A Look At The Market Economy Since Coronavirus By Paul Meeks

Although I am happy to see the market rebound strongly the past two days, I still do not recommend rushing into stocks. I see that decision as a three-step process. First, we begin to suffer the economic hit from the coronavirus. Second, we get the government’s monetary and fiscal stimulus responses. Third, and this is what I am looking for to be more constructive, company earnings estimates are slashed to reflect the damage and then some.

You can cross #1 off the list. There is no lingering doubt about how serious the coronavirus is and how it has shuttered a swath of American industries. As to #2, our central bank has unloaded its gun on the coronavirus. It has taken the most aggressive steps in the history of the Fed, and that is 107 years. Although the deal has not been signed, Congress has added about $2 trillion in fiscal stimulus. Again, this is unprecedented. Finally, and what we have not seen yet, is what #3 requires. That is, Wall Street analysts must show the catastrophe in their financial models.

Specifically, the consensus earnings expectation for almost every company must be cut to the bone so that it is coronavirus proof, or, put another way, companies’ forecasted sales, earnings, and cash flows must fully reflect the pandemic’s work stoppage and perhaps more. Stocks cannot consistently rise until we are through this bloodletting. Companies have the best chance to confess these sins when they report their March quarter financial results beginning in about the third week of April.


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