So Trump wore a mask. True, he was touring a hospital. But it still happened. Could be a turning point, and a wise political move. Mr. Market will like it.
The virus is romping in the Sunbelt, ripping through red states the prez needs to be re-elected. (More on that from an eyewitness blog dog below.) The strategy of ignoring Covid and focusing on reopening was incorrect, evidently. Daily cases have been rising rapidly (over 15,000 yesterday in Florida) and deaths have started to increase. By turning a blind eye, Trump looks callous when folks are fearful. By donning a mask, he appears concerned. Strong leaders can also be empathetic. A lesson worth learning.
Well, this allows financial assets to continue their ascent. The pandemic will pass. Life will go on. Companies will make money and the public health emergency will be contained if Americans do what we did. Trump is signalling that may happen.
Here’s where we are: from the terrified lows of late March, the S&P 500 has rocketed higher by 45%. Astonishing. The one-year gain is currently 8% – which means if you went to sleep last summer and woke up now, rubbing your chin and saying ‘Huh? What virus?,’ you’d be pleasantly surprised at your portfolio growth. The index sits just a few percentage points below the all-time peak achieved last winter, pre-crisis.
What now?
It gets better, that’s what. The next corporate earnings season kicks off this week as about three dozen big American companies report. The numbers will be awful. Down 40% or so from year-ago levels. That will spike the earnings-per-share (EPS) to an elevated level, over 25, suggesting stocks are overvalued. But Mr. Market will love it.
That’s because the bottom will be in. Q2, 2020, will go down in history as the Covid quarter, that period of time when Depression-era GDP shrinkage and jobless inflation took place in the wake of a 30% stock market plunge. But it’s over. Because markets are forward-looking investors will be intent on what the second half of the year and 2021 hold in store. Expected earnings growth will bring that EPS right back to historic norms (around 19), likely allowing even higher valuations.
Despite what’s happening in Florida, Arizona, parts of California and Texas, the US economy has rebounded, based on consumer spending. That, after all, accounts for about 70% of all American economic activity. Home sales have jumped dramatically, commodity prices have restored (oil has gone from negative $37 to plus $40) and this pace will continue, even if Covid slams into the southern states. Even if Trump tumbles in November.
Meanwhile the Nasdaq is at record levels, Bay Street is up 40% from March and Canadian bank stocks – harbingers of the wider economy – have jumped 30%. Our nation has suffered over 8,000 virus-related deaths, but stands in excellent shape now for a broad and meaningful reopening of all sectors of society as the year grinds on. Just keep washing your hands and shunning sneezy people.
Now, let’s go to Texas, and an update from Chris. This is interesting:
I live in Houston and read your blog more often than I probably should. Nonetheless, I’m always back for more every couple of days : ) I’ve noticed over the last couple of months that many people have been using the small percentage of the population that has been affected by COVID 19 to question whether social distancing and the related economic consequences are really worthwhile. When I run the numbers for Harris County (the county containing Houston) and compare them to Canada the following is what I see.
Approximately 0.8% of the Harris County population has tested positive for COVID 19 and approximately 0.5% of the population is still currently positive (not recovered yet). In Canada, approximately 0.3% of the population have tested positive and 0.1% are currently positive (not recovered yet).
At first blush, all of these numbers are very small. But if you block out the politicians and actually listen to the people running the hospitals, you realize that the slightly less small numbers in Houston are big enough to have people in the know worried that all available surge capacity ICU beds in Houston will be full in the next 2 to 3 weeks if nothing changes….. and that’s not considering their bigger problem, which is whether or not they can find anyone to staff the extra beds.
At the same time, in Canada, it sounds like a number of hospitals are underutilized…… not much happening because there aren’t that many COVID 19 cases (relatively speaking), and people who don’t have COVID are avoiding the hospital unless they absolutely need to be there.
Two vastly different situations separated by a few tenths of a percent.
Obviously, this is a very simplistic and flawed comparison… the testing rate in Houston vs Canada has been ignored for example, as has the number of ICU beds per 100,000 and demographic data. All of these, and many other factors could significantly affect the comparison, but at a high level, it seems reasonable to conclude that only a very small portion of a population needs to be COVID 19 positive before hospitals are in danger of being overrun.
Why bother you with this?
Firstly, I’ve had a front row seat to the sideshow down here and have watched a governor squander an opportunity to reopen the economy with proper safeguards in place due to political pressure, while many individual citizens seem to be unable to look past their own constitutional rights to make an effort for the common good (and their own collective economic wellbeing). Sadly, “United we stand” appears to be an antiquated sentiment.
Secondly, I’m worried that a lot of people look at headlines from Texas and Florida and get the impression from the media that the portion of the COVID 19 positive population in those places is significantly larger than that of the place where they live. The reality is that they’re only a few tenths of a percentage point apart, and this fine line is something that is worth keeping in mind.
Finally, I have the feeling that the current lack of catastrophe in Canada will start to turn sentiment against social distancing, mask wearing, etc. as things drag on, and I’m hearing anecdotal evidence that that may already have started. The economy definitely needs to reopen, hopefully sooner than later, but the Texas example has shown that if the proper safeguards aren’t in place as the economy reopens, and more importantly, if citizens don’t actively support these safeguards, you can pretty quickly end up in a place that is much worse than where you started. Hopefully Canadians can learn from mistakes made South of the border and keep the puck on the right side of the blue line.
My apologies if this is way too far off Greater Fool topic to be of interest.
Assuming you made it this far without falling asleep, I just wanted to say thanks for sticking with the blog, despite your frustrations. Hopefully if it ever gets to the point where you are actually going to shut it down, you might consider just shutting down the comments and enjoy writing the blog? Not as interactive as the current model, but probably better for the blood pressure… and you would still be reaching people.