If the coronavirus-battered US economy doesn’t reopen like Trump wants in May, stocks could be creamed

The pain trade on Wall Street could be back in play real soon if President Trump doesn’t get his way in reopening parts of the coronavirus-battered U.S. economy.

“I think we go back and retest the lows [on the S&P 500] that we saw in March for sure,” iQ Capital CEO Keith Bliss said on Yahoo Finance’s The First Trade when asked about the risk to markets if some sectors of the economy don’t reopen May 1.

It’s wildly unclear if Trump will get his wish to reopen states less impacted by the coronavirus. But his team appears to be working through the planning on what a reopening would look like. A draft plan — first reported by NBC News this week — is being circulated by the Trump administration and advises areas with low coronavirus infections to pull back on social distancing efforts.

Clearly the administration is eager to get going on this with the U.S. economy in free fall, even if health experts and governors are loathe to the idea.

Market shrugs off ugly macroeconomic data

After three consecutive weeks of jobless claims in the millions, another 5.245 million Americans filed for unemployment benefits in the week ending April 11. Since June 2009, the U.S. economy added over 20 million jobs. But in just the last four weeks, the number of unemployment claims have reached 22 million.

March housing starts crashed 22.3%, the U.S. Commerce Department said Thursday. Retail sales in March plunged 8.7%, the worst drop on record. Sales at clothing and accessories stores cratered more than 50%.

Despite the dreadful macroeconomic data and brutal earnings reports this week from banks such as Wells Fargo and Goldman Sachs, markets have largely continued to shrug it all off. The S&P 500 has gained 3% over the past month, while the Nasdaq Composite has tacked on 8.1% amid a rotation into big-cap tech names like Amazon and Netflix.

Ultimately, the market has rallied on the expectation that parts of the economy reopen in May followed by others in June and July. So anything that deviates from that timeline — and prolongs the economic stress — is unlikely to be received well by investors.

“I think that will be the real measuring line in this war of attrition that is going on inside of the markets right now. I think that would be the safest call in May — that sell in May and go away will take on a newfound meaning in 2020 if we get to that point. If we don’t open it up in two, maybe three weeks, I don’t mean to be Debbie Downer here but I think the economic restructuring will be so intense and so immense it will be very hard to come back from. Therefore you have to recalculate what the future cash flows discounted in the equity markets will be, and they will not be higher than they are now,” Bliss contends.

Bliss has more than 30 years experience in the financial services industry, and is perhaps one of the most plugged in strategists around in terms of markets. So when he speaks and says a retest of the lows is possible in a matter of a few weeks, it’s worth listening.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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