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COVID-19 UPDATE: Moderna trial results suggest vaccine here much sooner. Looking at 1Q2020, March monthly EPS was likely $5.50 (vs $14 Jan/Feb). Revising 2020 S&P 500 EPS to $50 ($110 prior) but keeping 2021 at $193.

May 19, 2020
COVID-19 UPDATE:  Moderna trial results suggest vaccine here much sooner.  Looking at 1Q2020, March monthly EPS was likely $5.50 (vs $14 Jan/Feb).  Revising 2020 S&P 500 EPS to $50 ($110 prior) but keeping 2021 at $193.

COVID-19 remains a global crisis and we realize that many people need to keep up with COVID-19 developments, particularly since we are moving into the more critical stage ("restart economy"), so feel free to share our commentary to anyone who has interest.


There were two notable positive developments in this COVID-19 crisis today.  First, is the Moderna announcement of the initial success of its mRNA trial, with the first 8 recipients of the vaccine showing high levels of antibodies, enough to prevent cell infection and second, the surprise easing of restrictions by California, fairly broad including many retailers, churches and including sports by June 1 (NY Gov Cuomo also encouraged sports teams to consider opening in NY). Whether states have sufficient health metrics to justify re-opening is becoming secondary to the desire of citizens to emerge from their shelters (and nobody wants the goalposts moved).

According to the WHO, there are 8 vaccines in clinical evaluation today (including Moderna) and 110 in preclinical evaluation.  This is 118 shots at creating a vaccine.  That is a lot of research and momentum and really raises the prospects of a vaccine arriving sooner than the "12-18 months" guidance given by many health experts.  This is positive.

But we continue to see this as "not a normal" business cycle.  The best evidence, as we wrote yesterday, is the complete functioning of the credit markets (issuance and flows) while economic data is at depression levels.  But if this is not a normal cycle, but instead, a global shutdown mandated by policy, we do not believe investors should try to link economic levels to financial market levels -- i.e., PMIs are low, so S&P 500 should be flat on its back.  The reason is that equities are discounting not just the next 2 quarters, but the present value of earnings.

Speaking of earnings, we are formally cutting our 2020 EPS to $50, from $110 previously (Street is $125) and keeping 2021 at $193. We explain our rationale below in detail (Point #3) but we have two drivers for this:

- First, 1Q2020 EPS shows March monthly EPS fell 60% to $5.50 from $13-$14/monthly level seen for most of 2019 and early 2020. And this is only 2 weeks of COVID-19 in 1Q2020.  There will be 12 weeks in 2Q2020.

- Second, there are 3 drivers to COVID-19 EPS effects, (i) COVID-19 hit; (ii) expense reduction leverage and (iii) re-open lift/stimulus/rates.

The two latter effects do not kick in until late 2020. So, the middle months of 2020 are going to be bad and 2Q2020 should be a loss.  We have a fuller discussion below, but this summary table shows the effects.

COVID-19 UPDATE: COVID-19 UPDATE:  Moderna trial results suggest vaccine here much sooner.  Looking at 1Q2020, March monthly EPS was likely $5.50 (vs $14 Jan/Feb).  Revising 2020 S&P 500 EPS to $50 ($110 prior) but keeping 2021 at $193.
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