A summer of steaming hot stinky markets — created by a concoction of heightened volatility fueled by fears of a second wave of COVID-19 and election season jitters — looks all but inevitable says one market veteran.
“The trading desks right now are talking about corona recovery, alienation and protest, — C.R.A.P., that’s what traders say,” explained Sanders Morris Harris CEO George Ball on Yahoo Finance’s The First Trade. To Ball — who has decades of experience in the markets — a C.R.A.P. stock market is one prone to a noticeable correction this summer.
Ball is most concerned about the looming fiscal cliff that are Paycheck Protection Program (PPP) loans.
The government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to cushion the blow from the COVID-19 pandemic in late March. As part of the scheme, $350 billion was dedicated to forgivable loans for businesses to prevent layoffs and business closures. Companies with 500 or fewer employees were able to receive up to eight weeks of financial assistance.
But with that cash flow largely being eaten up by businesses large and small still dealing with a bruising recession, investing experts like Ball think a fresh round of layoffs is looming.
That could have negative ramifications for a stock market still riding high on the better than expected May employment report and the specter of more improvement in June, July and August.
“I think the next big market mover is going to be the realization that the PPP program actually had an enormous impact. It worked. It kept the patient alive. But the half-life of the forgivable loans to small businesses comes up pretty soon, comes up mid-July to August. That may well mean there will a round of layoffs of people who were kept on the job or not furloughed because of the PPP program who are laid off when it comes to an end. So I think the next signals have to be a worrisome one rather than a positive one,” Ball added.
The wildcard to Ball’s summer correction thesis is whether Congress passes a $1 trillion infrastructure plan as recently floated by the Trump administration. Or, pass a new stimulus plan along the lines of a $3 trillion scheme proposed recently by Democrats.
Until that gets decided one way or another, C.R.A.P. may be the newest most applicable investing acronym around.
