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TPA Analytics: V-Shaped Recovery, Maybe Not So Fast

By Jeffrey Marcus | June 12, 2020

Recovery, TPA Analytics: V-Shaped Recovery, Maybe Not So Fast

V-SHAPED RECOVERY – MAYBE NOT SO FAST

The S&P500 dropped 5.89% on Thursday, which puts it down over 7% in the 3 days since Monday’s close, but still up 34% from the 3/23 close – about eight weeks ago. Headlines today are filled with pundits and strategists proposing an explanation for the 3-day decline, but it probably boils down to a plan gone awry.

We shut down and stayed at home to stop an uncontrolled spread of Covid-19. The federal government unleashed a massive stimulus plan to bridge the gap between the restart of the economy and its self-induced coma.

As the U.S reopened, however, the sad truth is being revealed. Covid-19 did not go away as quickly as expected. The resurgence will be a massive roadblock to the market’s anticipated V-shaped recovery.

In the 5/11/20 World Snapshot, TPA discussed the 4-scenarios for a recovery. I am providing the chart from Experian again below. The possible recovery patterns discussed were V, delayed-V, U, and W. The best scenario is “V,” in which the shutdown stems the tide if the virus and the stimulus kick to get us back on track. The worst-case scenario is “W,” which involves a resurgence of cases and another economic slowdown.

Recovery, TPA Analytics: V-Shaped Recovery, Maybe Not So Fast

Risk To Recovery From A Second Wave

The charts that follow show new cases of Covid-19 for the U.S., California, Texas, and Florida.  The U.S. chart is extremely suspect since the CDC has said that …“at least 28 states are not following CDC guidelines for coronavirus reporting.” – via CNN

The graphs of California, Texas, and Florida are disconcerting since they show a clear pattern of increasing numbers of daily cases. TPA provides these three charts since these are the most populous states in the U.S. Those stated comprise 88 million people or 26% of the U.S. population. (See table below)

Recovery, TPA Analytics: V-Shaped Recovery, Maybe Not So Fast

Recovery, TPA Analytics: V-Shaped Recovery, Maybe Not So Fast Recovery, TPA Analytics: V-Shaped Recovery, Maybe Not So Fast Recovery, TPA Analytics: V-Shaped Recovery, Maybe Not So Fast Recovery, TPA Analytics: V-Shaped Recovery, Maybe Not So Fast Recovery, TPA Analytics: V-Shaped Recovery, Maybe Not So Fast

The 3-state maps also seem to have more credibility than the U.S map. This is because they look just like the World map (below).

Recovery, TPA Analytics: V-Shaped Recovery, Maybe Not So Fast

What does a resurgence mean? Even if states do not officially shut down again, consumers will undoubtedly reconsider resuming normal life while Covid-19 cases are increasing. Businesses will have to contend with the possible liability issues of forcing employees to come back to work. Individuals will ultimately do what they believe is best for their safety.

A resurgence of Covid-19 was what was named as the precursor for a “W” recovery, which was the worst-case scenario. Will Covid-19 cases continue to rise? What will be the reaction of businesses and people? That is a very difficult question to answer. However, the rising cases in California, Texas, and Florida bring into doubt the possibility of a V-shaped recovery.



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Jeff Marcus founded Turning Point Analytics (TPA) in 2009 after 25 years on trading desks and 13 years as a head trader to provide strategic and technical research to institutional clients. Turning Point Analytics (TPA) provides a unique strategy that works as an overlay to clients’ good fundamental analysis. After 10 years of serving only large institutions, TPA now offers its research services to mid and small managers, RIA’s, and wealthy sophisticated individuals looking for a way to increase their returns and outperform their peers.

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2020/06/12
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