Recent data out of coronavirus hotspots like New York City, New Jersey, Italy, and Spain is encouraging as the curve seems to be definitively flattening. In response, the S&P 500 (NYSE: SPY) gained more than 7% Monday and is up another 3% at Tuesday's open. Since the bottom on March 23, it has clawed back about 40% of its losses.
It's an encouraging sign that people's behavior has saved lives and helped prevent hospitals from being overwhelmed. The consequences of not doing so were clear from Italy and New York City. It also created time to allow hospitals to gain access to personal protection equipment, ventilators, and staff up in areas where surges were expected.
In Italy, there were around 6,000 new cases per day during the last week of March. In the first week of April, it's dropped to 4,000 new cases per day. Spain is also seeing a similar drop in recent days. At the peak of the virus in New York City, the difference between coronavirus hospitalizations and discharges was over 1,000, and on Monday, it was 500.
Stock Market too Excited
It makes sense that the stock market is rallying in the light of this encouraging news especially given how oversold stocks had become. However, just like it paid to look at the 'green shoots' at the end of March, it's a good idea to use this period of giddiness to reduce exposure on the long side. For one, the progress against the coronavirus has come at a steep cost - basically shutting down the majority of economic activity.
Another sobering indication is that many countries like Singapore, China, and South Korea which seem to have the outbreak under control are having difficulty reopening the economy and are seeing the virus flare up again. This reduces the possibility of a V-shaped rebound. Additionally, these countries already have had much more rigorous controls in place like test and tracing; temperature monitoring; and special clinics set up to deal with coronavirus patients that are lacking in the United States.
So while there certainly is light at the end of the tunnel in terms of controlling the initial spread. There's reason for more pessimism in terms of reopening the economy and getting back to normal.