Is it the beginning of the end of the scourge of 2020? Are we witnessing how a pandemic begins to run its course?
Today we learned that Gilead's (GILD) controversial drug remdesivir cuts down the number of days Covid-19 victims stay in the hospital. While it is far from perfect, the drug was potent enough to cause doctors to stop a trial where it was pitted against a placebo. It just wasn't ethical to continue to allow one group of patients not be treated when there was something available that could help them.
And that news sent the market flying, as it should, because we are about to open the country to business and the Achilles heel of the plan is that we could quickly spiral. We would be triggering a new wave of infections and deaths by letting people go to work and go out after.
But now with a course of medicine that busts the notion that novel coronavirus has to end in death once you are in a hospital, there's a much more reasonable chance that the vast opening of American business won't lead to disaster.
Now there's a wave of skeptics out there who question everything from the drug's efficacy to what it could even mean for the stock market. I don't blame them. In some ways the positive results from the NIAID trial seem almost chimerical. It seems barely statistically different.
So what's the deal?
Simple. Dr. Anthony Fauci, the nation's foremost epidemiologist, the man who is widely regarded as the scientist who conquered AIDS, said the results of the remdesivir trial reminded him of the first victory he had in the battle against what was thought to be an incurable disease. Fauci compared remdesivir's success to that of AZT, a drug he gave victims of AIDS that actually had positive results. He then began to layer other drugs on top of it and AIDS sufferers were basically cured.
Yes, people can and will continue to catch Covid-19. Yes, we don't know yet what cocktail Fauci has in mind to advance the cause. But there is a path and that means the furious rally can be justified.
I like to analyze all big moves in the stock market, to be sure what really causes them. We are in earnings season and we had four big earnings reports Tuesday night and Wednesday morning, and three out of four were received quite poorly: Advanced Micro Devices (AMD) , Starbucks (SBUX) , Boeing (BA) and General Electric (GE) . The lone lauded company? Alphabet (GOOGL) .
As usual all the macro data was bad. Nothing new there.
The Fed did nothing of any significance.
No, it was all Gilead.
How do I know this? Because I interviewed the CEOs of the three companies the market judged wanting and the weakness could all be related to Covid-19.
Lisa Su, the brilliant CEO of AMD, put up a fantastic number and gave a solid forecast despite Covid. The fact that she even had a forecast was a big deal. However, analysts found it wanting and pronounced it as a slowdown with some whispers that AMD is now beginning to cede its chip lead to Intel (INTC) .
I think this is totally untrue. I believe it was an excellent quarter that was slowed by customers dealing with Covid. It is a testament to her chips in notebooks, the cloud and gaming, all strong secular trends that even Covid can't stop even as it hobbled them.
I say you buy the stock because if Covid does get under control this year the fourth quarter could be gigantic,
Starbucks SBUX got hit by the Covid stick in China at the beginning of the quarter and then the scourge hit home, closing half the stores. There was no way it could have anything but a horrible quarter with that rancid brew. But now China is coming roaring back and they are putting up stores with alacrity. In another week Starbucks will begin to open up the closed stores here. The combination of a normalized China and a pent-up jonesing for caffeine in America, especially in its Nitro form, means that Starbucks is about to return to growth mode, maybe even blistering growth. It's a buy.
I might as well lump Boeing and GE together because they are both casualties of Covid and the self-inflicted woes of the now legendary horrible tale of the 737 MAX. It's impossible to tell when the FAA will allow the 737 MAX to fly. I know that Southwest Air LUV, which needs it badly if traffic returns, expects no good news until the end of October.
Both Boeing and GE suffered from a lack of demand because of Covid. They both badly need it tamed. Why did the stock of Boeing go up and GE go down? I think the former can be explained by commentary Boeing CEO David Calhoun gave us Wednesday morning that made me feel that he is going to go loan, meaning he can borrow money that will be backstopped by the Fed. It would not surprise me if that weren't augmented by a gigantic issuance of equity just like Southwest Air did Wednesday morning. You want to buy Boeing on that deal if it occurs.
I don't know what to say about GE other than its CEO, Larry Culp, is luckless. Just when they are giving away free money he's already raised $47 billion at the cost of giving away one of his company's crown jewels, its high-growth biopharma business. No matter, I think you buy the stock because of yes, remdesivir and its soon-to-be-announced spawn.
So how about Alphabet? Did that help ignite the rally? Oh, Ruth Porat, one of my absolute favorite CFOs, mentioned there might be some green shoots in advertising when all that was visible was a burned out lawn. But then she spent the rest of the conference call pooh-poohing her optimism.
The real reason why Alphabet roared? The word they used was efficient. The word I used: profligacy, as in the end of an era of profligacy and the beginning of an era of aggressive profitability. When Alphabet has one of these periodic cycles where it is out to make as much money as possible, like it did coming out of the Great Recession, you have to own it. This one took me by surprise as I had gotten used to blown quarters. That skein's now over.
Nah, Wednesday was about the beginning of the end of the reign of Covid-19 terror. It's the start of stories that actually might have a kernel of good news, not just a relentless mauling that this almost human pestilence has visited upon us.
For the true skeptics it's hard to believe that a trial that was so seemingly insignificant could spur such a burst of optimism. But for those who had incredible trepidation about the unleashing of a nation of pent-up people, it could not have come at a better time.