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3-Day Winning Streak Gives Way to Harsher Realities

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Friday, March 27, 2020

So far, confirmed global cases of COVID-19 coronavirus has surpassed half a million, with the U.S. leading the way at nearly 86K Americans having contracted the disease. Luckily, and with the help of stay-at-home orders in many places around the country, the fatality rate is currently registering around 1.5% domestically — far better than the nightmare scenarios we’ve seen in Italy (10%) and Spain (7.6%). In all, 25K people have succumbed to the virus globally as of this morning.

Congress has been constructing a $2 trillion relief package to bring much-needed cash to struggling businesses in households. All week, confidence has been high that such a bill would push through both houses on a bi-partisan basis; however, this talk has been going on since Monday, and it’s unclear whether actual passage will occur before the end of the week.

This is perhaps the biggest reason we’re seeing pre-market futures in the red this morning, following a great trading week for near-term value investors having picked up plenty of stocks that had been off their highs 30% or more. The Dow is now officially out of its Bear market following the best three-day winning streak since the 1930s. But many investment gurus are cautioning that what we’ve seen may well be simply a Bear-market rally, with sentiment toward more downside in the weeks to come.

While that $2 trillion stimulus package would certainly go a long way toward getting the U.S. economy “unstuck,” it’s unclear yet whether this would be enough to prime the pump to move industries back into positions of strength, or if this is more a measure to simply stop the bleeding. If the latter, we’re likely not finished allocating funds through Congress; combined with the Fed’s moves in recent week’s to keep banking engines lubricated, we must be prepared to look at some pretty garish balance sheets once this is all over.

The Core Consumer Price Index for February showed a jump in inflation last month, in a report released this morning. The +0.2% increase month over month was as expected and in-line with the previous month — and +2.4% year over year. This core number strips out volatile food and energy prices which would otherwise skew the headline figure. That said, of course, inflation is far from the worst concern our economy faces currently; if anything, deflation appears to be where we most need to guard against for the near-term, at least.

Later this morning, we will get new data on Consumer Sentiment for March. Expectations are for a slight down-tick from the 95.9 posted a month ago. However, because the sample is from earlier this month, it may not bring to bear all the downward swoop we saw last week as a result of the anti-coronavirus actions which has led to a drastic change in the way the American consumer looks at the marketplace these days.

Mark Vickery
Senior Editor

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