You might be wondering: how does students being unable to attend classes in person translate into risk for stocks?
Well, Morgan Stanley’s Chief U.S. Equity Strategist, Mike Wilson, says that universities closing is one of the few near-term risks to the U.S. stock market, which he thinks is due for a correction.
How come? Well, if students are not on campus, that means back-to-school shopping will take a significant hit. That’s a negative for apparel retailers. This would hurt retail revenue for the back-to-school third quarter, which, on its own, shouldn’t pressure retail stocks too much. But for struggling retailers with lots of debt and an already-diminished earnings stream, this could be yet another blow bringing those companies closer to bankruptcy.
Also, to the extent that there are layoffs of university employees like dining hall workers or campus safety workers, there will be a broader economic impact on consumer spend.
The U.S. economy, while recovering quickly overall, is vulnerable. Hiccups to the recovery — and there have been many — serve as blows to small businesses and households with liabilities they need to meet. The recently poor consumer confidence reading could soon turn into poor consumer spend and without more fiscal stimulus, the economic recovery may be underwhelming for the next several quarters.
It remains to be seen how many colleges will go completely virtual versus holding in-person classes.
Watch More Explainer Videos From TheStreet.com: