Markets have stabilizied in the last weeks. The S&P posted two weeks of gains and the focus is going a bit away from the Coronavirus outbreak towards the Corona virus effects on the economy. Economic data in the upcoming weeks will give indications of how severe the crisis is going to be.
The Corona virus outbreak is slowing down, and the next question is how do countries partly reopen the economy and when? Do restaurants open soon again and what kind of measures will be taken. Can companies that depend on on-site sales stay alive even if the economy only partly reopens under strict circumstances?
The upcoming week is a very important weak for the market to start getting a feeling for the pain that the Corona virus has brought to companies in Q1. In March most of the pain started so we get some insight. Nearly a fifth of all S&P companies will have their earnings released this week. Next week I will look back and explain what information we have gotten so far. Even more importantly than just releasing the Q1 numbers is the guidance for the rest of the year and which measures do have to be taken. Companies might stop share buybacks, suspend dividends, reduce CAPEX or even do need to attract additional cash.
Last week the financial markets have been trusting the words of Donald Trump. He is trying to reopen the economy sooner than most expect according to him. Next to that there have been rumours that companies are getting close to a vaccine or an effective treatment for Corona. Gilead is believed to have found an existing medicine that might work well on patients that suffer from the Corona virus. Maybe it is true, maybe not. Already since February I have read many claims of people that companies had found some kind of effective treatment. So far these were mainly rumours and were more signals of hope than of facts. Even if there is a treatment or a vaccine, it probably still takes many months before large amounts of people do get access to them.
Do people dare?
Even when the economy would reopen rather quickly, would this exactly bring production and earnings quickly back to pre-Corona levels? Probably not. People will stay careful and the government will probably have strict measures that will stay in place for months/years to come. Just looking at Wuhan, China, shows that even when people are free to Dine Out again, they still do not. Restaurants and cafes are open but are quite empty. People rather want to be safe than sorry. People do not go out and prefer cooking at home. In Europe we might be different, but still I do not expect full restaurants anywhere soon. People probably do not want that and the government neither. At least till there is a vaccine available.
Nevertheless, some stocks will move up quickly and behave in a very bullish way when more information will come up in the upcoming weeks about partly reopening the economy. Why? They will start having revenues and can avoid getting into financially trouble. Quite some stocks are currently priced for bankruptcy and this can change very quickly. To keep on top of these companies, check below: