by Bryan Perry

June 16, 2020

The headlines that everyone feared crossed the tape in the middle of last week, when it was reported that a resurgence of Covid-19 cases was hitting Texas, Arizona, Florida, and California. The news offered a motive for some aggressive profit-taking in equity markets after a long rally that took the Nasdaq to a new all-time high above 10,000 and the other major averages came within spitting distance of previous highs.

The bears finally got what they wanted, and the shorts could pounce on the initial downside momentum that saw the worst one-day loss for the market since late April. It looked inevitable that the S&P would slice back down through its 200-day moving average at 3,010 like a hot knife through butter and feed on itself until all the retest prognosticators would come out of their bear caves and claim victory after all.

But come Friday, Vice President Mike Pence touted a “steady decline” in coronavirus hospitalizations and fatalities, despite data showing that several states saw a rise in Covid-19 patients since the Memorial Day holiday, and health officials warned that coronavirus death tolls could increase in the months ahead.

“We’re seeing a steady decline in hospitalizations and, most importantly, a steady decline in fatalities,” Pence told CNN’s Pittsburgh affiliate WPXI in an interview on Friday, arguing that America is “safely reopening.” He described the recent increase in Covid-19 cases in some states as “a reflection of a dramatic increase in testing.” Below is the latest data from CDC on the hospitalization rate by age group.

COVID-19

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

The market opened higher at Friday’s opening bell before trading briefly into negative territory and then closing higher, recovering a decent portion of Thursday’s waterfall sell-off and preserving the technical threshold of 3,010 for the S&P and 9,500 for Nasdaq – at least for now.

The key data point investors seem laser focused on now is the rate of new hospitalizations. If this data remains stable relative to rising COVID-19 caseload, the bears will have to go back into hibernation until some other market-rattling headline triggers the overnight futures market.

And what other risk-off headlines should we be looking out for?

Here are in my opinion six downside risks that singly may not be powerful enough to offset the fiscal stimulating forces of the Federal Reserve, the Treasury, and Congress, but combined could become a threat. They include:

  1. A second wave of coronavirus, where hospitalizations and the death toll surge.
  2. Economic data and corporate earnings guidance that severely disappoint.
  3. Tensions with China that become unexpectedly elevated, sparking serious actions.
  4. The value of the dollar crumbling under the weight of explosive growth in debt.
  5. Current social upheaval gains further widespread traction in major cities.
  6. Joe Biden and the Democrats sweep the White House and both houses of Congress in the fall.

Market participants are keeping all of these threats in their peripheral vision for the time being, but let’s also keep these positive current trends and fluid responses in mind as well.

  1. As reported, the reopening of the economy and rampant testing for COVID-19 are producing more cases (from more testing), but no major increase in hospitalizations.
  2. The economic data of the past two weeks has, for the most part, come in at (or better than) forecast – especially jobs data.
  3. The fragile trade truce will likely not extend beyond the November 4 election, resulting in a ratcheting up of tariffs.
  4. The Fed and Treasury will use their might to buy dollars in the open market to support the greenback while further stimulus is advanced.
  5. Big cities will endure ongoing protests that provoke structural changes in the policing of society but protests will turn unpopular with never-ending newsfeed of looting and violence.
  6. Joe Biden may select a moderate like Val Demings as his running mate, making for a super close election that, in my opinion, could go either way.

Val Demings

According to Wikipedia, Demings is 62 and is a “former law enforcement officer serving as the U.S. Representative for Florida’s 10th Congressional district since 2017. From 2007 to 2011, she was the Chief of the Orlando Police Department, the first woman to lead the department, capping a 27-year career with the department.”

Until the larger issues play out, namely China and the elections, the market will likely absorb most of the other risks as not nearly outweighing what the Fed is currently doing and what Fed Chair Jerome Powell has promised to keep doing as of last week’s press conference. To declare in mid-2020 that there won’t be any increases in interest rates until 2023 is a grand promise to the equity markets.

Powell also stated the Fed will keep monetary stimulus coming for years. Under these conditions, bouts of selling will likely be well-contained and a major pullback of 20% or more from the recent highs – the kind of pullback that so many cash-rich investors crave – could be fleeting.

Standarda nd Poors500

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

If, and that’s a big if, there is a round of sustained selling, then the 50-day moving average that comes into play at around S&P 2,900 and then 2,800 would provide a fine place to initiate or add to positions.

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

Please see important disclosures below.

Also In This Issue

A Look Ahead by Louis Navellier
The Fed Launches an Epic Battle Against Deflation

Income Mail by Bryan Perry
Risk Assets Are Proving Resilient

Growth Mail by Gary Alexander
Both Gold and Stocks Belong in a Balanced Portfolio

Global Mail by Ivan Martchev
“We Print it Digitally” – Fed Chairman Powell

Sector Spotlight by Jason Bodner
Seeing the Stock Market “A Little Differently”

View Full Archive
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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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