April 22, 2020

This market reminds me of the song Lynn Anderson sang “I Never Promised You A Rose Garden”, even as the HCM BuyLine® has turned positive, that does not mean there will not be some unnerving days. It has been a rough start with the S&P 500 down 5% in the first two trading days of the week.  Given the 28% rise in stocks in the past 3 weeks, a pullback is hardly surprising. The collapse in oil along with weak earnings are pushing the market all over the place. Again, like we have been writing and telling our advisors and clients, if the HCM BuyLine® goes negative, we will again reduce exposure to equities. Try not to pay too much attention to the day-to-day swings as they are going to be much larger than normal. And remember, even though we do reduce exposure when the HCM BuyLine® is negative, we are still long-term investors, so trying to time or miss every time the market drops 5-10% is a fruitless endeavor. We are expecting 2-4 weeks of pullback/consolidation, but we feel the bottom has been set in the 2200 area on the S&P 500 back in March. This pullback might be the last low entry point to buy for 2020. Time will tell. 



One thing that is very interesting to us is the NASDAQ closed several days above its 200 DMA. If it can hold above these levels, some investors could make the case that a new secular bull market in the NASDAQ has emerged. 


The focus of policy makers is now increasingly on the conditions, sequence, and speed of restarting the economy.  Overseas, the Netherlands, Italy, and even France are now talking about a restart of their economies in May.  Recall, many view Italy as being "two weeks" ahead of the US (during the case surge) and thus, much of Europe has moved its focus to a re-opening of their economies. Texas and Georgia, to name a couple of states, are having a soft re-opening this week. If you have not read about Sweden, I suggest you do, they did not close anything, and it appears they are no worse off than anyone else except their economy is not in the tank as much as everyone else’s. 

Netherlands sw

One of the big questions is how many people have actually had the virus. As it stands now, I know of 6 people in all who probably have had the virus, even their physician has stated as much, but they are not showing up in any study or being counted, yet they had symptoms that were alarming enough to call their doctor. As we have all been reading, most have not even known they had the virus. 3 studies (and growing) point to COVID-19 case spread to be 50-80x or more than "officially" reported. This arguably changes the mortality risk, lowers health risks, and means you should restart the economy sooner and faster. When the world first heard about COVID-19, one of the more terrifying aspects was the very high fatality rate. Initially, it was estimated to be over 5%-10% (1 in 10 or 20 perish). When COVID-19 started spreading across Europe, the mortality rates of >10% in Italy were seen as the "real mortality rate" and thus, made COVID-19 a highly deadly threat. 

As more studies are conducted, it looks like the number of cases (denominator) is vastly higher, by massive orders of magnitude. The largest was conducted by Stanford University in Santa Clara, CA. The takeaway from each of these studies (University of Bonn on Gangelt, Germany to Stanford in Santa Clara and Mass General for MA) is that, based on serological tests (antibodies), the number of COVID-19 cases in each region is way higher than officially reported.  

The COVID-19 case numbers are looking a bit better more broadly, US is showing improvements and continues to outperform NY state. US reported total new cases of 25,956 which is an uptick from yesterday, but the trend remains lower.  Again, the further we move from the high-water mark, the more likely that high-water mark is the top.  And especially if no other states/cities are reporting accelerating outbreaks. 


The Senate and the Congress are close to finalizing a bill that has $310 billion of new money for the Payroll Protection Plan, and $60 billion for SBA disaster loans that don’t have some of the restrictions that the PPP program has created in order to turn the loan into a grant. Agriculture will be defined as a small business, and some of the money will be earmarked for banks with less than $50 billion in assets. $75 billion is added to the $100 billion in the original CARES Act for hospitals and $25 billion is included for testing ranging from grants to states and CDC and NIH for research and development.  Congress is likely to come back on May 5 and at that time they will consider additional coronavirus related legislation including aid to state and local governments.  At some point as businesses open and people start to go back to work, Congress is likely to move from crisis relief to economic stimulus. 

Wealth Watch

Sign up for our weekly news to hear from CEO and portfolio manager, Vance Howard.