Stock market looks beyond coronavirus

New York State's apex 'most likely happened a few days ago'

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stock market recovery appears to be building a foundation amid ongoing volatility. While stocks closed lower on Tuesday, gains early in the session came as the spread of COVID-19 appeared to be slowing in some of the hardest-hit parts of the country.

Such indicators are necessary, Wall Street maintains, before equities can recover from a bruising selloff that slashed about a third of the Dow Jones Industrial Average's value as the pandemic spread to more than a million people worldwide.

“In a pandemic, new cases matter,” Savita Subramanian, equity and quant strategist at Bank of America, wrote in a March 19 note to clients. During the SARS epidemic that began in November 2002, she said, the Shanghai and Hong Kong indexes troughed shortly after the number of daily global confirmed cases crested in mid-April 2013.

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New York State has become the epicenter of the COVID-19 outbreak in the U.S., with nearly 132,000 confirmed cases that have resulted in 4,758 deaths, according to the latest data provided by Johns Hopkins University & Medicine.

Over the last few days, the spread appears to have slowed. Despite a spike of 731 deaths in a day that Gov. Andrew Cuomo reported Tuesday, the number of new hospitalizations has dropped and the number of discharges has increased.

“If we now look at the NYS official data, we see that the apex (peak in net hospitalization growth), indeed most likely happened a few days ago,” Marko Kolanovic, quantitative strategist at J.P. Morgan, wrote in a note to clients.

China, where COVID-19 originated, has experienced a four-stage pattern of recovery, according to Kolanovic.

He says the data suggests New York State has moved past the first stage, peak cases, and entered stage two, which is marked by a dramatic decline in new cases and a slower decline in fatalities.

The third stage, which Kolanovic projects will begin on April 12, occurs when there is a sharp drop in the number of deaths. The fourth and final stage, which Kolanovic thinks will start around April 19, is a near-complete recovery marked by very low growth in new cases.

The stock market, which is forward-looking, has already touched its bottom, according to one Wall Street strategist.

“We don’t think we will have a full retest of the lows,” wrote Mike Wilson, chief U.S. equity strategist at Morgan Stanley.

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His yearend target for the S&P 500 is 2,700, or 1.36 percent above where the index closed on Monday.