Markets just averted 'disaster,' Yale's Stephen Roach says

  • One of Wall Street's leading voices on the global economy says stocks just came dangerously close to a deep sell-off.
  • Yale's Stephen Roach says if Emmanuel Macron had lost to Marine Le Pen in the French election, it would have been "horrific."
  • But Roach still is down on European stocks.

One of Wall Street's leading voices on the global economy says stocks just came dangerously close to a deep sell-off.

It all would have hinged on the outcome of Sunday's French presidential election, according to Yale University senior fellow Stephen Roach.

He argues that had Emmanuel Macron lost to Marine Le Pen, the global markets would have been crippled.

"It would have been a horrific, one-off bloodbath that probably would have lasted more than a few days," Roach said Monday on CNBC's "Trading Nation." "Europe is viewed as an integrated, economic entity that is one of the foundational building blocks of this supposedly thriving global economy."

Roach, who was chairman of Morgan Stanley Asia, is telling investors that they need to "temper their optimism."

"It takes a disaster scenario out of the equation which of course would have been a Le Pen victory and a dismantling of the euro zone as we know it," he said. "This still doesn't change the fundamental, difficult problems that Europe has and figuring out how to grow again, how to be competitive and be an active participant in a global economy which has left Europe behind."

Europe's stock markets, however, appear to be finding some footing since the U.K. Brexit vote last June. France's CAC 40 gained more than 1 percent on Monday, its third positive session in four. The STOXX Europe 600 hit its highest level since August 2015. It's now up nearly 14 percent from its pre-Brexit levels.

Roach isn't in the camp that there's more value to be found in Europe.

He views the U.S. market more favorably, even as critics argue a 5 to 10 percent pullback is virtually unavoidable because valuations are stretched.

The Dow, S&P 500 and Nasdaq kicked off the week by rallying to fresh all-time highs and the CBOE volatility index sank to its lowest level in more than a decade.

"We [U.S.] still have a much more innovative, competitive, thriving economic construct than Europe does," said Roach. "Despite this victory for Macron, we're really dealing with a flawed economic currency zone, and it has a lot of banking and competitiveness issues. They have yet to be addressed."


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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