The Market May Be Pricing In A Quick Economic Recovery

Summary

• Data show little risk for the majority of people from COVID-19.
• The market’s resilience may be due to expectations for a return to work and a quick economic recovery.
• The market may be right or it may be wrong. Respect the price action above all else.

Editor's Note: This article has been updated to modify an unclear discussion of COVID-19 data.

The data

As more and more data are being collected about COVID-19, it is becoming ever more clear that there is no reason for the majority of Americans to be confined to their homes. The stock market may be pricing in a return to sanity and a return to work.

When states reopen bars, restaurants, retail stores, beaches, etc., will people be too afraid to return to work, go to restaurants, the gym, to a ball game? I don’t think they will be. Not judging by their enthusiastic return to restaurants in Georgia and parts of Texas, or to the beaches of Florida.

source: USA Today

I think people are starting to realize that for those under 65 years of age and with no underlying health condition there is little to fear.

In a recent article published in The Hill written by Scott W. Atlas, MD, Dr. Atlas states:

“Of 6,570 confirmed COVID-19 deaths fully investigated for underlying conditions to date, 6,520, or 99.2 percent, had an underlying illness.”

Dr. Atlas is the David and Joan Traitel Senior Fellow at Stanford University’s Hoover Institution and the former chief of neuroradiology at Stanford University Medical Center. He also wrote:

“The overwhelming majority of people do not have any significant risk of dying from COVID-19.”

I think more and more people are coming around to the thinking that healthy people under 65 should get back to life and work while protecting and providing for the older and less healthy citizens until herd immunity is achieved or a vaccine developed.

Markets

Perhaps the virus data is the reason the stock market has held up so well. I can’t really say for certain. Just because the data look favorable for most people doesn’t mean the Governors will reopen quickly. I think they should, but what I think doesn’t matter. Those that have read my previous work know I really don’t like applying reasons to market movement and I detest long-term big picture grand predictions. I’m not saying there are not reasons for market movement, just that I try to follow price action without getting bogged down with a bias.

That people are ready to quickly reopen is my opinion. I may be wrong. The market may be wrong. None of us know for sure what the market is pricing in or how far out it is looking.

I have read some interesting articles here on SA over the last few days. Most are well reasoned with their bullish or (mostly) bearish analysis. The only problem, as I always write, is there are just too many unknowns both as to future events and market reaction to those events. My comfort zone is the price action and the charts.

So, let’s look at some charts.

This is my everyday, wash and wear, boilerplate daily S&P chart. It has various support/resistance levels, trend lines, moving averages and indicators. Moving on.

Source: Qcharts annotated by the author

I want to simplify things. This is as simple as I can make it. Fibonacci is in charge. In my experience, it is unusual to have a simple top to bottom retracement fit price action so well. A topping for now at the 61.8% area and several points of support at around the 50% area. Last Thursday and Friday seemed like kind of a big fall but in reality, it has just returned to a level where resistance and then support was found several times during April. The range is very wide because volatility is high and/or vice versa. The VIX is high. I expect we should get used to these wide ranges for the time being. A close below the 50% retracement at 2792 would make me more bearish although I think 2720 (black line on the above chart) won’t go down without a fight. In other words, while I would probably be in cash below 2792, I would likely be short below 2720.

Source: Qcharts annotated by the author

Gold and Gold stocks have been the place to be. This chart shows the SPDR Gold Trust with a solid uptrend and appears ready to break upward from a bull flag formation.

Source: Qcharts annotated by the author

Conclusion

The COVID-19 data seem to pose little significant risk of death for the majority of the public. The market’s resilience may be a reflection of this and is pricing in a quick return to work and economic recovery. For now, it looks like we might have a new range between fib numbers. I will use those levels to control my risk and dictate my trading direction.

QuasiTrader is not really a HAL series 9000 AI bot. He is an actual flesh and blood human. Like all humans he is fallible. He makes clumsy human-like mistakes all the time. You would never want to throw real money at an idea any mere human might present. Maybe if he were a real HAL 9000 but, like I said, he's not. So, do your own homework.

Analyst’s Disclosure: I am/we are long GLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[etiennecpres]

There is one comment that fundamentals have nothing to do with this market. To the extent that the Covid-19 hit the market so quickly, there's some truth to that. The big unknown is how much sales and profits will be hit in the short run, and how quickly or slowly they'll recover. Before it hit, I estimated (using Value Line's numbers) that the S&P 500 was overvalued by approximately 30%. Then, for a week or two, it may have been undervalued by about 5% -- but that was only a wild guess, as it would have been impossible to say what earnings would be for the S&P 500 in two or three years. Better guesses will probably be possible in a few months, but they may only possible as a reliable vaccine is created. Then, fundamentals will gradually be more apparent and well grounded. The market may again be overvalued, if it isn't now, but there will be analysts whose valuations are worth relying on.

[Quasi Trader]

Dierenbach: Is it time for a new approach to coronavirus?

In New York City, an antibody survey found that 21% of the city’s population had been infected with the coronavirus. This indicates that over one and a half million of New York City’s 7.2 million residents under the age of 65 had been infected. Furthermore, approximately 78% of them had no underlying medical condition that puts them at risk from coronavirus. Around the time of the antibody survey, New York City had recorded only 58 deaths of people under 65 with no underlying condition.

pagetwo.completecolorado.com/...

[stocks0229]

Thank you for this straight forward article that is not Fear Mongering like so much on SA right now. Please keep up the good work

[ZamTex]

The only over-reaction was hoarding the toilet paper, lol. Once I saw plenty of stock on the shelves, I knew we’d all start coming back to our senses. The damage is definitely done and we’ll be able to see it in hindsight. This is a good article.

[WellWhateverNevermind]

I’m pretty sure that NYC data is out of 100,000 general population, not diagnosed patients.

[BeenHoldin]

The market is not god. It's a collection of sentiment/opinion... that is now manipulated with excess liquidity by CBs. The signals are not reflective of full economic reality but may reflect more of the financial reality (0 rates. no other place to invest, etc.).

[ilanfl]

Thanks, I like your thoughts about respecting the price action above all else. All else has not proven to be very useful in the last couple of months.

[Fero.]

exactly

[cubs1225]

@Quasi Trader

"I think people are starting to realize that for those under 65 years of age and with no underlying health condition there is little to fear."

**More than 35% of U.S. adults are obese

**34.2 million people, or 10.5% of the U.S. population, have diabetes. An estimated 26.8
million people - or 10.2% of the population - had diagnosed diabetes. Approximately 7.3
million people have diabetes but have not yet been diagnosed (2018).

**According to the study from the American Heart Association, 121.5 million Americans, or
about 48.5 percent, dealt with heart or blood vessel disease as of 2016.

**Less than a quarter of Americans are getting enough exercise, based on federal
standards. Only 22.9% of U.S. adults from 18 to 64 met 2008 guidelines for both aerobic
and muscle- strengthening exercise between 2010 and 2015, according to new Centers
for Disease Control and Prevention study on Thursday. (PTON hit a new high
tonight....boredom or fear?)

**Italy, Iceland, Japan and Switzerland rounded out the top five healthiest nations.
Meanwhile, the United States – with a health grade of 73 – ranked No. 35 in the
index.Feb 26, 2019.

Switzerland never did shut-down, obvious Italy didn't far as well but it's believed that was ignited by imported cases from China.

I'm not trying to be a fear monger, I'm not proud of my 31 BMI and I'm not over the age of 65. The biggest problem is the U.S. is a full-figured society which may be one reason why we're leading in total cases (not because we've been testing more). McDonald's, Chipotle, and Netflix stock have not been tarnish at all during the crisis, thus many Americas haven't drastically changed their routines.

So if were cool with living in a Darwinist society, open all the states at once.....people are going to sh*t their pants watching the daily CDC graphs. Do you think they'll be any reluctance for healthy people to go back to normal in 24 hours or 24 months?

"So, do your homework." We are not going back to normal anytime soon. We may need Q2 and Q3 reporting for the market to come to reality. Yes, we'll beat this thing but not without significant damage to the economy.

Take no offense....it takes bears and bulls to make a market.

[Quasi Trader]

@cubs1225 Great post. I like it.

What really amazes me about the NYC numbers is that there have only been 164 deaths per 300,000 diagnosed cases under age 65. That's diagnosed only and any health condition. 1.6 deaths per 3,000.

I wonder if we had a 24 hour news cycle focused on heart disease deaths, or drowning, sky diving, whatever, if we would be so freaked out about those things.

The thing is there are people dying. They just happen to be primarily old people. I actually think the rest of society could help the older by getting out there. The Dr. I cite says the same.

BTW, I'm 60. My 20 year old son is a college student. Since school has been out he works full time at Home Depot. He lives at home and I have no problem with it at all.

[BeenHoldin]

@Quasi Trader The fact that you are thinking about your 20 year old working at Home Depot at all as a potential risk reflects the reality we live in today. There is no quick economic recovery coming even if we open the entire economy up tomm. and COVID19 disappears. This is a serious blow that will take time to recover from. For those of us running businesses that have a good global pulse, that is pretty obvious.

And how do we adjust to this new reality even if our baseline business is great? Lay offs, salary reductions, and/or reduced hiring/hiring freezes.

[Quasi Trader]

@BeenHoldin If it disappeared things might get back to normal or even better quickly I think. At any rate the faster the better right?

I used to own restaurants. Glad I don't now. But I think If we suddenly got the all clear signal I would be slammed.

[paulst55]

You are straight forward with common sense and I agree with you about covid risk. I also agree that most SA commentary is negative. So far in this covid mess that is a good contrary indicator.

[petsitter210]

I get that people are anxious about their finances and want to go back to work. But taking medical advice from a stock market analyst is a recipe for disaster. recent studies have found the virus has mutated and become more contagious. we don't have enough data to make assumptions about the future of the economy or predictions of health related issues that can arise due to complications. listen to the experts.

[Quasi Trader]

@petsitter210 My article does not advise people to get back to work. The article posits that people are ready to get back to life and the stock market may reflect that. I show data from nyc and the opinion from an expert which back up my thesis.

[PorscheLuvr]

There have been differing opinions among our medical experts, and they are far from perfect with their advice, just like investment experts are also human and often prone to wrong predictions and giving poor advice.

[Grain-of-salt]

Look at the age group statistics:

www.statista.com/...

We need to isolate and protect the elderly but allow and encourage younger people to return to work and productivity. Keep distance, wash your hands, wear a mask when you can't maintain social distancing. We should not get carried away with panic and negativity, we have to support and promote economic recovery.

[Quasi Trader]

I entirely agree

[Grain-of-salt]

The recovery can be relatively quick if people let go of panic and negativity.

"Models show that if 80 percent of people wear masks that are 60 percent effective, we can get to an effective R0 of less than one. That’s enough to halt the spread of the disease."

www.theatlantic.com/...

We overreacted with the lockdown which caused this recession. Let's do what we can to carefully return to activity and productivity and promote economic recovery.

[NeptuneSquareVenus]

“Of 6,570 confirmed COVID-19 deaths fully investigated for underlying conditions to date, 6,520, or 99.2 percent, had an underlying illness.”

One problem this ignores is that a HUGE number of Americans do have an underlying health condition: obesity. Something like 38% of Americans are obese. And it is one of the bigger comorbidities of a serious negative reaction to COVID-19.

[krempep]

Where are you getting these numbers, your talking about less than 10% of cases.

[Quasi Trader]

@krempep I have an incorrect link in the article. I will have it fixed. Here is the correct link:

thehill.com/...

[NeptuneSquareVenus]

The only number I gave was the obesity rate in the US. The other figures were from the post above. The obesity rate is actually higher than I thought.

Data from the National Health and Nutrition Examination Survey

In 2017–2018, the age-adjusted prevalence of obesity in adults was 42.4%, and there were no significant differences between men and women among all adults or by age group.

www.cdc.gov/...

[ssfranny]

Well the states that are acting like business as usual are GOP states where they think its no big deal and a hoax also GA cases are spiking again. And your premise that 99% of deaths are preexisting condition is utter BS. You can open states up but most reasonable people are going to keep social distancing and certainly not going back right away to a bar or restaurant. Not until theres readily available testing or a vaccine. Market is back up because Drump told his Wall st donors to pump market.

[Quasi Trader]

@ssfranny The 99.2% pre-existing condition figure is not my premise. I site the article where that came from and the Doctor that wrote it. Also, my market view changes as price action changes as I make clear. Trading a bias as to what the market will do in the future is a great way to destroy your account. Respect the price action.

[Grain-of-salt]

Look at the risk per age group and see that most people under 65 should carefully return to work and activity:

www.statista.com/...

[OpeningBellTwerk]

The point of the restrictions is to delay nc19 cases, it does not prevent them.
This is a usually mild but highly contagious bug with a long clearance time, meaning it will get around. It’s more contagious that the 1917 flu, fortunately it is much less lethal to most people than the Great Flu. We did not have an obesity problem in 1917, if we had today’s population then there would have been stacks of bodies.
This virus will keep going until about 80% of the world in infected unless a vaccine can be invented, tested, manufactured in vast quantities and distributed before then, which is possible but by no means assured. Vaccines normally take about 10 years to develop.
Destroying normal daily life didn’t eradicate the virus, it can’t. It was meant to prevent hospital ICUs from getting overloaded before their capacity could be ramped up. That has been done. Outside the areas of NYC/Southern NJ and Detroit, the country should be getting back to normal, one step at a time.

Keeping most states locked down does no good, but considerable harm.

[Palomarboy]

I believe the author is failing to recognize the number of businesses that will fail and the accompanying prolonged unemployment rate. States will also need to cut expenses and layoff more employees if there is no federal help. Whether or not the majority of Americans can go out safely, the damage to the economy has already been done. Maybe recovery will be quicker if congress keeps printing money but as an employer who has been forced to furlough 70% of my staff, I am not convinced in the Polly-Anna assessment.

[ssfranny]

The author is in Lalaland

[Bull#1]

Unfortunately for you the market is going up . Like it or hate it. I actually like it.

[Fero.]

fundamentals have not much to do with this market. price is what is important.

[krempep]

Everything will be fine until it isn't. The virus is not a problem for the market.
Don't worry about where this going, only worry about where we are today.
Tomorrow, is another day.

[Vooter]

Too bad the virus has very little to do with the economic disaster this country finds itself in...that's what 80 years of counterfeiting will do...

[John Rocco]

This guy gets it!