Traders accept that the Coronavirus will be with us for about a year. The stock market crash was a rapid repricing of assets due to the damage being caused by the Coronavirus pandemic.
Traders are wondering if the E-mini S&P 500 is now fairly priced in light of the great reduction in corporate earnings over until there is a vaccine. It still might be overbought, given the change in fundamentals. No one knows.
However, the E-mini has already sold off more than in most bear markets. That is reason enough for traders to suspect that it has fallen enough, at least for a few months.
What happens if the worst case scenario unfolds and half of the country gets infected? Traders are certainly aware of that possibility, and it might already be fully priced in. It is too early to tell. We need more information. It will probably take a few months for traders to decide if the current low is low enough.
It probably is not since the final low once a bear market begins typically comes a year after the start of the bear market. That means there are usually one or more strong rallies before the final leg down.
Also, this trading range will probably last for a decade and make at least a couple new lows after the media declares that the low is in.
Medical news about the coronavirus
As you know, I am an MD. I also have some subspecialty experience in eye viral infections. I therefore have a special interest in this pandemic.
When a drug company creates a vaccine, or any drug, it has to pass three phases of testing before the Federal Drug Administration (FDA) will give its approval. Dr. Fauci this week said that the government might be willing to provide financial guarantees to get a drug released sooner.
He said that the U.S. government might pay for a company, if it has a vaccine that passes phase II, to produce huge quantities of the vaccine at the end of phase II, in case phase III is successful. Then, the public could get vaccinated immediately after phase III, assuming the drug gets approved. That would save several months and potentially thousands of lives.
It’s all about the ventilators
We are entering into a frightening phase in the pandemic. Many hospitals and states will probably run out of ventilators over the next month. The sudden surge in deaths will probably be shocking enough to further depress the economy.
However, the rate of increase in new infections will probably begin to turn down in May. That should improve consumer confidence until a potential second wave starts in the fall.
Doctors have been warning about the shortage of ventilators. The United States has 60,00 of them, plus 100,000 older ones in storage. Currently, 5% to 15% of patients need them. Therefore, if the number of infections gets above one to two million, there will not be enough ventilators. At the current doubling rate, that could happen by the end of April. I am still hoping that the rate of new infections will slow down soon, but there is no evidence of a slowdown yet.
Italy had a terrible ventilator shortage this month and the death rate went from 2% to 9%. If millions of Americans get sick, most who need ventilators will not get them and the number of deaths will be frightening.
A ventilator pumps air into a person’s lungs. There is talk about having a splitter in the line and connecting two patients to one ventilator. In normal times, that would be unthinkable. But if a patient needs one and has a 50% chance of death without it, most family members would eagerly consent to having him share it with another patient. It is not as if he is going to contract a Coronavirus infection from the other person.
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