Are the lows in? Is that phenomenal decline in the S&P 500, although down to 2237 -- it is now 2761 -- the bottom? Will we take out the low? Will we even test it?
At one point I thought it had to happen. There was too much weakness in the system. But now I cannot be as negative as I was. There are things occurring that make it very difficult, barring some new outbreak, that we will get that low again.
What happened? I think there were a lot of good things in the $2.3 trillion stimulus package. But, more important, the Federal Reserve last week decided to go nuclear, agree to buy the bonds of really troubled companies and municipalities. Fed Chief Jay Powell adopted a Malcolm X approach to use whatever means necessary to keep this economy afloat and it's hard not to work, given that he has unlimited firepower.
I have to be realistic here. We know the Small Business Administration is working with banks, including community banks to keep small businesses afloat. It's not easy. You have to figure out whether workers want to get unemployment insurance instead of being paid by you, because they don't know if you will hire them back, but the plan makes sense, even as it is cumbersome.
But what made people feel that we weren't going back to the intra-day 18,405 on March 23 is the simple understanding that the Fed was not going to let every retailer with just OK credit go under.
Then this weekend the president negotiated a deal to take 9.5 million barrels out of the markets, which gives some of our better producers in the Permian some breathing room. Given that oil is a huge generator of jobs, this was a gigantic benefit to the industry and also allows the Fed to buy oil bonds if necessary, because now there is hope. Oil was headed to the teens if it weren't for the president's jawboning.
Now all of these bonds would normally be in competition with stocks. However with the Fed backstopping, you may not get the bargains you expected. That means more money into stocks. It means that S&P 500 earnings could be higher. It means the price-to-earnings multiples might not be as high as we thought.
And that brings out very good strategists who change their minds. Strategists like the always commonsensical David Kostin who wrote Monday morning "these policy actions mean our previous near-term downside of 2000 is no longer likely." Investor sentiment has improved, not because of earnings, but because of some hope against the illness.
"The combination of unprecedented policy support and a flattening viral curve have dramatically reduced downside risk for the U.S. economy and financial markets and lifted the S&P 500 out of bear market territory, " he wrote and now his upside year-end target of S&P 500 remains 3000.
With the S&P at 2735, I am not sure we can get to his target price, but his reasoning is impeccable.
Now, I know that the number of deaths is horrendous. But we also are seeing the long-awaited bending of the curve and we are beginning to get some good news about medicines that might change the course of victims' lives, medicines like Gilead's (GILD) remdesivir where 68% of people in a small sample got better.
I know, not a lot, but a start.
I think that may be the beginning of the moment where we can start thinking about going back to work.
Michael Cembalest, chairman of Market and Investment Strategy at J.P. Morgan has an excellent piece out Monday about the possibility that more of us have had it and therefore we might be developing what's known as herd immunity. Consider Covid-19 starved for new people to infect and dying of starvation.
Finally, there's the most exciting thing I have heard during this period. Soon, if we have herd immunity, and if we have antivirals, and if we have testing, we could dramatically reduce the fear and gradually re-open society.
My biggest worry about what happens if we do? Getting infected, especially by someone you don't know, a casual acquaintance, maybe someone you met at a bus stop.
I have been calling for a Manhattan Project, something that puts together the finest minds -- wherever they can be found -- to make it so we can get back to work. Leave it to these tremendous competitors to get together to make it so public health people can give you a heads up that the person you came in contact with has Covid-19. This is a historic partnership between Android and Apple to solve the problem of knowing if you need to be tested, because you were near someone who became sick. You opt in to get it with a free app. The government has no ability to track you. It only knows that your phone came near a sick person's phone. It is beyond me why people aren't talking about this partnership, where they started working literally two weeks ago, but it's what a democracy can produce that does not have any Big Brother implications at all.There will always be people who are fearful of anything that involves opting into a program that touches the public health system. I know that things can't get back to some version of normal without this brilliant invention by two, so-called sworn enemies. Go download Covid-19 Contact Tracing Health/Privacy/Transparency /User Control to learn more about this amazing team-up.
I know, it's all pretty ethereal. So let me do one more thing for you. Let me bring up the work of Larry Williams, the most renown chartist of our time. I am going to show you a series of charts that show why we may be done with the lows. As Larry says, "The history of the last nine bear markets going back to 1972 shows that once we have had a 50% rally, back where we are now in the S&P 500, lows are not re-tested. And a rally less than 50% may give way to a re-test. Anything greater than 50%, we just don't retest."
Let's just walk through these:
1964, 1966, 1970, 1974, 1987, 1998 2003, 2008, and 2020.
We know earnings season starts Tuesday. We know to be wary.
But maybe we don't know why we should be more optimistic than we have been. I hope a walk through of the facts and the charts and the Manhattan Project of Contact Tracing gives you the same hope I feel, even as we know there's so much that still could go wrong. Notice, I spent no time on the past. It's time to think now, it's time to think forward.