Consumer Sentiment Declines Amidst Coronavirus Impact
What’s Next for the U.S. Market and Policymakers
Joining Seana Smith on “The Ticker,” Northwestern Mutual Wealth Management Chief Investment Strategist Brent Schutte and Capital Wealth Chief Investment Officer Kevin Simpson, discuss the latest Coronavirus developments following a steep market downturn.
Extent of Impact on U.S. Consumer
University of Michigan’s Consumer Sentiment Index shows numbers falling 5 percent to a rating of 95.9 this month after rising to 101 in February. Simpson shared the following thoughts on this latest number.
“The latest number came in higher than expected. Yes, we’re down 5 percent, but for most of February we were looking at a virus that was still in China and was being viewed very theoretically. Now, the virus is here, so we’re going to see more impact with the March numbers. Things will get worse before they get better, likely extending into the April report.”
Sentiment vs. Fundamentals
Smith asked Schutte whether he thinks things will get worse before they get better.
“Consumer confidence is a sentiment survey, so of course, it will drop as virus fears rise. But we need to look more at consumer fundamentals to determine how long this will impact the U.S. economy in the long term. Consumers have spent 10 years paying down debt and increasing assets, so consumers are still broadly confident. Yes, I do think there will be a hit in the near term. And yes, this event will pass. However, fundamentals will carry the consumer forward.”
Next Moves for the Fed – What Can Be Done?
When asked if he thinks the Fed will bring interest rates to zero, Schutte shared that all policy makers are on board now. “The sell-off this week was the result of lack of physical clarity. But policy makers around the globe will pull out all stops to ensure this virus is cushioned from having impact on the economy. To answer the question, yes, I do think the Fed will cut rates. But it’s important to point out that fiscal policy makers are on the case now too.”
Smith agrees with Schutte in response to a similar question. “I think the Fed is going to take the action necessary, like rest of global bankers, to introduce QE4. It would be fantastic to get bipartisan support and I do think we’re going to see the need to act in unison now.”
In closing, Smith asked Schutte to speak more specifically about how he might revise his estimates so far. “Estimates right now are assumptions,” said Schutte. “This virus will pass, so we’re looking at temporary economic impact. However, daily new cases are what’s going to drive the market.”