UBS lays out how a 2nd-wave coronavirus lockdown could lead to a devastating situation for stocks — one Wall Street has been warning about for months
of new infections just this past Thursday. And although many states are trudging forward and reopening portions of their economies, some are already having to reverse course. Others are expected to do so soon.A dangerous spike inPrior to the COVID-19 outbreak, strategists from BlackRock, JPMorgan, and Morgan Stanley warned of an unexpectedand the negative impact it would have on risk assets like stocks.
"We think the economy is currently far from unleashing these inflationary forces, but with COVID-19 cases globally and in the US still rising we cannot yet completely rule out this tail risk," he penned in a recent note. "Further, the inflation surge could happen quickly and with little warning." "Restrictions that are widespread enough and maintained long enough could lead to significant closures of businesses and reductions in goods and services available for purchase making the analogy to the post-WWII supply shortages more apt," he said.
While higher consumer prices padded the bottom lines for companies, the sudden inflation shock also reduced share-purchasing power on the behalf of investors, representing another byproduct of a sharp surge. And while bonds also lose luster during a high-inflation period, the subsequent monetary-policy response that's been used throughout history has shaped up even worse for stocks.
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