The U.S. stock market begins the week on a strong footing as the White House pivots towards re-opening the economy. The Dow Jones Industrial Average (DJIA) added another triple-digit rally to its ongoing recovery.
Jared Kushner declared something of a breakthrough for coronavirus testing late on Sunday night. Testing capacity will ramp up significantly in May, he said, and may even double the expected figures.
We feel really good. We’ve eliminated a lot of problems when it comes to testing and I think we will continue to see it do better and better over the coming weeks.
Widespread testing is a crucial aspect of safely re-opening the American economy.
After a jittery overnight session for stock futures, the Dow Jones Industrial Average rose 132 points or 0.56% on Monday morning. That lifted the DJIA to 23,907.30.
The S&P 500 and Nasdaq were both up 0.78% as of 9:35 am ET.
Kushner is part of the White House coronavirus task force led by Vice President Mike Pence. His team has been tasked with streamlining the supply chain of testing kits and hospital equipment. Kushner made a crucial breakthrough, he explained, by moving the supply chains back to the U.S.
We’re on-shoring a lot of these industries, working to make sure we’re never reliant on foreign supplies again.
The U.S. has been accused of reacting too slowly on testing since the coronavirus outbreak began. The Centers for Disease Control (CDC) issued a faulty test in the early stages of the pandemic which put the U.S. on the back foot. Those issues have been largely resolved, according to Kushner, and capacity will be ramped up significantly in May.
We figured out how to really stimulate that supply. We believe by the month of April we will have close to five million tests that will be performed. We’re anticipating for the month of May, the number we were originally asked to do, we can exceed it … we think we can double that number and we should have more than ample amount of tests in the market for the month of May.
Investors are monitoring America’s testing capability closely as it’s a crucial element for re-opening the economy. Salman Ahmed, chief investment strategist at Lombard Odier Investment Management explains:
What will be critical [for easing lockdowns] will be the testing capacity and the efficacy of track and trace programs.
Many analysts claim the stock market has limited upside until widespread testing is available. Only then can we fully understand the prevalence of the virus in the community. It’s also crucial in order to trace and isolate individual cases of the virus.
We’re expecting another big shift from the White House this week. According to insiders, the Trump administration will begin sidelining health experts like Dr. Anthony Fauci and Dr. Deborah Birx. Instead, the briefings will now focus on rebuilding the economy.
Expect to see a pivot from the White House in the days ahead, focusing on the economy and a more hopeful, forward-looking message.
This will be a welcome shift for investors who can begin to price in the timeline for economic recovery.
While investors are mostly optimistic on testing, therapeutics, and ultimately a vaccine, not everyone is so hopeful. Richard Harris at Port Shelter Investment Management compared recent stock market action to the Great Depression and sees an “inevitable” reversal coming.
I suspect the recovery will be faster [than Great Depression] but I think another leg down, with a lot of bad news to come, and a lot of good news already in the market, I think there’s almost an inevitability about that.
Goldman Sachs analysts also pointed to the increasingly narrow scope of the stock market as a reason to be cautious. Just six stocks comprise 25% of the entire S&P 500 market capitalization. And they’re all tech stocks. The market hasn’t been this concentrated since the dot-com bubble. Goldman Sachs warned it could signal another downturn.
Narrow breadth can last for extended periods, but past episodes have signaled below-average market returns and eventual momentum reversals.
Focus this week will be on a raft of tech earnings from Alphabet, Apple, Tesla, and Amazon. The Federal Open Market Committee will also meet on Tuesday and Wednesday. They are expected to hold rates at zero.
Disclaimer: The author holds no investment position in the assets mentioned above.
Last modified: April 27, 2020 1:38 PM UTC