facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause

Hey COVID-19

Life can either be accepted or changed. If it is not accepted, it must be changed.  If it cannot be changed, then it must be accepted. – Winston Churchill

While far from declaring victory over COVID-19, the market has been rallying for weeks after bottoming March 23rd.  The S&P 500 has risen 25% from its bottom.   Granted the market is still down 12% YTD but it’s a far cry from the stunning 34% decline between the market’s 52-week high February 19th and reaching its low only a little over a month later.  What gives? Headlines are all bad.  We are told that a vaccine is at least a year away.  Doomsayers claim that we will need to shelter in place until then.   Otherwise a second wave of the virus is imminent.  The market will set a new low or at least retest its 52-week low.  

I do not claim to have the answers to these questions and concerns.  I can state the fact that the stock market is what we refer to as an economic leading indicator.  The market peaks before an economic recession and bottoms before the recovery starts.   We have been caught unprepared, and both closing segments of the economy and the shelter in place orders for most of the country are unprecedented since at least the time of Spanish Influenza over 100 years ago.  The sudden rise in cases, economic ramifications and safety measures were reflected by the rapid decline in the market.  What is the market seeing that the headlines do not reflect? 

For starters, the Federal Reserve and its chairman, Jerome Powell, have reacted quickly to the unfolding events by enacting a series of measures to boost the economy, from slashing interest rates to the unprecedented step of buying unlimited amounts of US Treasuries and Mortgage Backed Securities including both corporate and municipal bonds.  The bond markets were frozen, illiquid.  There were no bids (buyers).  This unprecedented support undoubtedly helped and restored some semblance of order to the credit markets.  

However, I believe the chart below goes a long way to explaining the rally in the stock market, specifically the S&P 500.   The chart indicates that the market peaks, reaching its 52-week high, days before the growth in COVID-19 spikes.   Now recall that in late February the virus spread was far from a top concern.  The market decline begins in earnest around the second sharp increase in virus cases in late February.  It's curious about the first sharp increase in COVID-19 cases in early February.  Note that according to CDC records, there were only 13 confirmed cases nationally when the market reached its 52-week high.   The CDC documents the first case, patient zero, on January 24th.  The sharp rise at that time stems from the existence of so few confirmed cases.  The chart illustrates the 52-week low occurs March 23rd coinciding with the peak growth rate in confirmed COVID-19 cases.  Each subsequent spike higher in the growth rate is significantly less than the previous rise.  During this period of decline in the virus’s growth rate, the S&P 500 has risen over 25%.   

Source: FactSet financial data and analytics

It’s highly uncertain whether this pattern will continue.   In our humble opinion the declining growth in cases, has been driving the market higher these past weeks.  We think that it’s important to note for everyone, not just investors, that despite the despairing headlines there are indications that the worst is behind us.  It bears repeating: the market is a leading indicator.  The path higher will not be a straight line and investors will wonder if the recent low will be tested again.  Market bottoms are always obvious in the rearview mirror. Calling one in advance with precision or in real time is not possible.  If accurate, we attribute it to nothing more than luck.   Even a broken clock is right twice a day.  Uncertainty remains as the decline in growth rates does not necessarily mean imminent victory over the virus or that the economy will soon recover.  We do think that the market offers buying opportunities during these times in history and a reasonable entry point for investors.   For those fully invested, remain patient and disciplined. Adhering to investment policy objectives will prove a test of endurance but ultimately a rewarding one.



Kevin T. Curran, CFA President & Chief Investment Officer

Curran Investment Management® is Defining Quality®

Please check with your Curran Wealth relationship manager,or contact Curran Wealth Management if you have any questions. 518.391.4200 • info@curranllc.com

The material contained in this article is for educational and informational purposes only.  The information herein is considered to be obtained from reference sources deemed reliable, but no representation or warranty is made as to its accuracy or completeness.  This article is not, and should not be regarded as “investment advice” or construed as a “recommendation” or an offer to buy or sell a security.  The information contained in this article may not apply to your personal circumstances.  Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation.  Information on taxes is based on the tax laws existing at the time of publication.  Tax laws are subject to continual change.  In addition, tax laws vary by state.  This article is not, and should not be regarded as tax or legal advice.  We cannot ensure tax consequences of any transaction.  If you would like a detailed analysis of your tax situation, with specific tax recommendations, you can discuss the possibility of pursuing a formal relationship with Hippo Tax Services, LLC.