It’s “totally understandable” why U.S. stock futures plunged after the Federal Reserve’s latest moves to counter the economic hit from the coronavirus outbreak, said Anthony Scaramucci, a hedge fund investor who briefly served as President Donald Trump’s White House communications chief.
“The reason why markets are selling off right now is we have a ton of information about the virus, but a very, very little amount of understanding,” Scaramucci, founder and co-managing partner of Skybridge Capital, told CNBC’s “Capital Connection” on Monday.
“So, what’s happening right now (is) we’re starting to price in the reduction in earnings for 2020 and the possibility now of a recession,” he added.
Stock market futures quickly hit their “limit down” levels, falling 5% after the Fed’s announcement. While the U.S. central bank’s actions could ease the functioning of markets, investors have said they would want to see coronavirus cases peaking and falling in the U.S. before it was safe to take on risk and buy equities again.
The spread of a new coronavirus disease – formally named COVID-19 – has infected more than 150,000 people globally, of which at least 1,678 cases were in the U.S., according to the World Health Organization.
The Fed’s moves on Sunday, which include slashing interest rates to zero, were aimed at countering some of the outbreak’s impact on the U.S. economy.
Still, Scaramucci said there’s more than a 90% chance that the U.S. economy could contract by between 4% and 6% in the second quarter this year. It’s also “very, very likely” the same could happen in the third quarter, he added.
“That’s why you’re seeing a flood out of stocks right now,” he said.
Scaramucci’s comments come as officials around the U.S. announce shutdowns of bars, nightclubs and restaurants in efforts to slow the outbreak’s spread. On Sunday evening, both New York City and Los Angeles announced entertainment venues will close and restaurants will be limited to takeout and delivery.
If the U.S. economy does indeed enter a recession, that would harm Trump’s re-election chances, said the former White House communications director, who was fired by the president in 2017 after less than two weeks in the job.
“I think it augurs for an electoral defeat for President Trump, particularly if we get a recession. You typically don’t get a two-term president if you’re in a recession in an election year,” said Scaramucci, who’s been a frequent critic of Trump.
“No one saw this coming, but those are the facts and that probably knocks him out of the box in 2020,” he added.