If you believe that the market ultimately is synch’d to projected earnings, then this is a head scratcher…
The P123 supplied SP500 EPS Blend Y (weekly), based on the time weighted analysts estimates of CurrY and NextY, has not been rolling off in any significant fashion over the last 10 weeks.
is this just a flash crash?
Earnings and sales take time to adjust downward and analysts are ‘pack creatures.’ Earnings will fall significantly for the economy. Sales will also fall – there’s no way to contain the virus without restricting social interaction – so, a company like Netflix could actually seem short-term revenue increase (at home entertainment), but most companies in many sectors will face sales declines and also supply chain disruption (so, lack of inventory as china and world supply chain is limited).
So, that’s a double whammy. No way we don’t see sales fall at least 10% globally on this – possibly up to 30-40%. Financial sector will also be hit – fewer loans and lower interest on those loans (given likely Fed / global banking response of trying lower interest rates – when really cash to lower wage earners and to health care based investments is more likely needed).
So… this is not likely a ‘flash crash’. The governments will try and inject a lot – the market will do whatever it’s gonna do – but we’re going to see sales and earnings fall and some multiple compression. However, hard to say where bottom is… but, as to ‘when it is’ – it’s likely at least 30-60 days away still – and maybe many months – once 1 country has gotten back to business as usually, we may see a turn. Maybe, but local markets will still have kids at home, parents working from home, people we know sick – etc. That’s a big deal.
Tom,
How many people are going to come see me for glasses or a yearly check-up? Maybe they will come in with a mask. I am wondering whether to schedule that cleaning at the dentist or not.
Point being there will be a demand-side impact. And I think it has just started.
There is a potential for confirmation bias. I live in a smaller town and we look at the obituaries to pull charts out of the active side. The obituaries took up a whole page today. I assume that was a statistical fluctuation or my imagination but my receptionist commented separately. I do not think COVID-19 is here yet.
But when it seems like 9X as many I think I will stay home if it is not urgent (over 60 with asthma). As it is my obituary will probably say: “He had a pre-existing condition and was stupid enough to go to the office to make glasses.”
A final word. Out of toilet tissue yesterday until they brought a palate in. Limit 3 per customer. And no March Maddness.
I do not know what the market will do but there will be (or it could already be priced in, I guess) an effect. That is to say I agree.
Best,
Jim