COVID-19 UPDATE: 3Q2020 EPS season affirms we are past the nadir in economy. But COVID-19 spread is not contained and is rising

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STRATEGY: 3Q2020 EPS is proving we are past the earnings nadir
Equity markets were choppy over the past week, impacted by the stalemate in Washington over the fiscal stimulus and hurt by the surging COVID-19 cases in Europe and the US.  It was not all bad news for COVID-19 as the severity of this wave of cases seems less lethal than prior waves (the US seeing 1% incremental hospitalizations vs 4% in July).  And as is apparent, over the next 20 days, equity markets are primarily focused on Washington (outcome + fiscal) and focus on the COVID-19 path (worse).   So, the chop is understandable, but we also think stocks have made their pre-election lows.

But the economic news continues to show decent vigor.  Look at the Philly Fed index today, reaching 32.  This is the best number since really 2018 and builds upon 4 months of expansionary readings previously.  This survey result is affirmation the US economy has moved past its nadir and is sequentially building momentum.

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Source: BloombergAnd 3Q2020 EPS seasons seem to be affirming we are indeed moving past the bottom on EPS. A simple guide to seeing this is to look at the relationship between ISM exports and EPS growth. And as you ...

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