Citi CIO Says Second Wave of COVID-19 Could Wreak Financial Havoc

We’re not out of the woods yet: That’s the message from Citi Private Bank’s David Bailin.

While the volatile stock market has rebounded from its recent lows due to the global economic devastation brought on by COVID-19, Citi’s chief investment officer told CNBC’s “Squawk Box Asia” on Monday (April 20) that company earnings could fall by 40 percent in the second quarter.

Bailin acknowledged that his expectations for lower company earnings are in contrast with most analysts. The key to who’s right, he said, will depend on what happens in the next few quarters. He also cautioned about another round of the coronavirus.

“In the event that we have a very significant second wave of disease in the United States that causes a further shutdown of the economy … that clearly is not priced into the market,” Bailin said. “The other thing that may not be priced into the market is the fact that this virus may take another 18 to 24 months to really cycle through the globe, and ultimately have a vaccine.”

New York-based Citi Private Bank is a subsidiary of Citigroup, and serves high-net-worth clients.

On Monday morning (April 20), Worldometer reported that the number of global coronavirus cases has reached 2.4 million, with 167,240 deaths and 637,407 recoveries. In the U.S., the death toll is 41,228 with 767,394 diagnosed cases, while 71,281 have recovered. 

The virus has caused the shutdown of all but essential businesses as Congress tries to iron out the next bailout for small companies.

During the interview, Bailin said he doesn’t expect U.S. earnings to get back to their first-quarter levels for more than two years.

Despite his prediction of falling earrings, he said that doesn’t mean investors should avoid U.S. financial markets. Instead, Bailin said there are some good opportunities.

“I think there are plenty of places to seek yield and I think it’s important that investors seek that yield now because once this crisis passes — six months, 12 months, 18 months from now — I expect that these spreads on these bonds are going to definitely retreat,” he said.