The Great Market Disconnect?

Fred Imbert of CNBC reports the Dow jumps 700 points on hope for a coronavirus treatment, closes at highest level since March:
Stocks surged on Friday after a report said a Gilead Sciences drug showed some effectiveness in treating the coronavirus, giving investors some hope there could be a treatment solution that helps the country reopen faster from the widespread shutdowns that have plunged the economy into a recession.

The Dow Jones Industrial Average rallied 704.81 points, or 3%, to 24,242.49. It was the Dow’s first close above 24,000 since March 10. The S&P 500 closed 2.7% higher, at 2,874.56 while the Nasdaq Composite advanced 1.4% to 8,650.14. er, at 2,874.56 while the Nasdaq Composite advanced 1.4% to 8,650.14. (Click here for the latest market news.)

Boeing shares jumped 14.7% after the airplane maker said it would resume production in the Seattle area as early as April 20. The company also said Friday it would resume operations in the Philadelphia area.

“It’s far too early to signal the all clear, but what this demonstrates is that coronavirus is a health problem that requires a health solution,” said Michael Arone, chief investment strategist at State Street Global Advisors, about the prospects of a coronavirus treatment. “If we can develop a health solution, I think at least from a market perspective, things will rebound pretty quickly.”

Friday’s gain led the S&P 500 to its first back-to-back weekly gains since early February and propelled it above its 50-day moving average. The broader market index climbed 3% for the week while the Dow gained 2.2%. The Nasdaq advanced 6.1% week to date. Through Friday’s close, the major averages were all up more than 25% from their late-March lows.

Gilead shares jumped 9.7% after STAT news reported that a Chicago hospital treating coronavirus patients with remdesivir in a trial were recovering rapidly from severe symptoms. The publication cited a video it obtained where the trial results were discussed.

“An effective treatment is a huge deal and would create a path to open the economy and resume normal ‘social activities’ way sooner than a vaccine,” said Tom Lee, head of research at Fundstrat Global Advisors. “A treatment is safer and more scalable because it is only given to people who need to be treated.”

Other studies have shown remdesivir to be an effective treatment against the coronavirus. However, they have been smaller in scale. Gilead itself also cautioned that anecdotal reports are not enough to determine yet whether the drug will be an effective treatment.

Still, CNBC’s Jim Cramer said the drug could give the economy a “fighting chance.”

“Remdesivir sounds like something that can get people out of hospitals quickly,” Cramer said in a tweet Thursday. “That allows our economy to have a fighting chance..I think that remdesivir would cut the morbidity ... which would change how quickly we can open... and what we can do.”

Investors trimmed positions in work-from-home plays such as Amazon, Netflix and Walmart. Amazon dipped 1.4% while Netflix fell 3.7%. Walmart slid 0.2%. Still, Amazon and Netflix closed up more than 14% for the week while Walmart gained 8.5%.

Market comeback

Stocks tumbled from record highs in February into a bear market a month later as the spread of the coronavirus roiled market sentiment and the economic outlook. More than 2 million cases have been confirmed worldwide, including over 650,000 in the U.S., according to Johns Hopkins University. Governments urged people to stay home, effectively shutting down the global economy.

But the stock market has rallied since March 23 as new coronavirus cases in the U.S. and globally showed signs of plateauing. President Donald Trump said Thursday that “our experts say the curve has flattened and the peak … is behind us.”

He also issued guidelines to open up parts of the U.S. Thursday night, which identifies the circumstances necessary for areas of the country to allow employees to start returning to work. The decision to lift restrictions will ultimately be made by state governors.

The S&P 500 has jumped more than 30% from its March 23 intraday low while the Dow has gained 33.1% in that time.

To be sure, the outbreak has already dealt a massive blow to the economy. In four weeks, about 22 million Americans have lost their jobs. Retail sales posted last month their biggest fall on record.

Investors have said that news of an effective treatment or vaccine would be needed for stocks to mount a sustainable comeback.

“If it is effective in keeping someone from contracting the virus or, more likely, simply reduces its severity, that would be a game-changer and [would] allow the economy to restart both more quickly and more fully,” said Jim Paulsen, chief investment strategist at The Leuthold Group, about the Remdesivir trial report.
So, Wall Street got excited today based on a small but promising study out of Chicago looking at the effects Gilead's drug, Remdesivir.

I certainly hope we have new treatments but it's still early and the truth is, it will take a lot more than Remdesivir to alleviate fears. And that's if it proves to be an effective treatment.

The only thing that will really alleviate fears is a vaccine which is at least a year away, if not longer, and its efficacy remains to be seen.

Another problem is we are nowhere near the levels where herd immunity is reached (50% threshold):

This poses serious health risks for the population at large when they decide to reopen the US economy.

Also, there are worrying signs in Asia:

Lest we forget, this virus is proving very difficult to control.

What about the stock market? It has been rallying since hitting a low on March 23, mostly owing to the Fed and large global pensions and sovereign wealth funds rebalancing their portfolio at the end of quarter.

But earnings are cratering as unemployment soars to unprecedented levels and some are sounding the alarm to be weary of this miraculous rally we are witnessing and that Fed can cure all problems:

The key for me right now is the Nasdaq which has been rallying like it's 1999:

I'm highly suspicious of this rally given that many small businesses have curbed or stopped their ads on Google and Facebook and many large corporations are putting off investments until they see more clarity.

In fact, this week Alphabet (Google) said it will slow hiring (aka, freeze it) and its investments:

Moreover, the Nasdaq-100 is slightly positive year-to-date despite 12-month forward earnings in freefall:

And concentration risk in this market is higher than ever before:

Something is going to give but people get all caught up in the most recent market rally and think it will last. It won't, it's a classic bear market rally, one of many to come.

It might last till the end of the month but my gut tells me the next drop will be more choppy and more severe, so prepare for a lot of volatility ahead:

The cheerleaders on CNBC are all out trying to calm their "high net worth" clients because they know the next six months will be hell.

As far as the overall US economy, the news is just horrific:

And I don't see a V-shaped recovery:

As I get ready to celebrate Orthodox Easter and the resurrection of Christ, I find myself worrying about the state of the world.

I honestly don't think we are going to get out of this mess quickly or as quickly as initially thought, and the longer this drags out, the worse it will be for the global economy and consumer sentiment.

I think people are overestimating the economic and stock market recovery and underestimating the long-term economic and psychological effects of this pandemic:

We will eventually emerge but to what? The new normal won't be fun and it will likely be with us for a very long time.

Below, Diane Swonk of Grant Thornton and Andrew Slimmon of Morgan Stanley Asset Management join "Squawk on the Street" to discuss the markets after weak economic data. I really like Diane Swonk, she's bang on.

Second, reports that Gilead's drug Remdesivir is reportedly showing effectiveness in treating coronavirus sent the stock higher ahead of Friday's open. Dr. Scott Gottlieb, member of the boards of Pfizer and biotech company Illumina and former FDA commissioner, joins "Squawk Box" to discuss.

Lastly, the Mayo Clinic is leading national coordination of plasma donation from recovered coronavirus patients for possible therapeutic treatment. Mayo Clinic CEO Gianrico Farrugia joins "Squawk Box" to discuss.

I'm far more hopeful on blood plasma donation than any other treatment but I warn you, anecdotal evidence isn't the same as a rigorous study which is done properly.

And these treatments will help alleviate fears but not displace them altogether and they won't save the economy from a major depression. Tread carefully and don't buy the hype.