Economists make fortune-tellers look good: This investment manager thinks the US is on course for a V-shaped recovery as markets have already priced in a 2nd wave of coronavirus

Reuters

• Ryan Payne, president of Payne Capital, told Busines Insider that the US would face a V-shaped recovery even if a second wave of COVID-19 persists. 
• Key US states such as Arizona, California, and Florida saw rises in COVID-19 cases. 
• Payne said markets had “already priced in” the impact of 2nd wave of coronavirus.
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The US is on course to face a V-shaped recovery, as markets have “already priced in” the risks of a second wave of coronavirus, an investment manager said. 

Ryan Payne, president of Payne Capital Management, said: “If you look at the Jobs report of last week, it identifies how quickly the economy can come back online and secondly how dire the economists have been.”

“Economists make fortune-tellers look good. They never seem to get it right,” he said, in an interview with told Business Insider.

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Payne was referring to the US non-farm payrolls report of last week, where it emerged that the US created 2.5 million jobs instead of shedding 7 million jobs in May as economists had expected.

“Economists were predicting a double-dip recession for two years after in March’09. Markets kept improving and improving and improving for the whole decade. It’s incredible how wrong economists get it.”

This week fears surfaced that the second wave of coronavirus is due to hit the US. 

Texas reported its third straight day of record coronavirus hospitalizations, while Florida notched its worst weekly increase in cases. Arizona and California also revealed spikes. The surging case counts pushed the US total above 2 million.

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“Already priced in”

“The fear level around a second wave of the coronavirus is most likely already priced into the markets. Therefore, if we end up seeing a second wave in the fall, like some experts are predicting, it will most likely be a non-event for stock prices,” Payne said. 

He added: “This is one of the reasons most indices are still well below their all-time highs, there is still a lot of fear around the re-opening of the economy.”

Markets were already speculating whether how ongoing US protests to the killing of black man George Floyd by a white police officer would affect the US’ recovery out of COVID-19.

BTIG, one of Wall Street’s biggest bulls, warned investors last week to brace for a slump of 15 to 20% in stocks going forward, adding that mass US protests in recent days have added to the “menu of uncertainties” facing markets in 2020.

While analysts noted that stock markets don’t care about protests, they said a second wave of coronavirus caused by protests or through any other triggers would send markets tumbling.

But Payne is confident that the impact of any COVID-19 cases rising because of the protests or any other trigger, is priced in.

“If we don’t see a second major wave of the virus, especially after nationwide protests in the US, where many people have been congregating in the thousands, this would be a positive surprise for the economy and the market. People will be quicker to leave their homes and live “normally” again, hence speeding up the recovery process.”

Payne’s view suggests that the US economy will bounce back even in the scenario of a surge in new cases. 

His optimism comes despite Chair Jerome Powell’s comments on Wednesday that the pandemic could result in permanent economic damage and an extended period of high unemployment. He cautioned that, despite May’s better-than-expected jobs report, “it’s a long road” to a labor-market recovery.

3 reasons why the US will have a V-shaped recovery 

Payne said there are three reasons why the US will face a V-shaped recovery. 

• Firstly, there is greater liquidity in the system. Governments on both sides of the Atlantic have engaged in various stimulus programs to bolster economies. 
• “Secondly, we have investors who have ‘FOMO’ [fear of missing out] now they have to get back in the market because they have missed this move.” Payne stressed that bond yields are so low, that stock markets are the only logical place for investors to make money during the pandemic. “If you look at dividend yields relative to cash and it is the best place to go and earn income on money,” he said. 

• Thirdly, ‘babyboomers’, i.e. those born between 1946 and 1964, “will not retire in government bonds.”