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Stock market is ‘telegraphing a recovery’ from coronavirus crisis: Ariel Investments Co-CEO Mellody Hobson

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Yahoo Finance’s Editor-In-Chief Andy Serwer sat down with Mellody Hobson, President & Co-CEO of Ariel Investments to discuss her thoughts on market recovery.

Video Transcript

- Well, as we look at the recent market trajectory, a lot of investors have been trying to figure out what the market is telling us and whether it's pricing in an appropriate trajectory for the economy.

Our editor-in-chief, Andy Serwer, had the chance to sit down with Mellody Hobson. She's co-CEO and President of Ariel Investments. And she gave her take on that question.

MELLODY HOBSON: So I think in some ways what the market is telling us, it's telegraphing a recovery. It's telegraphing the fact that this will end. It will not go on forever, even though it feels like it will. And it tells us not to anchor to now. Now that doesn't mean there won't be more pain and anguish. And certainly, a lot of people are suffering right now. But the market, in its own way, is forecasting.

- Again, that was Mellody Hobson of Ariel Investments. And Adam, this seems-- I mean, you and I have been talking on a daily basis with market participants. This seems to be increasingly sort of the conventional wisdom here.

ADAM SHAPIRO: Well, conventional wisdom. And people always want to try to grab onto some signs of hope. But behind that is demand destruction. And how do you get-- this market may be ahead of itself, if consumers are not going to come back-- you look at what's happening in Germany. I think it was Bloomberg reported that although stores are open, people are not shopping. They're not going into the storms, as a form of self protection.

So we may start opening up the country. We may start trying to get back to normal. But the markets, if they're looking six months, even a year out, are you going to change your shopping habits, your spending habits, or are you going to go back to the way it was before? Because that would be a plus for companies if we all went back to the way it was before. But is anyone really going there?

ANDY SERWER: You know, the markets seem to think that we're going to have a linear return to normal. It may not be rapid but it will take place at some kind of consistent pace. I think there's a very good chance that's not going to happen. And one of the warning signs would be if we start to see a resurgence of the virus in some of these states that are starting to reopen, I think that changes the equation for everybody.

You know, Georgia is the canary in the coal mine right now, because it's gone further than most states in terms of letting businesses reopen. And it's possible within a couple weeks, we could see the state saying, we changed our mind, we think businesses need to close again because we're seeing a resurgence of cases.

That would be kind of a worst case scenario in markets. And that is the possible W-shaped outcome that some economists are talking about here.

- I think it's also just worth noting that no one really knows here. And we're all having conversations with market participants. I want to share one that I had just last night with an investment banker. And he gave me this analogy that I thought was so interesting. And basically, there's kind of this disconnect between the real economy and the markets.

And when you think about rebooting the economy, he analogized it to, look, you have this aircraft carrier going across the Atlantic Ocean. You shut off the engines and it just kind of drifts for a while. And then all of a sudden, you have to reboot it. You have to take a while to get back on course. And I just thought that was such a great way of putting it.

Because you're right, our habits-- are we all going to go to restaurants again? Are we going to go into a theater? You have to think about these things. What's going to become sticky while we're all in our shelter in place? Are we going to start cooking more from home because we realize that, hey, it's better for my waistline, my wallet, and I just feel better? Or I mean, it's a lot of different things to consider here.

- Yeah. They definitely are. Although that aircraft carrier analogy, I might say, it's sort of coming under fire at the same time that it's going across. It's not exactly intact. But we'll see what happens when we all come out of this. Thanks, Julia.