Treasury Secretary Steven Mnuchin told Fox News on Sunday that he believes that the economy is going to bounce back quite quickly over the summer once states start to reopen.
“I think as we begin to reopen the economy in May and June, you’re going to see the economy really bounce back in July, August, September,” Mnuchin said. “And we are putting in a unprecedented amount of fiscal relief into the economy. You’re seeing trillions of dollars that’s making its way into the economy, and I think this is going to have a significant impact.”
When asked about models that prove otherwise, Mnuchin noted that the current crisis is unlike anything that has ever happened before, and many of the models showing a slower recovery may based on things that are not relevant to the current situation.
“This is not the Financial Crisis,” Mnuchin said. “This is a scenario where we’ve closed the economy and we’re going to open the economy. So, all these models are based upon health assumptions, how quickly we reopen, so we’ll see.”
He also adds, “My own opinion is, again, we have unprecedented amount of liquidity in the system.”
This Respected Market-Timing Model Just Flashed a Bullish Four-Year Outlook for Stocks
The median U.S. stock will produce an annualized price-only gain of 6.0% over the next four years. With dividends, that’s equivalent to nearly 8%.
This cheerful forecast is produced by an iconic market-timing model that has an excellent track record predicting the market’s return over the subsequent four years.
It is based on a single number that is printed each week in the Value Line Investment Survey. That number represents the median of the projections made by Value Line’s analysts of where the 1,700 widely followed stocks they closely monitor will be trading in three-to-five years’ time.
Researchers who have analyzed its market-timing potential call this number the VLMAP, which stands for Value Line’s Median Appreciation Potential. They translate the number into a return forecast by searching for the formula that, when applied to the VLMAP, best fits the historical data.
How much confidence should you place in this forecast? One way to answer is to focus on a statistic known as the R-squared, which measures the degree to which one data series (in this case, the VLMAP) predicts or explains another (in this case, the median stock’s subsequent four-year return).
To put this in context, calculate the equivalent R-squareds for other leading valuation indicators, including the P/E ratio, the cyclically adjusted P/E ratio (CAPE), the price-to-sales ratio, the price-to-book ratio, the q-ratio, and the dividend yield. None were as high as the VLMAP.
Note carefully that this market-timing model sheds no light on the path the stock market takes. Even if the model is right, the stock market could decline in coming weeks and break below its Mar. 23 lows, before subsequently recovering to be nicely higher in April 2024.
Stock Futures Positive as Oil Declines and Traders Weigh Prospects of Re-opening the Economy
Stocks futures were higher on Sunday night and oil prices fell, while investors assessed the possibility of re-opening the global economy after the coronavirus outbreak.
Dow Jones Industrial Average futures were up 113 points, implying a Monday opening gain of around 104 points. S&P 500 and Nasdaq 100 futures also pointed to a higher Monday open for the two indexes. West Texas Intermediate futures were down 8.09% at $15.57 per barrel.
Wall Street’s coming off its first weekly decline as a record plunge in oil prices sent investors for a wild ride. Both the Dow and S&P 500 fell over 1% last week while the Nasdaq Composite dipped 0.2%.
New York Governor Andrew Cuomo said on Sunday that the state plans to re-open its economy in phases.
The first phase, Cuomo said, would involve New York’s construction and manufacturing sectors.
As part of the second phase, businesses will need to design plans for a re-opening that include social distancing practices and having personal protective equipment available.