react after the government lifts stay-at-home-orders. It’s not an encouraging sign for our economy.
“Consumer behavior is not all that dissimilar in populations subjected to an unprecedented shock in their health security. I think the reluctance of the Chinese, where there is usually a lot of government direction to indulge in discretionary leisure outdoor-type activities is exactly what we can expect from most Americans. 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,” Roach said during a recent appearance on CNBC.
Because of this, he believes that investors are overly-optimistic that life will quickly return to normal. He also thinks we’ll see a quick economic recovery here in the US.
“This is not really going to be as easy an economic recovery as an optimistic market wants to presume at this point,” he said.
“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. It’s a green light for the markets which in my opinion doesn’t allow for what’s going to be a very difficult rebound on the demand side of the equation.” said Roach.
He says he doesn’t expect the US economy to get back to 2019 levels for a few years. He also expressed worry that businesses permanently shutting down could impact the job market. It comes with the possibility of losing many jobs forever.
“We’re going to see a terrible employment report later this week. How much of that could come back as these service industries are going to have their footprints reduced?” he asked.