Why hopeful equity market might be decoupled from reality

Portfolio manager says real economic woe beckons as it works its way up the wage ladder

Why hopeful equity market might be decoupled from reality

A V-shaped recovery is little more than a fantasy at this point, according to one portfolio manager.

Hans Albrecht, of Horizons ETFs, views the equity market as very hopeful and one which has, in many ways, decoupled from reality thanks to huge amount of stimulus from central banks and government. More money printing and more support is good for the asset class up to a point, he told WP. However, he said the pain from a market perspective has been, so far, theoretical, but that could change when earnings reports reflect the devastation wreaked in Q2.

He said: “There have been a lot of people put out of work but we haven't seen the out-of-pocket implication as much yet, and what you’re going to start seeing is the pain move up the wage ladder. That starts to affect markets and assets a little bit more. Most of the job losses have been in the service industry and hospitality and things like that. It [affects] the low wage and those people don't typically own stocks, homes or cottages or other kinds of assets like that.

“As the pain persists, if you take that dentist or that restaurant owner, the reality of operating at 30%, 40% or 50% capacity starts to work its way into the economy. More stimulus can only help so much in that case because you're not going to replace the dentist’s $400,000 income last year. The risk is that the longer this goes on - and it really is dependent on effective treatment and vaccines – the more real pain we're going to start to see.”

He added that’s when governments are going to continue to stimulate, print money and extend the PPP program if they don't want the economy to truly collapse. Direct money supports the average person more than low rates, so “the next six to eight months are being very important in terms of seeing how bad the real pain gets in the economy”.

Albrecht said: “If a vaccine comes out, we could see more of that V recovery, but I don't really see that being a really realistic case for the next year or so.”