Yahoo Finance The market is pricing in 'a very enthusiastic outlook:' Citi Private Bank's CIO
The market is now pricing “a very enthusiastic outlook” on how and when the economy will re-open, says David Bailin, Citi Private Bank’s chief investment officer.
Bailin says the market is presuming regional and global economies will return to a robust state quickly and a recession will be over by the end of the year.
“The market which normally looks out, six months, in my mind is actually looking out 18 months. It’s almost pricing in a vaccine,” said Bailin.
Citi Private Bank forecasts unemployment may briefly go up to almost 25%, and Bailin’s team projects less than 50% of the international flights that existed three months ago could exist at the end of December.
“When you put together a much more realistic view about what reopening the economy is, and you compare that to where stock markets are today, you realize that stock markets are very fully valued.”
On Tuesday the Dow (^DJI) and S&P 500 (^GSPC) rallied as governors talked about coordinating re-opening plans. The Nasdaq (^IXIC) jumped almost 4% as Amazon (AMZN) touched an all-time high.
Some top Wall Street analysts have recently struck a more bullish tone on the markets, calling into question whether we may have already seen a bottom.
[Read more: Stock market news live updates: Stocks rise as states mull reopening plans]
“It’s an exogenous shock, not an intrinsic recession”
E-commerce and digital payments are expected to outperform amid this crisis, he said. “Communication, speed, 5G, anything to work from home, flexible work, all will be accelerated.”
“There will be accelerated destruction as well. That destruction will take place in areas like retailing. I’m not just talking about big-box retailing. I’m talking about medium-size and Main Street retailing,” he added.
March retail sales due out this week are expected to plunge as storefronts have temporarily closed and furloughed thousands of workers.
“This interim period of time has an enormous amount of friction associated with it. But what the market is saying is it's a finite period of time,” said Bailin.
“I think those are the dichotomies of what we're dealing with ... It's an exogenous shock. It is not an intrinsic recession. And so it is very different than than what we're typically used to,” he added.
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Ines covers the US stock market from the floor of the New York Exchange. Follow her on Twitter at @inesreports.
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