So there is plenty of liquidity being provided by the major central banks to stabilize the global financial system and stimulate a U-shaped economic recovery.
That’s why the S&P 500 forward P/E has rebounded so remarkably since March 23. It has also moved higher on expectations that the opening of economies around the world in coming weeks won’t cause a significant second wave of infections.
A major setback on the health front of the world war against the virus undoubtedly would reverse the advances made on the economic and financial fronts. In this scenario, both the S&P 500 and its forward P/E could retest their March 23 lows.
That’s not the scenario we expect. But in all wars, there are setbacks and lots of uncertainty. That’s why we are sticking with our 2900 S&P 500 target for the end of this year even though it was achieved ahead of schedule, on April 29. Once the war is won, the stock market should be heading to higher ground, with our year-end 2021 target at 3500.
Of course, the virus may never be completely defeated. We may or may not find vaccines and cures.
However, there are several promising developments:
(1) Testing. The Guardian reported on May 1 that “[s]cientists working for the US military have designed a new Covid-19 test that could potentially identify carriers before they become infectious and spread the disease ... In what could be a significant breakthrough, project coordinators hope the blood-based test will be able to detect the virus’s presence as early as 24 hours after infection—before people show symptoms and several days before a carrier is considered capable of spreading it to other people. That is also around four days before current tests can detect the virus.”
The US military’s Defense Advanced Research Projects Agency (DARPA) has been working on tests to diagnose germ and chemical warfare poisoning. The head of DARPA’s biological technologies office said that if given FDA approval, the new test “absolutely” has the potential to be “a gamechanger.”
(2) Vaccine. On April 30, AstraZeneca and the University of Oxford announced an agreement for the global development and distribution of the university’s potential recombinant adenovirus vaccine aimed at preventing COVID-19 infection from SARS-CoV-2. FiercePharma reported early last week that Johnson & Johnson signed a second major manufacturing deal to boost capacity for its vaccine candidate, which it hopes to move into human trials in September, with the goal of reaching 24/7 manufacturing schedules by January.
(3) Cure. The day before, we learned that hospitalized patients with advanced COVID-19 and lung involvement who received Gilead’s remdesivir recovered faster than similarly afflicted patients who received a placebo, according to a preliminary data analysis from a randomized controlled trial involving 1,063 patients, which began on February 21.
(4) Face masks. While we are waiting for tests, vaccines, and cures, we will have to learn to live with the virus without causing significant second waves of the infection as our economies open up. I’ve promoted the mandatory wearing of face masks in public. Initially, health officials advised us all to wash our hands often and weren’t so keen on wearing masks. They’ve since changed their minds.
On April 20, CNN reported that seven states require face masks in public. In recent days, seven airlines (American, United, Delta, Southwest, Alaska, Frontier, and JetBlue) announced passenger mask requirements and several governments passed new mask-wearing requirements, including Massachusetts, San Diego county, and Spain (on public transportation).
Dr. Ed Yardeni is the president of Yardeni Research, Inc., a provider of independent global investment strategy research.
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