by Bryan Perry

October 13, 2020

Living in a time when bias in the reporting industry is so prevalent, it can leave readers and voters gasping for some truthful air. The many bias-filled news feeds we have to digest with a bottle of Tums is about as frustrating as the pandemic-laced life we all have to lead. There doesn’t seem to be an end to it.

Where is Dragnet’s Sgt. Joe Friday with his famous line, “Just the facts, ma’am” (loved that show!)

Photograph of the Detectives in "Dragnet"

The most controversial news – back and forth, up and down, left and right – surrounds Covid-19 and how the numbers are either surging again or improving when measured by caseload or death rate, compared with test volumes. We have so many so-called authorities telling us to just “listen to the science,” when many of the leading scientists on the topic of coronavirus don’t agree on many key points of substance.

As the pre-election “fact checkers” burn a lot of midnight oil to shine light on what we can believe from all sides of the Covid-19 debate, I decided to turn to the tried and true Wall Street maxim that “the charts don’t lie” for some clues. My goal was to cut through some of the noise for our readers this week as to what the numbers really say, and then ask why the stock market is suddenly acting like it got vaccinated.

Let’s turn to www.covidtracking.com for some perspective. Their mission statement is: “The public deserves the most complete data available about Covid-19 in the U.S. No official source is providing it, so we are. Every day, our volunteers compile the latest numbers on tests, cases, hospitalizations, and patient outcomes from every U.S. state and territory.” I recommend everyone spend time on this website.

Johns Hopkins relies on their testing data for its Covid-19 Testing Insights Initiative, which brings data and expert analysis together in one place and is considered the de facto trusted source by policymakers at all levels of federal and state government. As of October 1, the charts below clearly show increases in testing, cases, and hospitalizations, but they also show a distinct downtrend in deaths from Covid-19.

Covid19-Tracking-Graph

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Covidtracking.com reported their current findings for the month of September as follows:

  • The average daily number of cases, hospitalizations, and deaths fell nationwide. After a difficult summer, average metrics for August and September showed drops in Covid-19 cases, hospitalizations, and deaths at the national level.
  • At the same time, indicators in a few states are ringing alarm bells, and this week’s data continues a three-week rise in cases, with hospitalizations starting to increase as well.

Without the benefit of last week’s data on the mortality rate, it stands to reason the market is encouraged not only by the countertrend of daily deaths versus rising testing, cases, and hospitalizations, but also the rapid recovery by President Trump after a not-yet-approved Regeneron-based cocktail was prescribed.

(Cleary, it would be a career killer for a doctor to murder a sitting President, so it couldn’t be that risky.)

But seriously, there is broad agreement that we now know much more about this virus than at any point since the outbreak. I think the market is buying into the notion that even if one or more FDA approved vaccines are on the way, the real-time science of treating infected patients has rapidly advanced to where a greater number of infected people are surviving – if the charts don’t lie, and I don’t think they do.

By now you’re asking, so what? What does all this have to do with the market? Good question. Let’s let the market data do the talking. Why is the CBOE Volatility Index (VIX) taking out the September lows when the most contentious election cycle of recent memory is just three weeks out?

Line Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The answer is that big money likes what it is seeing in charts like the S&P 500 Advance/Decline Line. (For the uninitiated, the Advance/Decline (A/D) Line is a breadth indicator, which is calculated by taking the difference between the number of advancing and declining issues and adding the result to the previous value. It rises when advances exceed declines and falls when declines exceed advances.)

 

It’s important to compare Advance/Decline Lines plotted for the index with the performance of the actual index. The AD Line should confirm any advance or decline with similar movements.

As of late September, the A/D line has turned very bullish.

S&P-500 Line graph

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

It’s not just the S&P 500 seeing a positive A/D line, but the Dow, Nasdaq, and Russell 2000 are all showing the same uptrend. Money is flowing into stocks — despite all the noise about a potential market collapse from certain potential election outcomes following November 3.

Sure, there will be some disruption if a contested election extends for weeks after the initial vote tally, but the market doesn’t seem to be nearly as concerned with this possible chain of events as it is with the corporate earnings momentum about to be revealed for the third quarter and guided for the fourth quarter.

Earnings visibility is improving. According to the data from FactSet on October 9:

“It does appear that some S&P 500 companies have better visibility on future earnings heading into the third quarter earnings season than they did heading into the second quarter earnings season. Given that most S&P 500 companies have only one quarter remaining in their fiscal year, it would seem likely the number of S&P 500 companies issuing EPS guidance for 2020 will increase again during the third quarter earnings season.”

The table below depicts a rather sharp upturn in earnings growth going out to the second quarter of 2021. What is more impressive is a resumption in revenue growth accelerating to 13.7% by Q2’21. Companies can manufacture positive earnings, but not organic sales growth. And the market is buying into the data.

Here is FactSet’s outlook for the 2020 declines vs. 2019, and then 2021’s projected increases vs. 2020:

Image of Text Statements

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Investors already have a strong peek around the corner about how third quarter earnings are shaping up.

The following 10 companies have already posted Q3 numbers above +20%.

Q3-2020-Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

So, maybe we should all turn down the volume on the media and pay more attention to what the charts and graphs tell us: It’s OK to be long great stocks now. We’ll worry about the politics later on.

Navellier & Associates owns Costco and for some clients Darden Restaurants, Nike, and Carmax but does not own Lamb Weston Holding, Fedex, Lennnar, Cintas, Autozone or Conagra in managed accounts.  Bryan Perry does not own Costco, Darden Restaurants, Nike, Carmax, Lamb Weston Holding, Fedex, Lennnar, Cintas, Autozone or Conagra in a personal account

 

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Bryan Perry

Bryan Perry
SENIOR DIRECTOR

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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