That is what financial markets are feeling this week despite another difficult string of economic data. This week’s new claims for unemployment benefits brought the tally to over 22 million people in the last four weeks. New housing starts fell 22% month-over-month while retail sales fell 8.7% month-over-month (worst on record despite grocery sales having one of its biggest gains ever). Those readings were in March, when the broad-based shutdowns only began halfway through the month. The most significant impacts will be seen in April as shelter-in-place orders around the county were in full effect. Only as we approach May are the conversations of when/where/how to re-open begins.
The source of optimism comes on many fronts. Daily new case counts in the United States seem to be confirming that the peak growth rate in cases has been reached – that is to say that, on average, we are seeing the same or fewer new cases each day. It will be a bumpy ride lower in new case counts, but the charts are showing that the efforts to reduce the number of cases at any one time have been effective.
Next, the early results from some therapeutics are hopeful. In particular, an article reported that Gilead’s drug Remdesivir shortened the recovery time of severe cases in the first released information from clinical trials. Should the results be supported with other data in the study, use of the therapy could significantly increase the “capacity” of our healthcare system to manage new cases effectively.
Finally, the unfortunate infection onboard the much-discussed aircraft carrier USS Theodore Roosevelt presented a silver lining. It inadvertently became a sort of experiment with 4,800 sailors isolated onboard in relatively close quarters. A news report indicated that, after testing almost the entire crew, there are 600 sailors who tested positive for the virus. Interestingly, approximately 60% of those 600 positive cases showed no symptoms. This observation is greater than the 25-50% of cases being asymptomatic as has been speculated earlier. Should it prove that those who have been infected carry some duration of immunity, it could put us further along a path to “herd immunity” even before a vaccine becomes available.
The dialogue of when to begin relaxing shelter-in-place orders in the US took another step forward this week as well. The Federal government released its guidance by which each individual State governor can decide how best to begin the process. The following day, several states announced that they are working on plans that make sense for them. The details of timing and process are critical. Everyone certainly wants relief to re-enter the world safely, but it must be in a way that facilitates steady improvement. Having to re-institute some of the more stringent policies should the process not be data-driven will damage our public confidence and trust as we navigate forward. However, the door is open.
Add in the receipt of stimulus checks this week by individuals and the deployment of Payroll Protection Program loans (and expectations of another funding shortly) and you have an understanding of the stock market’s optimism. It has jumped higher these past few weeks – setting records in speed and magnitude on the bounce just as it did on the way down. To be balanced, we have to remember that the road to economic recovery is going to be long and uneven. Amidst the optimism, there are reports that most national tenants did not pay April rent to real estate owners, almost 4% of all home mortgage borrowers have requested forbearance, and the initial earnings results from banks are coming with large loan-loss provision.
That said, every little bit of optimism helps.
Will Skeean, CFA
Partner – Investment Management Team Chair