Chief financial officers around the world are growing increasingly worried the U.S. stock market is not reflecting reality, and a recent CFO survey shows that many are worried another crash is on the horizon.
According to the newest CNBC Global CFO Council Survey, 51% of officials from major corporations around the world think the Dow Jones Industrial Average will tank below 19,000 points again before it will climb back to record highs above 29,000.
The Dow is currently trading midway between 25,000 and 26,000, so a drop to 19,000 would be about 25%. The bottom after the coronavirus crash was 18,591, which came on March 23.
It’s another sign of the disconnect between what’s happening in the economy and the U.S. stock market. What’s especially troubling is these are the top financial officers of corporations saying it. They are tracking the money in their own companies, so could this insight be troublesome for investors of those companies?
Banyan Hill’s Ted Bauman
Banyan Hill Publishing economist Ted Bauman thinks so.
“Definitely! But there are a couple of caveats,” Bauman wrote in an email. “First, U.S. CFOs are generally less concerned than those abroad. That probably reflects their assumption that the Federal Reserve’s liquidity actions will prop up the Dow. Second, it would be interesting to see whether CFOs answered ‘yes’ to the question of whether their own company’s stock price was likely to fall.
“It might be a case that they assume that everybody else is going to suffer, but not them. Nevertheless, it is definitely bearish news for the average investor. And it illustrates the importance of not letting your view of the stock market be determined by headlines.”
The Editor of The Bauman Letter, a publication that focuses on finding and protecting wealth through legal asset protection vehicles, thinks this sentiment could change as the economy opens again. But there has been a shift in other key areas.
“It seems pretty clear that government mandated shutdowns are only a minor part of the problem,” Bauman said. “The real issue is whether consumers are prepared to resume their normal economic activity. On that score, the signs suggest a long period of depressed spending. And let’s not forget that nearly 25% of U.S. wage earners are currently unemployed.”
The CFO survey showed some of that worry.
Reflecting the devastation of the coronavirus pandemic on American businesses, the second quarter CFO survey showed 40% of U.S. officers said the outbreak would have a “negative” impact on their businesses in 2020. Another 66% said it would have a “very negative” impact this year.
The CFO survey also showed two-thirds of U.S. officers were in favor of another round of federal stimulus. More stimulus would help businesses while also fueling consumer confidence.
Another round of stimulus that includes more direct payments to Americans has met some resistance in the Republican-controlled Senate, though, and Bauman warns that could be an issue going forward.
“The assumption is that Republicans are trying to encourage the economy to be open, but if consumers remain voluntarily locked down — and with such immense unemployment draining spending power from the economy — the lack of direct stimulus could lead to a pretty significant downturn this summer,” Bauman warned.
Will the economic struggles of those that have needed the stimulus more have a trickle-up effect on the stock market?
“My sense is that a lot of people who have not suffered economically — and that includes a lot of people in the financial media — tend to ignore these issues because that’s not what they’re experiencing personally,” Bauman said. “But that could be a big mistake.”
It’s clear that there is a deep disconnect between the stock market and the economy, but looking at some of the business leadership sentiment around the world gives some insight into what investors may want to look for going forward.
