Modest Monday Decline
Days of the market crashing on Monday are over as stocks fell 1.01% on Monday April 13th. Frankly, I think the days of crashes in general are over. A modest decline after the best week since 1974 is quite impressive. We all went into the week expecting a mixture of down and up days, with the market ending up modestly.
It’s hard to imagine stocks not inching higher since the end of the economic shutdown is approaching. Many are quite confident there will be an opening in May. It might be a partial opening though.
Reopening In May: Vaccine In September
A few groups of states have formed regional compacts in which they will have similar stances on reopening the economy. These are just outlines to act upon. It makes sense because the virus doesn’t infect people based on which state it’s in. For example, New Jersey and NYC have both been hit hard. To be clear, these compacts don’t mean the economy is opening next week. They are the preview to opening targets.
We can expect by the end of the month we will have some states targeting a specific day to reopen if everything goes well. For example, we could see Washington announce next week that it is reopening in the first week of May. Washington has had its infection in order for the longest as it was the first to contract it. Those dates may not actually happen. It’s just an estimate of where this situation is headed.
Fears are surfacing that the virus is re-infecting people. But there are hopes of a vaccine by the end of the year. There isn’t enough proof to support or oppose the idea of the virus coming back in places where it has already been suppressed. Good news is Sarah Gilbert of Oxford University stated she’s 80% sure the vaccine she’s working on will work and it could be ready by September.
Initially, experts claimed the vaccine couldn’t be developed until 12-18 months had passed. Since all of humanity working on one virus, it's likely that we could develop a vaccine sooner. Human trials for the vaccine will begin in 2 weeks. Each week that goes by gives her more confidence it will be successful.
Details Of Monday’s Mild Selloff
Tech stocks rose the most as the Nasdaq was up 0.48%. A couple weeks ago people were saying tech stocks had to fall sharply because they didn’t crash in this bear market. That was wrong because these companies weren’t hit hard by the virus. Would you expect Adobe to fall as much as a cruise stock?
Obviously not. Adobe was up 0.61% and Carnival Cruise was down 7.41%. The companies hit the hardest by COVID-19 are in the hands of traders now. Traders love the stocks moving the quickest. You can play them on the long and the short side.
Russell 2000 was down 2.78%. It’s amazing that many of the firms hit the hardest by the virus have become small cap stocks. Nordstrom is only worth $3.2 billion. Macy’s is only worth $1.91 billion. Cinemark is worth just $1.27 billion. Norwegian Cruise is worth just $2.42 billion. VIX fell 0.5 to 41.17. I think it will fall to the mid-20s by the time the economy reopens in May.
Tesla was the best stock in the Nasdaq as it rose 13.6%. Tesla stock rallied in Q4 2019 and the beginning of this year because the company is releasing Model Y. That launch was ruined. However, investors are betting that once the economy gets back on track in the next few months, the most important launch in Tesla’s history will be underway.
It’s clear that investors don’t care that gas prices are very low. Low gas prices ruin the economics of electric cars. Tesla is way overvalued, but most don’t doubt its ability to hit a new record high based on pure speculation.
Most sectors fell, but 3 were up. Communication services and tech were up 0.1% and 0.2%. Consumer discretionary was up 1.1%. Whenever this sector moves, it’s because of Amazon. As you can see from the table above, Amazon is 36.18% of the sector. Its stock was up 6.17% on Monday. The stock is very close to its record high as it’s less than $2 away. Worst sectors were the financials, industrials, real estate, and the utilities which fell 3.58%, 2.86%, 4.59%, and 3.29%.
COVID-19 Situation Improves
We are about 1 week away from daily updates on COVID-19 because the situation will be improving at a rapid pace. Then in June, we will focus on the economic data closer. As you can see from the chart below, almost all consumers think they will resume their daily routines by the end of the summer. Personally, I think that will occur by the beginning of the summer as I am much more optimistic.
As predicted, odds of there being under 5 million COVID-19 cases globally by April 30th are approaching 100%. They are at 87.9%. The healthdata.org model was revised to show more deaths by August. Now it expects to see 68,841 deaths in America. Many are more optimistic than that. Monday was a great day as cases fell in most areas.
In America there were 26,641 new cases which was the lowest level since April 5th. In Spain, there were 3,268 new cases which was the lowest level since March 18th. On Monday, the Spanish government allowed businesses whose employees can’t work remotely to reopen.
Denmark plans to reopen schools on Wednesday. In Italy, there were 3,153 new cases which was the lowest since April 7th. Finally, in Germany there were 2,218 new cases which was down from 2,402 and the lowest since March 17th. In America, there have been 2.96 million total tests. They are running out of sick people to test which is a good sign.