“If isolation is the furnace of transformation, I could be ashes by now.” ― Stephen Christian, The Orphaned Anything's: Memoir of a Lesser Known.

US equity markets fell (relatively) sharply overnight, with the S&P 500 index giving back 4.4% of its 15.8% rally from its 23 March low. It’s still up around 10%, though still down around 27% from its pre-COVID-19 high. But it wasn’t the data causing the fall, at least, not the published data. The US’s key manufacturing ISM beat estimates for March, easing only from 50.1 to 49.1 (versus consensus for 46.0) - virtual noise - and likely reflecting both the momentum of the US economy as it entered 2020 and arguably the US’s slow response in appropriately responding to the virus’ spread until late in March.

The market would appear more focused on the data behind our chart today, namely the accelerating spread of COVID-19 across the US, which has now taken over from Italy (which took over from China) as the disease’s epicentre. As the chart reveals, there is little sign of containment in the US, and experts suggest ‘peak spread’ – and the flattening out of cases (such as in China, South Korea and now Italy) that periodically calmed markets’ nerves – remains a couple of weeks away. It is not the macro data today that is weighing on markets, but the macro data ahead. Consensus for Friday’s March US payrolls has been steadily trending from -60,000 last week to around -200,000 currently. However, April holds the prospect of more than 1 million lost payrolls.

At Crestone, we continue to monitor key signals to guide us closer to when markets may trough. Over the past couple of weeks, a number of these have been ticked off—namely policy stimulus, while we have made progress on valuation, a re-tightening of credit spreads and weak data. However, at this stage, we are yet to achieve ‘peak disease’, which appears the most critical for markets (to the extent it impacts whether the outlook is a U-, V- or L-shaped recovery).

US versus Italy—Daily COVID-19 cases

Source: Factset, Crestone.

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John Boardman

What about plotting countries like Indonesia. With limited resources to fight CV, the curve will be steeper than the USA. Once the world wakes up to the devastation in such countries, the markets will be smashed again.