COVID-19 UPDATE. NYC "new cases" FLAT 5 consecutive days. FACT, Markets bottom before jobless claims peak.

**We are hosting a webinar/conference call on Friday 4/3 at 1pm ET to discuss to position for post-crisis strategy and ideas.  Details are at the bottom of this email.


The next few days will bring into focus the economic carnage (secondary front) of the COVID-19 pandemic—Thursday, jobless claims; Friday, employment report; next week, earnings season.

Many of our clients are talking about initial jobless claims surging to 9 million, up from a freakish 3.3 million last week.  And we think the intense selling we saw on Wednesday (-5% S&P 500) is in part, tactical investors getting short in front of the jobless report.

POINT #1: A very inconvenient fact--stocks bottom before jobless claims peak...
Jobless claims at 9 million are astounding because this represents about 6% of the employed workforce (152 million) and in just the last two weeks, 8% of the US workforce is now filing unemployment claims.  Because of the sudden stop of the economy, this figure could double again to 16% (another 12 million claims).

- But this sudden stoppage of the economy is also suggesting that we could see a peak in jobless claims within the next few weeks, and possibly the 9 million could be the high watermark.

If jobless claims are peaking soon, why does this matter?
Take a look at the charts below, which show the S&P 500 during the 2001-2003 and 2007-2009 bear market and a corresponding chart shows initial jobless claims and the unemployment rate.

- Stocks historically bottom 2-4 weeks BEFORE jobless claims peak.

- In 2003, the S&P 500 bottomed on 3/11/2003 and initial jobless claims peaked on 4/18/2003.  And payrolls were still negative through July 4, 2003.  Stocks bottomed 4 weeks before claims peaked

- In 2009, the S&P 500 bottomed on 3/9/2009 and initial jobless claims peaked on 3/27/2009.  Stocks bottomed 2 weeks before claims peaked.  And payrolls did not turn positive until November 16, 2009.



I know this sounds counterintuitive.  

Shouldn't stocks bottom when the economy is actually growing again? 

The best proxy is payrolls (aka unemployment rate). But we believe this reflects the fact that stocks respond to the "delta" in trajectory.  Jobless claims lead to employment.  Thus, when jobless claims peak.  It is only a matter of time before the economy starts growing again.


Strangely, this suggests that if jobless claims of 9 million represents the potential "high water mark," the S&P 500 may have already bottomed.
We realize we are not experiencing a business cycle.  We are actually facing a global economic shutdown, mandated by governments to deal with a pandemic.  So the business cycle rules are not in place.  Meaning, it could be that jobless claims are not what matters.  Maybe it will be some other derivative measure.

But we will say, conclusively, stocks will bottom well before the economy bottoms.  And well before employment recovers.  We just cannot guarantee that jobless claims is the metric.

But this is food for thought though.  After all, the lows of 3/23/2020 were significant from a market internal damage and level of selling intensity.  And as we have highlighted multiple times, there is an odd symmetry to market recoveries.  The speed of the decline determines the speed of the recovery.



POINT #2: New York City and New York State are showing linear case growth, which is "less bad" and arguably good news.
 

Below shows the cases for NYC and as shown, this figure has been flat for the last 5 days and arguably flat for the last 10 days ranging from 2,700 to 4,000 new cases per day. 

- Given the base of 45,707 cases, the daily increase has slowed to 8.6%, or a doubling rate of every 8 days.  Just last week, case growth was leading to a doubling every 5 days.  

- So you can see, the shift to linear gains (daily case growth constant) also suggests that NYC could be closer to a peak than expected.

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