May 26, 2020

Stocks open the week with a surge above key psychological levels (over 25,000 in the Dow and over 3,000 in the S&P 500).

That’s 37% from the lows of March — thanks to the sea of liquidity (both fiscal and monetary stimulus) pumped by the Fed and the Treasury (via Congress).

Now, this 3,000 level in the S&P happens to be spot-on the 200-day moving average.  We’ve been watching this big technical level for a while now.  I suspect that this will continue to represent the top of the range for while, until we get a better picture of how consumer psychology looks in the the economic reopening.

From the media tone, it seems like the psychology of fear, that has gripped the country over the past two months, might be worse than the virus.

But that doesn’t sync with the April survey from the University of Michigan on consumer expectations.  That report showed consumers considerably more optimistic than they were at the depths of the Global Financial Crisis.

So, is there a wide divide between how the consumer might behave as more businesses reopen, and how the media thinks they will (or should)?  That wouldn’t be too surprising.

For our guide on the economic reopening, let’s revisit the key data on how the health crisis is tracking:  With a month under the belt on state reopenings, we have no spike in cases, and importantly, a continued decline in deaths.

Add to this, last Wednesday the CDC’s published new, lower estimates on the severity of the disease.  Of five scenarios, the “best guess” scenario showed a case fatality rate of 0.4%.  The worst case scenario was 1% (of cases).  And the best-case scenario would be a case fatality rate of 0.2% – a small fraction of what was originally projected. These are all dramatically more optimistic projections than we saw early in the crisis.

With the above in mind, this Memorial Day weekend may have represented the defining “rip the band-aid off” moment for the economic crisis.

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