Monday, 4 May 2020

Peak in US COVID-19 cases also means “peak infectivity”

The S&P 500 fell 0.2 percent last week, its second consecutive weekly decline.

Stocks enjoyed gains early in the week on hopes of the relaxation of restrictions imposed on economies to curb the spread of COVID-19.

However, those gains were reversed in the latter part of the week, with the S&P 500 falling particularly hard on Friday by 2.8 percent.

Indeed, even as Americans began to take advantage of the relaxation of restrictions, some are worried that the pandemic could yet worsen.

“We expected that we would start seeing more significant declines in new cases and deaths around the nation at this point. And we’re just not seeing that,” said Scott Gottlieb, a former Food and Drug Administration commissioner. “If we don’t snuff this out more and you have this slow burn of infection, it can ignite at any time.”

Indeed, John Hussman, president of Hussman Invesment Trust, pointed out in his latest article that while the US rate of new infections of COVID-19 may have hit a peak, “relaxing containment at the point of ‘peak’ daily new cases also means relaxing containment at the point of peak infectivity”.

He added that while he had considered the possibility of fewer than 60,000 US fatalities a few weeks ago, “we’re now looking at the likelihood of about 90,000 by mid-year, with the potential for far greater numbers if containment is eased without offsetting practices”.

With regards to market conditions, Hussman views the recent advance as a “clearing rally” to relieve an oversold compression.

However, extreme valuations, divergent market internals and overextended conditions have created a “trap door” situation that, when seen over the past two decades, have had “unfortunate consequences”.

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