Market futures are up strongly in this morning’s pre-market, reflecting positive sentiment regarding a perceived downward slope coming in global coronavirus cases. Hot spots in key locations like Italy and Spain have shown a slowing death toll as lockdown measures demonstrate their effect. Even the rate of cases in New York — now considered the epicenter on COVID-19 — has dropped over the last two days.
President Trump struck a positive tone about progress in the face of the pandemic Sunday night. And Monday morning trading overseas has picked up this optimism after a down-week of trading. U.S. equities were up as high as 4% earlier in the pre-market, with the Dow currently +820 points, the Nasdaq +300 and the S&P 500 +100.
While there are certainly positive messages to take as the world processes this crisis, it may be wise not to tie results in other parts of the world too directly with what we expect to see here in the U.S. over the next 2-4 weeks. Because while countries that had the most success combatting coronavirus acted quickly in shutting down businesses and strictly enforced stay-at-home initiatives, the story here at home is developing under a much more complex series of templates, making our outlook more murky.
For instance, though the U.S. epicenter in New York appears it may soon be on the wane, this is a state that has enforced lock-down policies for the past 3 weeks. Similarly, states like California and Illinois have also tried to “flatten the curve” (regarding efforts to keep peak contagion from overwhelming healthcare facilities) for most of the past month. But other states, such as Florida, dithered for weeks before finally putting into place similar measures to keep the spread of COVID-19 from spinning out of control.
As a result, new cases in Florida have zoomed up of late, with totals now 12K+ and climbing. Former FDA Commissioner Scott Gottlieb recently stated Florida has “multiple hot spots” in regard to the pandemic. So while the crest of the wave in New York may now be visible, it may still be building in Florida. All this is not to malign or point fingers at a particular state in the union, but to illustrate that we are likely far from over the worst of this situation, both nationwide and, likely, globally.
Stock markets, on the other hand — reliable forward indicators that they are — have already priced in a lot of the coming economic misery. Even with today’s positive vibrations keeping indexes spring-green, The Dow, Nasdaq and S&P 500 are still well off February highs. Only a Herculean effort of sustained positivity would be able to bring us back within sniffing distance of flush investment portfolios for most of us.
Also, with Q1 earnings expected to come hot and heavy beginning next week — precious few with high expectations for a strong quarter — the bad news will continue to compound. Add in economic data like Producer and Consumer Price Indexes, Consumer Sentiment and, of course, another nightmarish weekly Initial Jobless Claims release, and it’s hard to fathom how these big daily upward surges might sustain themselves.
Getting shares of great companies at multi-year discounts? Nothing wrong with that. But the smart money would likely prepare for more volatility in the markets ahead.
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