Trump urges investors to shun stocks, warns of "massive" recession
Some candidates for the nation's highest office spread a message of hope. Donald Trump is not one of them.
The front-runner in the Republican primary believes investors should stay away from stocks, saying they are inflated thanks to the Federal Reserve's monetary policy. He also thinks the U.S. economy is on the brink of a major recession.
Trump laid out this grim forecast in an interview with the Washington Post, telling the newspaper that "it's a terrible time right now" to invest in the stock market and that the U.S. economy is headed for a "very massive recession."
The real estate mogul has for months espoused the view that the economy is in peril due to what he views as an overvalued stock market. "I think we're sitting on an economic bubble. A financial bubble," Trump told the newspaper.
Trump contends that the sunnier forecast for the U.S. by many mainstream economists is premised on a faulty picture of the labor market and an unrealistic valuation of stocks. Most experts believe the chances of the economy dipping into a recession anytime soon stand at about 20 percent.
U.S. employment made steady gains in March, with data released Friday by the Labor Department showing the job market remains resilient despite tepid domestic and global growth. The unemployment rate edged up to 5 percent last month, from an eight-year low of 4.9 percent, as more Americans returned to the workforce.
But Trump dismissed the government's numbers, telling the Washington Post: "We're not at 5 percent unemployment. We're at a number that's probably into the twenties if you look at the real number."
The so-called U-6 unemployment rate, which includes discouraged workers who have stopped looking for a job and part-time employees who would prefer full-time work, is 9.8 percent.
Trump's track record in forecasting market moves, however, is not stellar, as the Washington Post noted.
In 2011, he predicted that the nation's unemployment rate would exceed 9 percent once the Affordable Care Act took effect. The next year, Trump forecast oil and gas prices would go "through the roof like never before" should Obama get reelected. He was also optimistic on investing in real estate investments ahead of the 2008 housing bust.
One long-time market bear advised against putting too much stock in Trump's market views, even while generally agreeing with the Republican's bleak take.
"I can't listen to his opinions on these things. He could be right, he could be wrong. I'm personally bearish, but I'm not feeling better about my bearishness because he is," said Peter Boockvar, chief market analyst at the Lindsey Group, an economic advisory firm. "I don't see him as any particular expert on the U.S. stock market. People should use their own thoughts rather than relying on his. He's in a political campaign."
U.S. stocks are trading on the high side of historical ranges, said Jim Russell, a portfolio manager at Bahl & Gaynor Investment Counsel. "Historically speaking, when interest rates and inflation are very low, as they are now, the stock market usually trades at higher-than-normal valuations," Russell noted.
While most forecasters predict weak economic growth this year, Russell is not in the camp of those who believe a recession is likely this year. Given consumers account for roughly 70 percent of U.S. economic activity, the confluence of low gas prices, interest rates and unemployment are positive factors, said Russell, while noting that the strong dollar is a negative for U.S. exporters and that manufacturing tied to commodities are especially hard hit.
Given the economy is more than seven years into an expansion, the country is pushing the historical limits as to how long the economy can continue to grow, so "every day the odds [of a recession] are going up" Boockvar said. "The question is when does it matter for investors. Earnings are now declining at the same time central banks are hitting a wall in terms of their influence on markets."