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Covid-19 crackdowns are cutting into U.S. equity returns.
Recent upticks in U.S. coronavirus case counts weighed on the major averages Thursday, with the Dow, S&P 500 and Nasdaq Composite eking out modest gains in afternoon trading after sustaining losses earlier in the session.
Market analysts were looking longer term at how a new wave of restrictions could impact stocks and the economy.
Here’s what four of them told CNBC on Thursday:
Joe Terranova, senior managing director of Virtus Investment Partners, emphasized the market’s need for government support:
“Unfortunately, this is the type of market behavior that will have fiscal policymakers actually really act upon what their responsibility is. You know, if they want to study the Great Depression and see what the absence of a response looks like for the capital markets, then they’ll understand what they’re doing here. … Think about making that drive through the desert towards Las Vegas. You’re in the vehicle, you’re comfortably headed that way, and you finally see Las Vegas. The vaccines are in front of you. And all of a sudden, the car stops and these fiscal policymakers say, ‘Get out and walk.’ I just don’t understand what we’re doing. We need to build a bridge. It has to come in the form of more lending programs, it has to come in the form of more support for small businesses and they need to act. And that’s what markets right now are trading on. … We don’t need restrictions from states and local municipalities. We’re adjusting our behavior based on this resurgence already. And I think there was a little bit of a low expectation towards that. So, we’re seeing a rise there and, unfortunately, it’s not being met with the type of response that we [had] in Q2 that allowed markets to appreciate significantly. So, no, this isn’t a financial crisis. This is kind of just halting the appreciation. And I believe at some point we will get back to the positive trend for risk assets, rightfully so, because the liquidity that’s in the system is supporting all risk assets.”
Simona Mocuta, senior economist at State Street Global Advisors, said holiday spending could balance the potential economic blow dealt by new Covid-19 restrictions:
“The good thing is that we are already halfway through the fourth quarter. So, these restrictions that you are likely to see over the next few weeks have yet to really hit the real economy, and you’re heading into a holiday season where, by default, spending tends to be concentrated during those weeks. So, I think, perhaps, if things deteriorate, when you are really going to see the impact in terms of consumer spending will be Q1 versus right now. Because, you know, Thanksgiving’s coming, Christmas is coming, New Year’s. People are going to try to bring some joy into their lives and … can’t just hunker down in the basement.”
Ariel Investments co-CEO and Chairman John Rogers, said a number of the names he bought during the March collapse turned out to be great bets:
“One of the things … I often talk about: our mutual friend Warren Buffett and his perspective that you always think long term and our capitalist democracy here in America is the best thing ever invented. And we resolve our problems. We get through them. And if you think with the perspective of looking forward, it allows you, I think, to make better decisions. So, these companies were getting crushed during the height of the pandemic. People didn’t believe in them. And it was an opportunity to buy some extraordinary brands at bargain prices.”
Kanyi Maqubela, managing partner at Kindred Ventures, said certain trends that accelerated during the pandemic would persist long term:
“One of the most interesting things about this year … is that historically, the market has hated more than anything else uncertainty and this has been an extraordinarily uncertain year, but with continued and robust growth. And, so, I think what you’re seeing right now is even though we’re in the midst of a lot of uncertainty because of the pandemic and a fair amount because of the political situation, there’s still just so much liquidity in the market and there’s still such a large transformation that’s happening in so many consumer sectors. And so, what I’m interested in is what’s happening with data centers, what’s happening with gaming, what’s happening with e-commerce, because all those things continue to show extremely resilient growth even in the midst of this uncertainty. … What happened with Covid is there’s actually been an acceleration of a number of trends that were pre-Covid. And so, for example, in e-commerce, e-commerce grew 40% quarter over quarter from Q1 to Q2 of this year and we’re still only 16% as compared to retail sales. And so, e-commerce itself is still so early and you’re seeing a ton of upside. And the same is true in data centers and the public cloud. Forrester predicts it’s going to grow another 30% next year. And so, these are actually secular trends that have actually been happening irrespective of Covid and they’ve only been accelerated. And so, I’m quite interested in the shift where you’re seeing a move towards some of these large aggregators in, for example, e-commerce, and a growing longtail of small businesses that are selling digitally. And these types of trends are something that are very resilient even to short-term market forces.”
