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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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Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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