The main positive takeaway from talking with President Donald Trump’s former economic adviser Gary Cohn was that government stimulus to stem the effects of the Covid-19 crisis may be “infinite,” according to Wells Fargo analyst Mike Mayo.
In the short term, there’s potential for “wave after wave of support for the economy and unemployed workers; the desire to do so should remain so long as there is a quarantine,” Mayo wrote in a note. Moreover, he added that “the return of consumer spending in the U.S. should not be underestimated.”
The discussions with Cohn, who was also a top Goldman Sachs Group Inc. executive, reinforced Mayo’s view that the largest banks are better-positioned for customer benefits from government programs, reallocating resources and leveraging scale from technology, he said.
Mayo listed other meeting takeaways: In the medium-term, the main concern is that more government spending should lead to higher personal and corporate taxes to pay down the deficit, he said. He added that “commercial real estate and other sectors will likely remain problematic.”
Long-term, Mayo expects the current situation will accelerate “digital transformation as individuals use even less cash.” Plus, he expects “supply chains for food, medicine, energy, and other areas should increasingly return to the U.S. as part of enhanced domestic security policy.”
Banks are particularly sensitive to economic upheaval and credit issues. The KBW Bank Index has tumbled 40% since Feb. 20, when concern about the pandemic began accelerating, versus a 15% drop for the S&P 500.
Big bank stocks climbed in pre-market trading on Wednesday, along with futures across the board, with JPMorgan Chase & Co. up 0.2%, Citigroup Inc. rising 0.5% and Bank of America Corp. gaining 0.7%. Goldman rose 0.2%; shares have dropped 24% since Feb. 20.
This article was provided by Bloomberg News.