COVID-19 UPDATE: NYC set to open Phase 1 Monday. Hospitalizations trending flat (=good, given protests) 16 of 34 states see big declines. "Epicenter stocks" long runways given LT charts.


A new week is ahead of us.  Americans have begun re-engaging, emerging from >3 months of quarantine restrictions.   In the Northeast, I certainly saw a huge change everywhere I went.  Shopping mall parking lots were packed, waits to enter retail stores, big waits for outdoor dining.  It is as if this was a grand opening at a theme park -- but this is just another Northeast city.  Overshadowing this re-opening of America is the nationwide protests over the death of George Floyd, which by media reports, saw larger crowds this weekend compared to prior days. These nationwide protests are creating considerable uncertainty: 

- massive protests = 10,000 super spreader events = second wave?
- growing movement = political changes
- ongoing protests = economic disruption

So there are multiple avenues of disruption/uncertainty created by these nationwide protests.  Hence, these bear watching closely and are obviously as important as the timeline for COVID-19.  Regarding this first point (super spreader), there is no evidence of renewed infection spread from these protests (mostly outdoors anyway) and that is encouraging, but we have penciled in June 11th as the real date to measure, because it would be 14 days since the first nationwide protests.

As we have commented many times, there is no 'playbook' for equity markets post-pandemic because everything happening since the first US COVID-19 cases is not normal:

- this is a disease which the world never faced and is very contagious
- this is not normal to see epicenter of COVID-19 as NY tristate, nursing homes and Hispanics
- this is not a normal economic shock
- this is not a normal business cycle
- this is not a normal fiscal response
- this is not a normal central bank environment

But what has really surprised us is how textbook the stock market behavior has been.  Stocks gained 5% last week, building upon already impressive gains and now representing the 11th V-shaped recovery for stocks (total market recoveries after a >35% decline, see below).  And because there is nothing 'normal' about 2020, our framework has relied on trying to explain the moves of the equity markets.  The strong recovery in stocks since March, in our view, has signaled a much more vigorous economic and EPS recovery than most economists and consensus broadly have suggested.

The recent steepening of the 30Y-10Y yield curve is further evidence supporting a stronger economic recovery.  Historically, steepening curves are often a leading barometer of stronger growth ahead. There are many explanations why, but essentially, longer rates rise reflecting either higher inflation risk or higher real growth.



JPMorgan's Fixed Income team also believes the curve has room to steepen further, which is bullish for equities (implied higher growth).  They are "undeterred" by the steepening and recommend strategies around steepeners.  Incidentally, stronger growth strengthens the cyclical outlook = good for "epicenter stocks" and thus, we continue to recommend "less barbell" and outright owning Cyclicals.

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