GMO Fund strategists said it was “going to be very difficult” for global markets to come out of the coronavirus crisis “unscathed”. They warned US equities could have to drop to be “attractive” with predictions the S&P 500 index would have to fall by 30 percent.
The group predicted a 3.6 percent annual loss for large US companies over the next seven years as the invisible killer disease ravages the world economy.
Tommy Garvey, GMO’s asset strategist told the Daily Telegraph: “We think the long-term return on US equities is going to be negative and prices will have to drop even below the March lows to be attractive.
“It is going to be very difficult to come out of this pandemic unscathed.
“We have a pretty strong view that with so much extreme uncertainty, equities should be cheap. Quite simply they are not.
“We think the long-term return on US equities is going to be negative and prices will have to drop even below the March lows to be attractive.”
The GMO fund is founded by British investor Jeremy Grantham, who is well known for predicting the 2000 dotcom bust and the Lehman crisis in 2008.
That is gloomier than a median 30.0 percent contraction predicted a month ago. In a worst-case scenario, the economy will contract 41.5 percent this quarter.
The US economy contracted in the first quarter at its sharpest pace since the Great Recession as stringent measures to slow the spread of the coronavirus almost shut down the country, ending the longest expansion in the nation’s history.
Consumer spending, which accounts for more than two-thirds of US economic activity, tumbled at a 7.6 percent rate in the first quarter, the sharpest drop since the second quarter of 1980, after growing at a 1.8 percent pace in the October-December period.
Income at the disposal of households rose at a tepid 0.5 percent rate last quarter, slowing from a 1.6 percent pace in the fourth quarter. The saving rate surged to 9.6 percent from 7.6 percent.
An increasing number of states are gradually relaxing lockdown restrictions, egged on by a White House keen to reopen the economy despite widespread concerns that in many cases it may be too early.