Markets bottom on "bad news" and jobless claims + EPS season is test. Plus evidence "social distancing" working in NYC

Stocks broke a pattern on Wednesday, managing to post 2 successive days of gains, something not seen since February 28th.  And generally reinforces our belief that the “structural bottom” for stocks was registered last week (ala Oct 2008) and affirmed by Tom DeMark’s comments to our clients on Tuesday that “bulk of the downside is behind us…but we might trade sideways for awhile”

“markets bottom on bad news, not good.”  

We realize freakishly bad economic data is coming.  On Thursday, some economists are projecting weekly jobless claims to surge to as high as 5 million. Many of our more active and tactical clients are short into this, arguing that such wildly bad news cannot be discounted and thus, this “tape bomb” should lead to a big sell-off.

#1. So the first test will be jobless claims on Thursday.

#2. The next will be the earnings season which starts at the end of next week.  The fact is, S&P 500 EPS will be distorted by “depression economic conditions”

But as shown below, as we move into April, the cadence of incoming news and data will likely turn positive.

If such is the case, equity markets should be bottoming soon.  In fact, as we highlighted in our FLASH from Monday evening/Tue AM, the 50% retracement of a decline generally only take 0.5X as long as the decline.  This is true of the 10 30% declines since 1920.  This implies we could be back to 2,800 by mid- to late-April.  That is food for thought.

Markets bottom on bad news and jobless claims + EPS season is test. Plus evidence social distancing working in NYC



POINT: S&P 500 Monthly EPS run-rate is probably down to $4/month given the heart attack of the economy
We published our estimates for 2Q2020 (1Q2020 reported next week) and we believe that S&P 500 monthly EPS has fallen from around $13/month to as little as $4/month because of the massive stoppages.

– But we argue this should be not the basis to apply a 15X multiple.  That is silly.  A 15X P/E means investors are paying for 15 years of earnings.  The sum of the next 60 quarters for S&P 500 EPS (7% CAGR) is $4,890.  Thus, at 2,500, the S&P 500 is valued at exactly half the value of EPS for the next 15 years.

Markets bottom on bad news and jobless claims + EPS season is test. Plus evidence social distancing working in NYC




POINT: Some early signs “social distancing” working in New York City — looks like linear growth not exponential
Eyes were on Italy over the past few weeks, as it was the first developed nation to see an outbreak and in fact, is the template and roadmap for the US response.  And fortunately, Italy looks like total cases indeed peaked on March 21, 2020 (4 days now) and 12 days after instituting stricter quarantine measures.

But New York City is now ground zero.  New York State itself has so many cases, that nearly one-third of all COVID-19 tests are in this state.  But the city and the state instituted fairly strict social distance measures for some time.

We have compiled “daily new cases” for the 5 boroughs below.  Highlights in blue is Manhattan and red is Queens.  We only have this data from 3/18/2020 to 3/24/2020 (7 days).   But a few notable observations:

– # total new cases in Manhattan was 300 on 3/18/2020 and as for 3/24/2020, # total new cases is 367.  About FLAT for the past week.

– Think about that.  If cases are doubling every 3-4 days, we should have seen 1,200 daily new cases by 3/24/2020.

– In other words, instead of being an exponential rise in cases, daily cases in Manhattan are linear (flat arguably).

This is pretty good news, in our view, because this suggests that measures like social distancing are leading to a much flatter curve.  Think about that.  Instead of 1,200 cases per day, which was projected, it has stayed around 300-ish per day. 

Markets bottom on bad news and jobless claims + EPS season is test. Plus evidence social distancing working in NYC

Now you might wonder if this is because there is less testing.  The opposite is true.  We do not have the # test for New York City alone, but we do have it for New York State. 

– New York State tests went from 8,000 on 3/18 to around 12,000-14,000 per day.

– With a 50% increase in tests, the number of New York City cases is roughly flat. 

This argues further that cases are not growing exponentially in New York City.  This could obviously change with a super spreader.  And given the incubation periods.  But this is still not a bad data point.

We will chalk this up as another “glimmer of hope.”


Markets bottom on bad news and jobless claims + EPS season is test. Plus evidence social distancing working in NYC




POINT: Lowry’s now registered a 90% “up day” Tuesday and an 80% “up day” Wednesday, triggering a Buy signal for them.
The last glimmer of hope I will share is that it looks like that market behavior is shifting in favor of buyers.  Our favorite measure of internal market structure is Lowry’s which has continuously tracked buying and selling pressure in markets for >70 years.  They are the entity that originated the concept of a “90% up day” — where 90% of volume and 90% of points gained were up.

Since the sell-off started in February, the equity market has seen 6 90% down days, without a single 90% up day.  And according to Lowry’s, a sustainable bottom cannot be established without evidence of “renewed demand.”

On Tuesday, the US markets posted its first “90% up day” signaling some evidence of renewed demand.  But because short covering could be taking place, after such a bloody decline, this is not real demand.  

Wednesday was an 83% up day.  Meaning that it was another strong demand day.  And as such, Lowry’s tends to view two “80%-plus” up days (or in this case, one 90%, and one 83%) as evidence of renewed buying.

They issued the following bulletin below.  As noted, this triggered a “conventional Buy signal.”

Markets bottom on bad news and jobless claims + EPS season is test. Plus evidence social distancing working in NYC



BOTTOM LINE: The speed of the decline blind-sided our process.  But we see more glimmer of hope.  We realize many of our clients believe the S&P 500 could fall 50% peak to trough to 1,700, but this is not pre-destined.  If the bulk of the decline behind us, investors need to pick winners and losers.  And as such, we are moving through the nadir of the valley of bad news.

Disclosures (show)

This research is for the clients of FS Insight only. FSI Subscription entitles the subscriber to 1 user, research cannot be shared or redistributed. For additional information, please contact your sales representative or FS Insight at fsinsight.com.

Analyst Certification (Reg AC)
Tom Lee, CFA, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships. Neither I, nor a member of my household is an officer, director, or advisory board member of the issuer(s) or has another significant affiliation with the issuer(s) that is/are the subject of this research report. There is a possibility that we will from time to time have long or short positions in, and buy or sell, the securities or derivatives, if any, referred to in this research.
Conflicts of Interest

This research contains the views, opinions and recommendations of FS Insight. At the time of publication of this report, FS Insight does not know of, or have reason to know of any material conflicts of interest.

General Disclosures

FS Insight is an independent research company and is not a registered investment advisor and is not acting as a broker dealer under any federal or state securities laws.

FS Insight is a member of IRC Securities’ Research Prime Services Platform. IRC Securities is a FINRA registered broker-dealer that is focused on supporting the independent research industry. Certain personnel of FS Insight (i.e. Research Analysts) are registered representatives of IRC Securities, a FINRA member firm registered as a broker-dealer with the Securities and Exchange Commission and certain state securities regulators. As registered representatives and independent contractors of IRC Securities, such personnel may receive commissions paid to or shared with IRC Securities for transactions placed by FS Insight clients directly with IRC Securities or with securities firms that may share commissions with IRC Securities in accordance with applicable SEC and FINRA requirements. IRC Securities does not distribute the research of FS Insight, which is available to select institutional clients that have engaged FS Insight.

As registered representatives of IRC Securities our analysts must follow IRC Securities’ Written Supervisory Procedures. Notable compliance policies include (1) prohibition of insider trading or the facilitation thereof, (2) maintaining client confidentiality, (3) archival of electronic communications, and (4) appropriate use of electronic communications, amongst other compliance related policies.

FS Insight does not have the same conflicts that traditional sell-side research organizations have because FS Insight (1) does not conduct any investment banking activities, and (2) does not manage any investment funds.

This communication is issued by FS Insight and/or affiliates of FS Insight. This is not a personal recommendation, nor an offer to buy or sell nor a solicitation to buy or sell any securities, investment products or other financial instruments or services. This material is distributed for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice.
The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.
Intended for recipient only and not for further distribution without the consent of FS Insight.

This research is for the clients of FS Insight only. Additional information is available upon request. Information has been obtained from sources believed to be reliable, but FS Insight does not warrant its completeness or accuracy except with respect to any disclosures relative to FS Insight and the analyst’s involvement (if any) with any of the subject companies of the research. All pricing is as of the market close for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, risk tolerance, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies. The recipient of this report must make its own independent decision regarding any securities or financial instruments mentioned herein. Except in circumstances where FS Insight expressly agrees otherwise in writing, FS Insight is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice, including within the meaning of Section 15B of the Securities Exchange Act of 1934. All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client website, fsinsight.com. Not all research content is redistributed to our clients or made available to third-party aggregators or the media. Please contact your sales representative if you would like to receive any of our research publications.

Copyright © 2025 FS Insight LLC. All rights reserved. No part of this material may be reprinted, sold or redistributed without the prior written consent of FS Insight LLC.