There is a surge in Covid-19 cases in numerous states in the U.S. and in several countries around the world. The increase in Houston has been so big and fast that there is concern that Intensive Care units will be overloaded in a matter of days,. Many people are concerned that the increase in cases will lead to an increase in deaths and hospitalizations in the coming weeks. States such as California and North Carolina are now requiring that everyone wear masks in public.
It is a very worrisome picture but will it kill the stock market?
There are two reasons to believe that the market may be able to withstand this issue. The first is that there is unlikely to be another economic shutdown or widespread 'shelter at home' orders. There simply is no political appetite to return to where things were a month ago. Businesses are reopening and the primary focus is on doing that safely with masks and social distancing.
There are some businesses like Disney (DIS) that are delaying their planned reopenings but others are proceeding as planned. A total shut down is no longer viewed as the best approach and people are going to find a way to both reopen and stay safe.
The second reason the market may not collapse under renewed Covid-19 concerns is that there is still substantial liquidity out there. The Fed is still rolling out various stimulus programs and the folk that have missed out on the huge move off the March lows are salivating over the idea of another chance to buy stocks as they selloff.
The main reason this market hasn't already sold off on concerns about the spike in Covid-19 cases is that there are trillions of dollars out there looking to buy the dip. There is very strong underlying support. Selloffs like the market saw on Wednesday are not creating fear and worry to any great degree. They are creating hope that some great bargains will develop.
Since March, many market players have been confounded by the resilience of the indices and many stocks. It seems illogical that the market can continue higher in the face of a pandemic and the worst civil strife ever, but it is all about supply and demand. There is a flood of cash out there looking for a place to go and there are few alternatives but stocks.
Today will be a good test of whether the deteriorating Covid-19 situation can have a market impact. There is a slew of headlines to justify selling but in the early going there is only minor pressure and futures bounced back nicely from overnight weakness.
The spike in Covid-19 cases is very bad news but this market may be able to handle it due to a determination to reopen the economy and unlimited liquidity.