Coronovirus Developments Are Now the Whole Story

Coronavirus-related news is now the only thing that matters for the markets.  While fiscal policy help should provide some relief to the economy and markets, it is just a band-aid.  Progress in curtailing the disease -- either through its natural course or through effective medicines -- is needed to be seen before a sustained stock market rally can take hold.

A cure, along with a peaking of the infection rate, would buy time for the development of a vaccine.  Both are not out of the question.  There are some encouraging results from French and US doctors about a combination of drugs that may be effective against the virus.  And, the rate of increase in the infection rate might slow once the backlog of tests is worked through, which is expected by the middle of this coming week (as mentioned in President Trump's new conference today).

From a market perspective, a cure or peaking of the infection rate would prompt expectations of re-openings of businesses and sporting events.  In this regard, things to watch for near-term are /1/ if schools go back to class when Spring Break is over at the end of March, /2/ if professional sports and other entertainment re-open in April, /3/ if workers start returning to offices and factories.  In particular, if GM and other auto manufacturers re-open factories at the end of their 2-week closure, and /4/ if Chinese supply disruptions end.

These returns to normalcy are not likely to happen quickly, however.  For example, NY Post reports that Broadway producers now think their shows will not reopen in April,  Instead, the earliest date could be this summer.  And. some school systems plan to re-open at the earliest in May.  But, there are signs the Chinese economy has begun to rebound.

While Initial Unemployment Claims have just begun to surge (with some forecasters expecting an unheard of 2-3 Mn filings in this week's report), their peaking would be early evidence of a stabilization in the economic contraction.  To be sure, the contraction is expected to be bad.  Some Street Economists look for a 20+% (annualized) drop in Q220 Real GDP Growth.  But, there is no hard evidence yet available, so the extent of a Q220 drop remains an open question.