Friday, March 20, 2020

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There may be only one antidote for the market

As the grim numbers tied to the coronavirus crisis continue to climb, economic data has begun to deteriorate at a staggering pace.

On Thursday, we learned weekly initial jobless claims jumped to a two-year high of 281,000. And economists say it’s on track to surge to north of a million when it’s reported again next week.

“State-level anecdotes point to an unprecedented surge in layoffs this week,” Goldman Sachs’ Jan Hatzius wrote in a note to clients on Thursday night. “These anecdotes suggest that the next jobless claims report covering the week of March 15-21 will show that initial claims rose to roughly 2¼ million, the largest increase in initial jobless claims and the highest level on record.”

We also learned the Philly Fed’s manufacturing activity index crashed to an eight-year low of -12.7 in March from a three-year high of 36.7 in February. This follows the NY Fed’s Empire State Manufacturing index, which also dropped at a record pace to an 11-year low.

In a research report published on Thursday, Bank of America economists predicted the U.S. economy would lose 3.5 million jobs in what’s now looking like an unavoidable recession, which could see GDP plummeting at a 12% pace in the second quarter.

Meanwhile, the information coming from Corporate America continues to be troubling as executives on the front lines of business don’t know where things are heading.

Darden Restaurants (DRI) is the latest in a growing list of companies withdrawing its outlook for earnings amid uncertainty. On the other hand, General Mills (GIS) continues to offer earnings guidance, but notes: “The impact of the recent COVID-19 virus outbreak on the company’s full-year fiscal 2020 results is still uncertain.“

And so markets continue to swing wildly.

‘The only acceptable antidote’

What could help appease markets?

“A less negative and hopefully POSITIVE stream of headlines on coronavirus (COVID- 19 virus) is most likely the only acceptable antidote the stock market is yearning for right now,” BMO’s Brian Belski said on Wednesday.

Unfortunately, there doesn’t seem to be a good credible forecast for when that will happen.

“So what happens next?” JPMorgan’s Marko Kolanovic asked rhetorically on Thursday. “On the virus side we and likely no one knows, but we are not expecting a significant improvement and macroeconomic fundamentals have significantly deteriorated.”

It really is that simple (or complicated). Once health officials can really wrap their heads around COVID-19 and the curve flattens, we will move from the crisis phase of this event to the phase where we begin to fix things in the economy so it can grow again. It’s at that point we’ll also probably see the market finally bottom.