Make no mistake about it the world’s economies are in for a world of pain as mandatory social distancing measures cripple entire industries and their related supply chains. No one can say for sure how long it will last or how bad it might get, but it’s possible that the stock market has already priced in the lean times ahead.
For those believe the Dow Jones Industrial Average is predictive and anticipative of greater economic conditions, perhaps the worst is now behind us. Before a sizable pull back this past Friday, last week consisted of a three-day surge that saw the Dow post the largest rally since the Depression era. Monday closed 690 points above the previous trading day, and that put the index in the green four of the past five sessions.
Maybe the resistance level has been found now amid the impact of the COVID-19 pandemic? There are certainly some favorable signs, starting with reaction to the U.S. government’s $2.2 trillion relief package. The bill is intended to help facilitate corporate hiring, consumer spending, small business loans and other basic building parts of the American ecnomic engine. The plan calls for $1,200 stimulus checks to reach every American in the middle and working classes within three weeks time, but with consumer sentiment falling to a multi-year low in March, there is only so much this monetary amount can do.
For most, this amount will be utilized to cover bills, not acquire any form of capital, but at it’s still better fiscal support than having no stimulus package at all. There are two other factors of greater consequence to the stock market than the stimulus package during the coronavirus inspired crisis.
The first is our global quest to flatten the curve, and not overwhelm the health care system. The second is the rate at which medical science progresses with containment tactics and a safe, widely available vaccine.
On the first point, we’ve seen that social distancing and stay-at-home orders (when adhered to) work. Italy, one of the world’s worst hot spots for the virus, reported 4,050 new COVID-19 cases on Monday, their lowest daily number since March 17. More importantly, their 5-day moving average is now starting to level out, and it looks like they might have passed their peak at this point.
The U.S. which leads the world in both number of people tested and number of cases, has consistently tracked behind Italy, just on a 10-15 day delay.
In terms of the race for a vaccine, Monday saw news of the U.S. Government reaching a $450 million deal with Johnson and Johnson to get it on a faster track.
Johnson and Johnson claims human testing of its experimental would begin by September and that it could be available for emergency use by early 2021.
Finally, we’ve also seen a blue print for how to contain community spread of the disease. Look no further than Taiwan, where a blend of social collectivism and high-efficiency governing has resulted in an impressive level of containment. The measures implemented in this tiny island nation off the coast of China could be a window into what the new normal is for the rest of us.
The Dow closed at 18,591.93 on Monday March 23rd, a four year low. One week later, it was back up at 22,327.48. Perhaps it’s a false dawn? Or, it could be the opposite, a stock market rebound driven by the good news that’s out there?
Paul M. Banks runs The Sports Bank.net, which is partnered with News Now. Banks, the author of “No, I Can’t Get You Free Tickets: Lessons Learned From a Life in the Sports Media Industry,” regularly appears on WGN CLTV and co-hosts the “Let’s Get Weird, Sports” podcast on SB Nation.
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