DATA IMPROVES SHORT TERM – WATCH FOR SUSTAINED IMPROVEMENT AND PRICE ACTION
Futures are up over 3% this morning as the Covid-19 statistics show an abatement of new cases. New cases last 4 days have been 79,864, 101,566, 84,821, and 71,418 (chart 1). The growth ratio dropped to 0.84 on Saturday and Sunday from 1.27 on Friday. As a reminder, the growth rate is how many new cases there have been per every case – over 1.0 means growth, under 1.0 means a decrease or less than 1 new case per case. As TPA has been saying, this is what to look for to begin to get more positive. TPA cautions, however that there have been brief dips in new cases before (see chart 1) and there have been brief moments of growth below 1.0. This needs to be sustained to be important for the longer term.
The VOICE – in the 3/19/20 World Snapshot, TPA used its VOICE to show that markets were predicting more financial pain. On 3/19 the VOICE for the U.S was $1.16 billion in market cap per Covid-19 case (total U.S market cap loss on 3/19 was $11 trillion). There were only 9,400 cases then. In other words, this was predicting many more cases, since, although every life is precious, $1.16 billion per case was a huge extreme. Today with still a $9.93 trillion market cap loss, the VOICE for the U.S. is down to $29.4 million per case versus $1.16 billion per case, with over 337,000 U.S. cases (John Hopkins table below). $29.4 million per case is still a very large dollar number per case, but no longer discounting a worst case scenario. TPA would say that the Risk/Return ratio has begun to shift.
The questions now, is how long people will be isolated and businesses shut down. The huge unemployment number on Friday is yet another example of trends from the 11-year bull market being broken (see chart 3). In addition, JPM and WFC will kick off the 1 quarter earnings season on 4/14/20 that is next Tuesday.
There are two ways of looking at the upcoming earnings season:
1. The obvious perspective is that companies will disappoint and/or have dire forecasts. This will not help the mood for the markets.
2. Clients should, however, pay close attention to how stock prices react to bad news. If the declines are modest or if stocks show resilience and rise on bad news, this could be a signal that much of the bad news has been discounted – at least for the intermediate term. For an overall pulse of the market, clients may want to pay more attention to price action than what is actually said by CEO’s, who may have no better idea of what a Covid-19 future holds than anyone else.
TPA reiterates its stance that the long term pattern for stocks has changed permanently, but clients need to be alert to catch intermediate term moves.