17 April 2020

Markets continue to trade in direct correlation to novel coronavirus news.

The S&P 500 closed at 2,874 on Friday.

  • The S&P 500 hit a record high of 3,393 on February 19 and bottomed at 2,191 on March 23, marking a 35% decline.
  • Since then, it has rallied significantly – markets imply about 18% more to the upside (from Friday’s close) before retesting all-time highs.
  • This is a remarkably bullish position given the unknowns as of Friday’s close about the virus and how to reopen without a vaccine or treatment.
    • Clinical trial results are a good leading indicator of where the market is going (e.g., one we are watching closely is Gilead Sciences’ remdesivir [sic]).
    • Given the persistence of COVID-19 on surfaces and its extensive incubation period, negative consequences from reopening efforts will be a lagging indicator.
    • The market is looking for direction, so expect big moves based on first- and second-order COVID-19 news (e.g., government stimulus continuity and macro indicators such as unemployment, oil, and any weakness in blue chips).
  • Without a treatment or vaccine intervention, resurgence risk remains a real concern for US equities.

Stay safe and play this market cautiously.

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Disclosure:  This is an opinion article not intended as investment advice – making investment decisions without your own evaluation of ideas is not investing; always do your own research and speak with an investment advisor, if you have one, before making any investment decisions.  Any opinions expressed are as of the date of publication.