A spate of good news helped stocks this week battle the overriding pessimism of the last month. A possible drug to combat the COVID-19 virus coupled with a flattening of the virus curve in some regions helped the markets to gain ground. Can it continue?
It sure can, although a pause to catch our breath may be in order for next week. Gilead Sciences, the pharma/biotech company, has been working at breakneck speed to develop a drug to treat coronavirus patients. On Thursday, a report in a healthcare publication indicated that its experimental drug, Remdesivir, was having some success in human trials. The indexes spiked higher on this news.
On the same day, Donald Trump and his crew basically turned the process of re-opening the economy over to the country’s governors. That news was also greeted positively by investors, who have little-to-no confidence in an administration that has proven less than capable of handling the pandemic crisis.
As a result, stocks have continued their rally of last week, when the averages notched up better than 12% gains.
“How can this be?” inquired one client, who has a reputation for “chasing” the market up and down. We are getting the worst results in history—unemployment, earnings, COVID deaths—and the markets are going up?”
A client wanted to sell half of his portfolio on Tuesday, keeping the other half in the market. He proceeded to list for me all the reasons why that move was justified. But there was nothing I haven’t heard or read over and over again for the last few weeks.
“Tell me something I don’t know,” I finally said. “If you and I are aware of all of this, then so is the market. Give me some new information that the market has not already discounted.” He couldn’t come up with anything. Fortunately, I convinced him not to act on his impulse, and as a result, he is better off today.
Investors are no longer focusing on the past nor the present, it is the future that has trader’s attention. What states will get back to work first? When will there be promising results for a vaccine? When are Americans going to be able to be tested? Those are the unknowns and the direction of the stock market will depend on those outcomes.
Let’s take the back to work dilemma. I want to go back and work in the office, but I have no way of knowing whether I will be infected if I do. None of my fellow employees have been tested, nor are there tests available to do so–unless they come down with the symptoms. By then, it would be too late for me.
That is the story playing out all over the nation. After all of this time, only one percent of the nation’s population has been tested for COVID-19. All over the world, governments have focused on testing in an effort to control the spread of the virus, along with isolation. Why have we failed in achieving this objective, when so many others have succeeded? Is it because some in government are betting that what we don’t know, won’t hurt us?
And without widespread testing, there can be no back-to-work scenario
Opening up the country without the capability of wide-spread testing is simply playing Russian Roulette with the lives of its citizens, in my opinion. It appears that for some corporations and politicians, the risks are worth it. My bet is that without this crucial element resolved, there can be no back-to-work scenario for the economy, and further gains in financial markets could be capped on the upside.