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Keep Breathing

Repeating verbatim from our last blog: “Hang in there! We are going through the most challenging period of our lifetimes. Following the CDC guidelines and keeping a positive attitude is the best medicine to heal physically and mentally.”

I expect to open Kuby’s Commentary with those lines for the next few weeks. The virus and our scientists and health care professionals will determine the timeline for a slow return to normalcy. Human behavior will likely have changed when we emerge at the other end of this vast and dark valley. Some activities will suffer a permanent decline, but over time people will probably return to most of their old habits.

In my opinion, we should expect another week or two of rising numbers of infections and deaths. After that period, assuming people have been and will continue to follow the guidelines, then the numbers should start to decline. I’m an optimist and not a scientist, but that’s my interpretation of the data. Franklin Templeton released a nice summary of the progress in addressing the coronavirus. Here are some of the highlights:

“The world’s medical and scientific community and health care, pharmaceutical and biotechnology companies are working more closely together than ever as our societies and economies seismically shift to new ways of engaging in life and commerce in response to the COVID-19 virus. The virus responsible for COVID-19, “SARS-CoV-2,” also referred to as the “coronavirus,” has been identified and genetically sequenced and open-sourced for scientists to use. Most coronavirus data and research is public and open platform, enabling sharing of knowledge about COVID-19 prevention, treatments and vaccines.” They also provide a short summary of five COVID-19 treatments in newsworthy research studies.

Quoting Joe Zidle, Chief Investment Strategist at Blackstone, “Eventually, scientists will produce a breakthrough vaccine, and the frozen global economy will thaw out. But before we’re on the path to economic recovery, we need to see a peak in the number of new coronavirus cases, a clear decline trend and specific developments that signal we can heal. The stock market may anticipate these conditions earlier.”

The policy response was swift (for government action) and gigantic in scope. On Monday the Federal Reserve promised to buy unlimited Treasury and mortgage bonds and on Friday President Donald Trump signed into law a historic $2 trillion stimulus package, the largest emergency aid package in US history. It represents a massive financial injection into a struggling economy with provisions aimed at helping American workers, small businesses and industries grappling with the economic disruption. The surge in new claims for unemployment last week underscore the need for these dramatic measures. A record 3.28 million Americans filed for unemployment benefits as the coronavirus pandemic shut down much of the country. The Labor Department’s report for the week ended March 21 was one of the first official indicators of how many people have suddenly been forced out of work nationally. In the prior report, for the week ended March 14, initial claims totaled 282,000. “This marks the highest level of seasonally adjusted initial claims in the history of the seasonally adjusted series,” the department said of the latest figure. “The previous high was 695,000 in October of 1982.” The Labor Department’s records go back to 1967.

My short-term outlook for the stock market is for volatility to persist, with rapidly changing price direction. Tuesday through Thursday the market staged it biggest three-day gain since 1931, and the S&P 500 gained 10.26% for the week. The dollar declined 4.5%, the yield on the Ten-Year Treasury slipped 19 basis point to 0.07% while gold jumped 9.4%. Crude oil had a couple of wild swings but was unable to stem its downturn finishing off almost another 4% to $21.51. On Wednesday, short-term t-bills moved to a negative yield, perhaps signally the height of the flight to safety.

This Week:

More evidence of the economic fallout will combine with a continued ramp up in global coronavirus cases to result in a 24/7 stream of disturbing headlines. Hopefully the number of new cases and deaths in Italy will begin to decline, as their outbreak started about 10 days earlier than in the U.S. A rebound in oil prices and a decrease in the VIX (CBOE Volatility Index) would be very helpful for stock prices.

On Sunday night, President Trump extended the current social distancing guidelines for Americans until April 30. Earlier in the day, Anthony Fauci, the director of the National Institute for Allergy and Infectious Diseases, said that millions of Americans may wind up infected and as many as 100,000 to 200,000 could die. I find Dr. Fauci to be the most informed and honest voice in this crisis. Importantly, he stated that projection is based on us not taking the steps to mitigate the spread, emphasizing that “What we’re trying to do is not let that happen.”

Stay home. Breathe…. but not on anyone. Perhaps by next week the sun will be breaking through the clouds.

Related: Why the Financial Markets Are Moving so Fast