• Negatives: The crisis is getting worse and new cases haven’t peaked. Economic data will be horrific, but not due to structural problems. Volatility will persist.

• Positives: We are seeing the largest blast of stimulus in history. Stocks have likely seen their primary low, and should be higher a year from now.

• Taking action: Dollar-cost average into and out of positions. Be selective (we see opportunities in technology and health care). Watch credit spreads, the yield curve, commodities and jobless claims as clues for future market conditions.

U.S. stocks peaked on 19 February, then plummeted in the deepest and fastest decline to a bear market in history. Last week, prices rebounded sharply, as the S&P 500 Index experienced its largest weekly gain since 1938, up over 10%.At this point, we expect economic data will decline sharply, but we also think we’ve already seen the primary low for this bear market. Clarity will take time to emerge, but we see opportunities at depressed prices.

Ten Themes To Consider

1. Last week’s rally was based on multiple factors.
We’d cite deeply oversold conditions, anticipation of a massive fiscal stimulus package, the Federal Reserve’s announcement of unlimited quantitative easing, President Trump’s comments about “reopening” the U.S. economy and data suggesting new COVID-19 cases in Italy may be peaking.

2. The coronavirus crisis in unlikely to abate soon.
New cases may have peaked in China and Italy, but it may be many weeks before that happens in the rest of the world. Many epidemiologists suggest a peak in the United States in six to eight weeks. Until that time, we don’t expect to see economic data improve.

3. U.S. economic data is likely to be terrible for some time.
The first such data came through last week, with weekly unemployment claims at 3.28 million.2 That was the largest number in history by a factor of five, and, by itself, implies a rise in the unemployment rate of 2%.2 The widespread panic and virus countermeasures are putting the world into a deep recession. We expect second quarter growth to fall between 10% and 20%.

4. The monetary policy response exceeds the 2008 financial crisis.
The Fed is in a “whatever it takes” mode, both in terms of the sheer dollar figures it will use to purchase assets and the number of new market facilities it has launched.

5. Last week’s massive fiscal stimulus will help, but not solve the economic crisis.
The $2 trillion package includes direct cash payments to individuals, loans to small businesses, extended unemployment benefits, help for distressed industries and the purchase of medical equipment. The relief is targeted at people and companies who have been directly harmed, and while it is big enough to generate faith in an eventual economic rebound, it will not stave off the recession.

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