eResearch | As most economies remain shut down due to the COVID-19 pandemic, various seasoned investors and fund managers have been discussing how long-lasting and devastating the impact might be.
Since the U.S. government created a US$3 trillion support fund, many market pundits spoke about the positive opportunities in the market as stock valuations dropped due to fears of a recession while large amounts of capital and policy support were provided.
In contrast, some are stating that the Federal Reserve is digging a deep hole with larger deficits as it injects cash into the economy, which eventually will have to be recouped through higher taxes, resulting in a slower economic recovery.
Earlier this month, we wrote a market pundits article called “Market Pundits Speak – Warren Buffett, Leon Black, Bill Ackman, Tony DeSpirito and David Rosenberg”. Below are summaries of opinions from the Fed, CEO’s and seasoned investors.
Jerome Powell – The Federal Reserve Chair
This week, before the Senate Banking committee, Jerome Powell, the Federal Reserve Chair and Treasury Secretary Steven Mnuchin testified that they are both fully prepared to take losses to support the economy. The positive announcement helped erase a 200-point loss in the Dow Jones Index.
In a CBS “60 Minutes” interview, Powell stated that the U.S economy could experience up to a 30% drop in GDP during Q2/2020, however he believes the unemployment rate will peak at 20-25% with a low likelihood of stimulating an economic depression.
In the U.S., the unemployment rate is currently at 14.7% with 37 million unemployment claims filed in the past two months.
Last week, Powell warned that a prolonged recession is possible if the government does not step up to address economic impacts made due to the pandemic.
Powell stated that a “big shock” to the economy will follow with an extended period of weakness if household and business insolvencies accumulate, which could create a domino effect with the whole economy.
In a videoconference, Powell said “Additional fiscal support could be costly but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery.”
Though Congress and the White House may be pushed to fund a larger budget to support parties affected by the lockdowns, they have already approved approximately US$3 trillion in a new economic recovery program.
Stanley Druckenmiller – CEO of Duquesne Family Office
Last week, Stanley Druckenmiller, a well-recognized investor who was George Soros’ former chief strategist, said that he is concerned the market is too comfortable in relying on the Federal Reserve for support during the economic downturn.
Druckenmiller believes the US$3 trillion government stimulus program won’t be enough, and the stock markets are overvalued as the risk-reward in equity investments has eroded due to market valuations growing overconfident.
The stock market has recovered to positive levels since the Federal Reserve announced its capital injection, but long-term stability is in question as the fund only padded the economy, with concerns that it was not enough.
Larry Fink – CEO of Blackrock
Earlier this month, Larry Fink, CEO of BlackRock, Inc. (NYSE:BLK), cautioned that the pandemic would create an environment of nervous consumers with a wave of bankruptcies and low passenger load factor for airlines, resulting in a long and slow economic recovery.
Mass unemployment due to failing businesses has forced the Federal Reserve to provide trillions of dollars to support ailing sectors, but corporate tax rates are expected to rise as high as 29% in the future as the debt builds up.
In contrast to Fink’s outlook, the two major U.S. stock indexes, the Down Jones Industrial Average and the S&P 500, both just experienced their best monthly performances since 1987.
Bill Miller – Founder of Miller Value Partners
Last week, on CNBC’s “Closing Bell”, Bill Miller disagreed with the majority of market pundits stating overvaluations in the market, as he shared that stocks are trading approximately 17 times the consensus on bottom-up earnings for 2021.
Miller Value Partner’s largest holding is Amazon.com, Inc. (NASDAQ: AMZN), which Miller believes could double in stock price after three years as the tech conglomerate supports remote work environments through its cloud business.
Jim Paulsen – CIS of the Leuthold Group
Last week, Jim Paulsen, Chief Investment Strategist of the Leuthold Group, made optimistic predictions as he stated that even if a portion of the economy reopened, with current economic policies and funding supporting economies, it could stimulate a powerful boost to the economy.
Paulsen predicts the stock market will return to peak prices before the economy recovers as he believes asset prices are undervalued due to high levels of fear driving down market value of stocks while significant policy support is provided to the economy.
Though Paulsen believes the overall economy will recover, he acknowledged that industries impacted the most will struggle, such as travel and leisure.
David Tepper – Founder of Appaloosa Management
Last week on an interview, David Tepper, billionaire hedge fund manager and owner of the Florida Panther NFL team, stated concerns for overvaluation in the stock market.
Tepper singled out big tech companies and reduced Appaloosa Management’s exposure in its investments in Amazon, Facebook Inc. (NASDAQ: FB), and Alphabet Inc. (NASDAQ: GOOG).
However, after better than expected Q1/2020 financial reports, Tepper added new constituents to its portfolio, including Twitter Inc. (NYSE: TWTR), Netflix Inc. (NADAQ: NFLX), Microsoft Corp. (NASDAQ: MSFT), Qualcomm Inc. (NASDAQ: QCOM), and Tesla Inc. (NASDAQ: TSLA).
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Links to the article:
- Jerome Powell: Fed chair warns of long, painful downturn if Congress does not provide more economic relief
- Stanley Druckenmiller: Billionaire investor Stanley Druckenmiller says the stock market’s risk-reward is the worst he’s ever seen
- Larry Fink: BlackRock CEO Larry Fink warns the coronavirus could cause lasting economic damage
- Bill Miller: Bill Miller doesn’t see market as ‘dramatically overvalued,’ says Amazon could double in 3 years
- Jim Paulsen: ‘Fear on steroids’ will drive stocks higher, Market bull Jim Paulsen Predicts
- David Tepper: David Tepper’s Picks in ‘Overvalued Stock Market’
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