As the nation faces an increasingly dire economic situation along with climbing unemployment numbers, Treasury Secretary Steven Mnuchin gave Americans some much-needed positive news on Thursday. In an appearance on CNBC, he indicated that the economy could reopen in May.
When host Jim Cramer asked the Secretary if he believed the U.S. could open the economy so soon, Mnuchin replied, “I do.” He continued, “I think as soon as the President feels comfortable with the medical issues, we are making everything necessary that American companies and American workers can be open for business and that they have the liquidity to operate their business in the interim.”
The challenge for the White House right now is balancing the needs of the economy with the medical concerns over the spread of the virus.
Health experts have warned that reopening business too early might cause another spike in deaths. They suggest that the United States should only restart its economy when there is a sustained decline in coronavirus cases to ensure that hospitals will not become overwhelmed.
So far, Trump has listened to the medical experts but he has also indicated that the U.S. shouldn’t allow “the cure to be worse than the problem.” On Wednesday, he told reporters that, “We have to be on that downside of that slope and heading to a very strong direction that this thing is gone. We could do it in phases.”
Markets Look for the Flattening of the COVID-19 Curve
Hopes that a pandemic peak may not be far away and evidence that governments are at least thinking of shutdown exit-strategies are positives to cling to ahead of a long Easter weekend. But one that could keep the grim headlines coming.
“The difference between now and the start of the pandemic is that we can at least see the end. We can see that we have flattened the curve, and we can reasonably project when the pandemic will be brought under control,” Brad McMillan, the chief investment officer for Commonwealth Financial Network, told clients. Granted, the point of zero infections may still be weeks away.
“During the financial crisis, S&P 500 EPS fell 50% and more than 80 companies cut their dividends, with the biggest cuts in financials (which contributed a quarter of index dividends),” says a team of strategists led by Savita Subramanian.
Fast forward to the present, technology and financials are the biggest contributors to index dividends. The plus is that both have fewer earnings-per-share fluctuations, payouts that are well below average, and clean balance sheets.
“Tech has net cash, financials’ leverage ratio has never been lower,” Subramanian says.
So while the futures market is pricing in a 30% cut in S&P 500 dividends this year, she expects it to be closer to 10% and notes that the market “grossly overestimated” the fallout in 2008/09 as well.
Focus On Health Care Co’s Earning For Market Health
Major banks and health care companies will be the first to reveal how the early weeks of the coronavirus shutdowns impacted their profits, outlook, work force and customers.
Earnings season begins in the upcoming week, with JPMorgan, Wells Fargo, and Johnson & Johnson among the first to release their first-quarter earnings reports Tuesday. And the stock market appears to be willing to overlook any anticipated bad news for now.
“Most of the slowdown occurred in March,” said Art Hogan, chief market strategist at National Securities. “Do we react to the hyper negative economic data we see? What we do react to is any semblance of guidance. There is no clarity about duration of the economic slowdown. You’re going to see a preponderance of companies pulling their guidance for the calendar year… I think it’s going to be more companies doing that, than not.”
“People are more interested in news about the spread of the virus than they are about the economic data,” claims Hogan, “We got another massive increase in jobless claims. That’s ignored because we’re listening to who is plateauing… Is New York actually getting better and we see a peak? I get the feeling people are going to look at the first-quarter earnings and say, ‘we know this and you should pull your guidance.’”