“My operating assumption is that policymakers are rapidly figuring out that the “burn down the village to save the village” strategy of sacrificing the economy to prevent the spread of the virus won’t work much longer. I already detect a change in sentiment in this regard. I would watch the clinical trial that is about to start in New York testing a promising combination of an antimalarial drug and an antibiotic. A small trial was done in France and the combination proved very effective in a small patient population (0 viral load after 5 days). This will provide cover to shift the balance away from 100% focus on health of the population to let’s get back to work. I believe this could start as soon as next week. If not, irreparable damage will have been done to the economy.
I anticipate a dramatic relief rally, but I believe investors that need liquidity and want to lower risk will sell into this rally. The market will then have to discount anticipated earnings, said differently the depth and duration of the economic decline. This will then give birth to a new and very vigorous bull market. The trick is to figure what that looks like- for sure technology and some healthcare will lead, but watch out for pricing pressure on big pharma coming away from this. Corporate and consumer behavior will have changed. No one will build supply chains in China, more automation back here in the US, more working from home, different consumer tastes, more trouble for brick and mortar retail, etc. Some other thoughts, coming out of the hysteria will be the full semiconductor employment act, cloud everything, 5G, a few really strong retail brands (AAPL,NKE), networking (CSCO may finally get its day in the sun), video conferencing, big data analytics becomes even more important as things accelerate on line (SPLK), more virtual medicine, pressure on office space, etc. The EU may fail, Brexit a mere foreshadow of what’s to come.
So think about what you believe will change, scale in during this turbulent time, but know a bull market is just around the corner if the policymakers don’t do irreparable damage to the economy over the next few days/weeks then all bets are off.”