- Christophe Barraud, chief economist at stockbroker Market Securities, has been rated Bloomberg’s most accurate forecaster of US economic data eight years in a row.
- He told Business Insider that the United States will not return to its fourth quarter 2019 GDP of 2.1% until at least 2022, and for some European countries, a recovery will not occur until 2023.
- “It will take a long time for life to return to normal,” Barraud told Business Insider.
- Read more on Business Insider.
The U.S. economy has a long road to recovery ahead of the impact of the coronavirus pandemic, and that could weigh on the epic recovery of the stock market, according to Christophe Barraud, chief economist at stockbroker Market Securities.
The pandemic hit the US economy, left millions of Americans out of work and caused a 5% drop in gross domestic product in the first quarter of 2020. And it is going to get worse: economists estimate that the GDP of The US will drop more than 30% in the second quarter, before returning to growth at the end of the year.
According to Barraud, a recovery to the level prior to the pandemic will not happen overnight.
“It will take a long time for life to return to normal,” Barraud told Business Insider. Even if there is a vaccine by the end of the year, it will likely not be distributed until 2021, which will leave plenty of time for the United States to deal with the virus.
Because of this, he said the United States will not return to its fourth-quarter 2019 GDP of 2.1% until at least 2022, and for some European countries, a recovery will not occur until 2023.
Barraud has a history of doing well. It has been rated Bloomberg’s most accurate forecaster of U.S. economic data eight years in a row. He has also been rated one of the top economists in the euro area since 2015 and China since 2017.
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Uncertainty could trigger market correction
As the US economy recovers, Barraud sees a lot of uncertainty that could lead to a correction, meaning a 10% or more drop, for stocks in the second quarter. This would frustrate the recent market momentum: the S&P 500 has just released its best quarter since 1998 and the Dow Jones Industrial Average had its best quarter since 1987.
“The markets are not appreciating great risk,” Barraud said, adding that this may be due to moderate fiscal policy or the potential for another round of short-term stimulus as countries grapple with the virus.
He also said the market structure has changed, with some of the uptick in the second quarter fueled by strong purchases from retail investors, hedge funds and commodity trading advisers.
But that could change, he said. The focus of the market could change in August and begin to take a closer look at the presidential elections and what that means in terms of fiscal policy, trade policy and more. That could lead people to make some profit, and the market structure could go back to the way it was before the coronavirus, Barraud said.
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Risks include: 2020 elections, earnings, and COVID-19
In addition to the elections, he sees the upcoming earnings season and a possible second wave of COVID-19 as events that could drive markets lower.
“At this point, people seem a bit optimistic about EPS for the coming year,” Barraud said, adding that analysts and investors are expecting a V-shaped recovery and are not assessing potential risks, such as increased taxes. , which could come as a result of the November presidential elections.
“The market could react because there is no room for disappointment right now,” he said.
Also, because a coronavirus vaccine is unlikely to be distributed in the US until next year, “there is still time for a second wave, which would be very damaging,” he said. This could create new uncertainties about the employment situation in the US, as well as future actions, according to Barraud.
“My advice would be to be cautious starting in August, maybe take a little protection,” Barraud said.
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