US economy may see V recovery as liquidity and vaccine optimism underpin stock markets' rebound, Blackstone's CEO says

Investors are hopeful a Covid-19 inoculation will be found within a year co-founder of the investment group says

Blackstone Group co-founder Stephen Schwarzman sees a big V-shaped recovery in the US economy in the next few months. EPA

The US economy could see a V recovery within a few months as ample liquidity of its financial system and optimism about finding a vaccine to combat Covid-19, underpin the bounceback in stock markets, Blackstone Group's chief executive said.

“Stock markets went down 34 [per cent] and bounced back as if nothing had occurred,” Steve Schwarzman, who is also a co-founder of the world’s biggest alternative asset management firm, told a Bloomberg event on Monday.

“I think it is mostly the liquidity in the system and also some element of confidence – in other words, you have 130 [Covid-19] vaccines [globally] that are in the process of development.”

Several types of vaccine are being worked on and “people have optimism that within the next nine months, we will have enough positive outcomes from trials  … within a year to start producing large scale vaccines”, Mr Schwarzman added.

Markets have also priced in the current rise in infection rates in the US, understanding that this was likely once people were allowed out after months of being confined indoors.

“I completely expected that to happen and I think markets did as well,” Mr Schwarzman said.

Stocks markets in the US, the largest economy in the world, ended their longest ever bull run in March when the S&P 500 Index and Dow Jones Industrial Average both fell into bear market territory.

More than $20 trillion (Dh73.4tn) was wiped off the value of financial markets globally after lockdown measures around the world were introduced to fight the rapid spread of the virus.

US equities have since recovered losses, however, ignoring massive economic contraction, high unemployment rates and rising incidences of Covid-19 infections. The S&P 500 index has rallied almost 40 per cent since its March low.

The US government has poured about $3tn into the country’s economy and the Federal Reserve has rolled out monetary easing measures to stabilise the financial system. Mr Schwarzman said the massive government intervention and the trillions of dollars of stimulus have effectively replaced lost revenue from shutting down the country’s $21tn economy.

“[The] Fed pumping unprecedented peace-time money into the economy [and] deposits into banks, the amount of money just exploded. We are awash with liquidity,” he said.

Mr Schwarzman, whose firm manages $538bn in assets as of the end of March, sees a “big V in terms of the [US] economy going up for the next few months”, as people venture out again and consumption rises. However, there is a limit as to how much the economy can rise as some sectors will be slower to recover than others, he said.

In terms of Blackstone’s own performance and buyout plans, Mr Schwarzman said the company has finished raising a life sciences fund after turning its attention to investments into fast-growing healthcare technology sector. He did not give the final size of the fund but media reports citing regulatory filings said the company had raised three quarters of a targeted $4.6bn in March.

“We’ve [sowed] some seeds for expansion before we went into this [crisis] because we thought we knew where the world will present opportunity and one of those areas is life sciences,” he said. “We just finished raising our life sciences fund and that [area] is the focus of the whole world. The whole healthcare business is going to grow.”

Blackstone has been “aggressively” looking to put some of its $150bn in dry powder to use, Mr Schwarzman told Bloomberg in April. He also said that while all companies, including Blackstone, will be affected by the pandemic, the pain will be temporary, citing the US government’s stimulus efforts.