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“I am hesitant to project an overly confident positive view on equities” when a legendary investor like Stanley Druckenmiller is bearish, Jen, who runs hedge fund and advisory firm Eurizon SLJ Capital in London, wrote in a note Sunday. Even so, “it seems to me that there are many reasons to expect U.S. equities to end the year meaningfully higher than they are now.”
Jen’s key assumption is effective therapies and vaccines emerging within a few months. He also sees an economic rebound, boosted in part by the power of U.S. fiscal “multipliers” — where each $1 of government outlays generates more than that amount in growth. With American household wealth largely intact, consumers could be more likely to spend than save the fiscal help they get, Jen indicated.
Over the longer term, while some market participants have focused on the risks of structural drags on growth, and their potential impact on corporate earnings and stock prices, Jen sees the possibility of positive effects.
“The heightened state of emotions in the U.S. to defeat this virus” may have wider implications for policymaking going forward, he wrote. “I expect sustained efforts at scientific research, large spending on healthcare, and organizational changes to the state and federal governments be made to prepare the U.S. for similar shocks.”
“The U.S. economy remaining in an open-ended hobbled state” is unlikely, he added.
Big Projects
Comments over the weekend from New York Governor Andrew Cuomo may hint at some of the potential Jen is alluding to. Cuomo said that simply returning to pre-coronavirus activity levels will be inadequate.
“I don’t believe it is going to be enough just to go back to where the economy was,” he said. Government will need to stimulate the economy by getting “some big projects going,” such as building a new airport, Cuomo said.
Greater efforts at addressing income and wealth inequalities may be one consequence of the crisis, according to Jen, and not just in the U.S.
“I expect the world to be more competitive and the aggregate productivity growth to be higher than in the past 20 years,” he wrote. “Investors ought to consider this pandemic being the trigger for sustained policy reorientations in many countries in the coming years, in areas unrelated to the pandemic.”
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