Biggest Recession Since The Great Depression?

The counterpoint to the low PE argument is that the earnings outlook is uncertain. However, the outlook was uncertain in October 2008 as well. Earnings were terrible in 2009 and they will be terrible in 2020. That’s a given.


In extreme market circumstances, risk assets trade together. We’ve even seen treasuries and stocks sell off together as liquidation events occur. When stocks fall vertically, they fall together. That’s why we’ve seen the percentage of S&P 500 stocks above their 200-day moving average in the low to mid-single digits. As you can see from the chart below, the implied correlation of the S&P 500 has risen to 86.35%. During Wednesday’s session, the correlation defied the basic rules of math by getting above 100% to 101.25%. That’s the ultimate sign of a panic. It doesn’t get any worse.  

China’s Recovery

China’s economic recovery provides a glimmer of hope for America and Europe which desperately need any good news they can get. In China, FedEx stated demand rebounded more than expected. 65% to 70% of small businesses are operating and 90% to 95% of large manufacturing firms are operating. The chart below shows the congestion index in the main cities.

(Click on image to enlarge)

Source: Pictet Asset Management

Shenzhen has 85% of normalized traffic, while Hubei hasn’t recovered at all. China is up to 61% of its normalized coal consumption. Remember, China started dealing with COVID-19 in late January. This is about 2 months later. We could be seeing good headlines in America starting in May.

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