As the economic and unemployment numbers reveal the devastating impact of the coronavirus, a struggle has developed between those who want to reopen the economy now, and others who fear the consequences of doing so. Is it truly a trade-off between economic life and additional deaths?

 

No one knows, but plenty of people and red-state politicians seem willing to take the chance. Those in blue states, which have been hit the hardest by COVID-19, along with the entire international medical community, want to take a more cautious approach.

 

As far as the markets are concerned, the roller-coaster ride that sent the averages up and down on a daily basis this week was simply a reflection of this on-going argument. As readers are aware, investors can and will plan for a known outcome, whether good or bad. They resist taking an action if the outcome is unknown. What we have here is one big unknown. 

 

It struck me just how fragile this 28 percent rebound in the averages is right now. For example, Gilead, a biopharmaceutical company, that investors hope may have developed a drug (Remdesivir) for the treatment of COVID-19, erased just about the entire gains of all three averages Thursday.

 

The World Health Organization mistakenly revealed the findings from an incomplete clinical trial by Gilead conducted in China on its website. The study stated that the drug failed to speed the improvement of patients afflicted by the virus. WHO took the posting down quickly, but the damage was done. The markets erased gains despite the fact that an additional, much more meaningful, study should be forthcoming in the coming weeks.

 

As the unemployment rate skyrockets, erasing virtually all the employment gains of the last decade, and the data on the economy becomes worse and worse, Corporate America and a large segment of small businesses, are demanding that the country get back to work, despite the human costs. Of course, it is couched in terms like "reasonable," "safe" and "slowly," but open nonetheless.

 

Investors have been tugged in opposing directions. Statements from various governors on immediate plans to reopen are encouraging the markets, while the continued information flow from other states and the medical community about the spread of the virus have investors unwilling to push the markets higher.

 

A New York study measuring the spread of the COVID-19 virus found 13.9 percent of people tested had signs of the virus. If you extrapolate those results on a statewide basis, about 2.7 million New Yorkers may have the virus. That's about 10 times the official count based on the testing of mostly very sick patients. And that illustrates the crux of the matter.

 

Without the ability to test the population of the United States, there is absolutely no way of knowing whether going back to work on a national basis will simply lead to a "round two" and a further blow to the economy, which some believe could send us into a second depression.

 

Critics point to that very thing happening during the 1917 influenza pandemic. The country was loath to quarantine its citizens as World War I got under way. Infected American troops were sent into Europe, which caused the flu to spread worldwide and mutate. By 1918, a second wave hit America and in a three-month period decimated the country. Could it happen again? Doubtful, but few medical professionals want to take that chance.

 

Rational readers might ask the obvious question: why, after five months, and millions of people infected, has the United States government failed to develop, buy, and/or administer enough tests to reveal the true extent of the virus in America? The technology, materials and know-how exist. If China, Europe, and even some emerging markets, like South Korea, can do it, why can't we?

 

It is a mystery that continues with no explanation, despite daily "briefings" by the White House. The only reasonable explanation, in my opinion, is that our government is deliberately avoiding testing, but for what reasons?

 

In the meantime, the markets seem to me to be close to a resolution over this debate. For the last two weeks, we have been in a trading range. For the S&P 500 Index, the bottom of the range is around 2,720, while the top is just around here at 2,800. As I have explained, so much of what will dictate the next move in the markets is outside of my expertise.

 

If Gilead's drug, or some other breakthrough vaccine, should be developed, the markets could break out on the upside, and we could easily see another 100-plus points tacked onto the index. If, at the same time, those states that go back to work have no problems, that too could encourage the markets. If, instead, virus cases ramp up in the country, as a result of going back to work, we could break 2,702 on the downside. If so, expect another 5-10 percent pullback. I wish I could be more certain, but this pandemic remains a big unknown to all of us, present company included.

 

A spate of good news helped stocks this week battle the overriding pessimism of the last month. A possible drug to combat the COVID-19 virus coupled with a flattening of the virus curve in some regions helped the markets to gain ground. Can it continue?

 

It sure can, although a pause to catch our breath may be in order for next week. Gilead Sciences, the pharma/biotech company, has been working at breakneck speed to develop a drug to treat coronavirus patients. On Thursday, a report in a health-care publication indicated that its experimental drug, Remdesivir, was having some success in human trials. The indexes spiked higher on this news.

 

On the same day, Donald Trump and his crew basically turned the process of re-opening the economy over to the country's governors. That news was also greeted positively by investors, who have little-to-no confidence in an administration that has proven less than capable of handling the pandemic crisis.

 

As a result, stocks have continued their rally of last week, when the averages notched up better than 12 percent gains. 

 

"How can this be?" inquired one client, who has a reputation for "chasing" the market up and down. We are getting the worst results in history — unemployment, earnings, COVID deaths — and the markets are going up?"

 

A client wanted to sell half of his portfolio on Tuesday, keeping the other half in the market. He proceeded to list for me all the reasons why that move was justified. But there was nothing I haven't heard or read over and over again for the last few weeks.

 

"Tell me something I don't know," I finally said. "If you and I are aware of all of this, then so is the market. Give me some new information that the market has not already discounted." He couldn't come up with anything. Fortunately, I convinced him not to act on his impulse, and as a result, he is better off today.

 

Investors are no longer focusing on the past nor the present, it is the future that has traders' attention. What states will get back to work first? When will there be promising results for a vaccine?  When are Americans going to be able to be tested? Those are the unknowns and the direction of the stock market will depend on those outcomes.

 

Let's take the back-to-work dilemma. I want to go back and work in the office, but I have no way of knowing whether I will be infected if I do. None of my fellow employees have been tested, nor are there tests available to do so — unless they come down with the symptoms. By then, it would be too late for me.

 

That is the story playing out all over the nation. After all of this time, only one percent of the nation's population has been tested for COVID-19. All over the world, governments have focused on testing in an effort to control the spread of the virus, along with isolation. Why have we failed in achieving this objective, when so many others have succeeded? Is it because some in government are betting that what we don't know, won't hurt us?

 

And without widespread testing, there can be no back-to-work scenario

 

Opening up the country without the capability of wide-spread testing is simply playing Russian roulette with the lives of its citizens, in my opinion. It appears that for some corporations and politicians, the risks are worth it.  My bet is that without this crucial element resolved, there can be no back-to-work scenario for the economy, and further gains in financial markets could be capped on the upside.

 

Stocks rose this week on the hope that the U.S. may be close to a peak in virus cases, at least in the country's "hot spots." Adding to the reduced case count, the government's efforts to support the economy and the market have had a positive impact on most financial instruments.

 

Some strategists have warned that the market's gains will prove to be ephemeral, once the fallout from this pandemic begins to seep into the economic data. Some of that data is already showing up. For example, Thursday's unemployment data revealed that another 6.6 million Americans filed for unemployment benefits this week. That brings the total close to 20 million people in three weeks. That is a historical pace of losses. Yet, the stock market gained on the news.

 

One reason the market went up (instead of down as many expected), was yet another stimulus program announced by the Federal Reserve Bank almost simultaneously. The Fed committed an additional $2.3 trillion to support the new Coronavirus Aid, Relief and Economic Security Act (CARES) Act, called the Payroll Protection Program and the Economic Injury and Disaster Loan Program. There was some concern by banks that loans to all these small-business owners might be a risky proposition, especially in the time frame that the government was demanding.

 

Stepping up to the plate to support these loans, the Fed has come in at just the right time to ensure the success of the government's fiscal stimulus effort. There is no telling what else the central bank may be willing to do. As it stands, Fed Chairman Jerome Powell said this week that "there's no limit on how much we can do as long as it meets the test under the law." 

 

The only thing they can't do, I suspect, is buy equities out right. Of course, the U.S. Treasury could do so, and the Fed could fund the purchases. Given that kind of power, is it any wonder stocks skyrocketed again this week? It is for these reasons that I have cautioned readers not to sell. In this era of corporate socialism, even financial markets are fair game. The government's control of the economy and financial markets has never been this vast and far-reaching.

 

In addition to these events, there are also plans by the Trump administration to get people back to work as early as May. The success of this plan is largely dependent on the ability to test Americans for the COVI-19 virus. That is nowhere near possible today, but the hope is that it will be soon.

 

The White House plan would be for a gradual reopening of the economy, starting with those areas and cities that have low or non-existent cases of the virus. The risk here is that the effort might backfire. The transmission rate could reignite, for example, giving a second life to the spread of the virus.

 

As we enter this three-day holiday, readers should expect that after a 28 percent rebound in the S&P 500 Index from its lows on March 23, a period of profit-taking could be in order. We have reached an important technical level at 2,790. If we can hold above it, we might have a chance to close in on 2,900, however, the odds are not in our favor.

 

As we enter Passover, I find some similarity between those in Egypt and our own plight today. It may have been the blood of the lamb brushed above the door, or the mask and gloves we wear today, but I am sure the feelings are the same. I will take this time to hope and pray that this modern-day plague will pass over your homes and the loved ones who dwell within it. And for all the Christians and Easter Bunny believers out there, have a Happy Easter!

 

 

Markets that go up or down several percentage points a day is the new norm. As COVID-19 begins to infect the U.S. heartland, more and more of the country is shutting down. Deaths and cases have still not peaked, so why should we expect the stock market to have bottomed out? 

 

The financial media, I believe, is providing investors a great disservice. Every day, some analyst, money manager, or company executive is either trying to pick a bottom, or telling you the bottom is already in, or arguing that it may be weeks or months away. Ignore them.

 

My column is not about giving you false hope, or doom-and-gloom warnings. It is about the fact that the stock market is simply "un-investible," right now. I haven't used that term for more than a decade (since the financial crisis of a decade ago), but it is as true today as it was then.

 

It is a time when events move too quickly for investors to even guess at the financial and economic implications of each news item. Facts are difficult, if not impossible, to ascertain. Financial markets, as a result, react in a strange and unpredictable manner. That describes today's markets to a "T."

 

But un-investible does not mean you should sell everything and get out of the market. It means that you should do nothing until such time that we have at least an inkling that the storm has passed. A good place to start would be to listen to the medical experts, while ignoring the administration and its constant stream of misinformation. When the doctors see a peak in the virus around the nation, then we can start adding up the economic and financial damage.

 

Right now, we don't know enough to make any kind of assessment as to what earnings will be, what unemployment will be, how long it will take the economy to get back on firmer footing, and at what rate of growth it may or may not return to. Given that, the probabilities of trying to invest in the stock or credit markets successfully has about the same odds as playing the blackjack table in Las Vegas (if you can find one that is still open).

 

The unemployment numbers, which doubled again this past week to 6.6 million new jobless claims, was higher than expected. Friday's monthly jobs report for the month of March was expected to be a loss of some 100,000 jobs but the number came in at 701,000 jobs lost. It is simply another indication of people trying to game the economic effect of the pandemic without all the facts. The markets swooned on that data, but bounced back, thanks to some good news in the oil market.

 

The price of oil has evidently dropped to a point where the Russians, Americans, and Saudis have decided enough is enough. The turnaround began with a series of tweets by the president, who is taking credit for getting Putin and the Saudis to at least negotiate a truce. The price of oil has skyrocketed as a result, up almost 30 percent in two days since the news broke. That is good news for our shale producers, who were teetering on the economic edge ever since the price war erupted.

 

Over the next few weeks, we should be able to form a clearer picture of what is in store for the country and the markets. Remember that markets tend to discount the future rather quickly. In the absence of any good news (a vaccine or a cure), it wouldn't surprise me if we retested the recent lows. The new virus cases and deaths should continue to climb and that would likely put added pressure on investor sentiment.

 

My advice is to hang in there. Give it time. Even a hurricane like this will ultimately pass and when it does the sun will break out on all of us.

 

The stock market has not only erased all the gains of this year but is now working on giving back last year's gains as well. Are we close to a bottom or is there more pain in store for investors?

 

Unless you are invested in gold, or U.S. Treasury bonds, there are few places that offer protection to investors right now. What may have spooked traders most this week is the freefall of interest rates as exemplified by the benchmark U.S. Ten-Year Treasury bond. It has done the unthinkable falling below one percent in yield. Some believe it is on its way to zero.

 

You might assume that all this selling is based on the fear that the United States will soon see thousands of new cases of the virus, while deaths skyrocket, and multiple cities become quarantined, but you would be wrong. It is not that nightmare that keeps traders trading all night, but the potential impact on the economy if even a mild outbreak occurs.

 

The fact that no one knows (and won't know for weeks to come) has investors hitting the sell button. Remember how I've said many times in the past that investors can deal with the good or bad but just hate the unknown? We now have "unknown" in spades.

 

There are two sides of this concern: the demand side impact and the supply-side effects of this economic virus-related blow. It started with a supply-side problem. China and other nations, such as South Korea, were hit first by COVID-19 causing a dramatic decline in parts the rest of the world needed to produce goods and services.

 

As people sickened, stayed home from work and stopped travelling, the demand side of the equation also started to become apparent. No one was going to the movies, eating out, using transportation, etc. As a result, spending also began to drop and then snowball as the virus spread out across the globe. When you put two and two together, market participants' major fear is that the pandemic could well usher in a global recession.

 

Compounding this situation was the record high levels of the world's stock markets when the virus began. Even today, with the U.S. stock markets down 13-14 percent, there could be a whole lot more to go if one looks at how far the markets have gained since 2016.

 

Here in the U.S., aggravating the anxiety, is that it appears the country was caught totally unprepared for this event. In 2018, the administration gutted the Center for Disease Control's ability to respond to a pandemic. The administration's response to the decline in the financial markets was to blame the Fed and the Democrats and to shut down all communication between government health officials and the public. President Trump demanded the Fed cut interest rates again.

 

None of those actions inspired confidence among investors, therefore when the Fed did cut one half point in an emergency move, the markets fell further. Both Trump and his economic advisor, Larry Kudlow, continue to dismiss concerns. They argue that Americans should simply ignore the pandemic, not worry about the economy and they continue to insist that the economy is strong.

 

It may be worth remembering that Kudlow has always been a "perma-bull." On the eve of the greatest recession since the Great Depression, he assured investors that there would be no recession in the U.S. and investors should not be concerned.

 

As for me, my prediction that we would have a rebound and then more volatility this week proved true, just far more violent that I had ever expected. I figure we continue down to 2,850 on the S&P 500 Index, which would be another 100 points or more before we attempt another rebound. If we hold that level, I would be constructive.

 

The bull case is that the Fed cuts another 50 basis points (1/2 percent) in the next two weeks, followed by an announcement that they would begin another round of quantitative easing. At the same time, the administration finally realizes that a large fiscal response (similar to what the Chinese government has done) is needed to combat the economic impact of the virus.

 

My own inclination would be to buy "when the blood is running in the streets." No one can call the bottom, but unless things really blow up, we should be getting close to one.