Investors Keeping Faith

As confirmed virus cases continue to grow across the U.S., predominately on the West Coast and in the Sunbelt, investors seem to be maintaining their confidence that a solution to the Covid-19 challenge is within sight.  So far, the Federal Reserve and Congress have acted forcefully to shore up the economy during this crisis and progress is being made along many avenues on the medical front as well.

Second Quarter Earnings Down Sharply. . . but not Horrific

As we get deeper into the second quarter earnings season, companies are reporting profit numbers that are slightly better than the grisly numbers analysts had penciled in.  With about one-quarter of S&P 500 companies having reported, about 80% are doing better in terms of expected earnings-per-share (EPS) and around 70% have reported higher-than-expected revenues.  Companies are, of course, mostly stepping over lowered bars that they themselves dropped as the virus spread.  In aggregate, earnings are likely to be around 40% below the year-ago levels.  In the big picture, though, earnings have been palatable to investors so far.

Market Forecast: Hazy with a Chance of Storms

Most managements are reluctant to forecast the trajectories of their businesses for the second half of the year, given the economic disruptions.  Investors, however, have mostly taken the cloudy views in stride.  On July 22nd, the S&P 500 Index closed at 3276.02, its highest level since the lockdowns began and slightly above where it began the year.  (It has given up a bit of ground since.) Considering what has happened to the U.S. and global economies in recent months and the amount of uncertainty we still face, most strategists agree that equities have notched an admirable performance.  We believe investor optimism is largely rooted in the rapid headway that the many companies and entities working on Covid-19 vaccines and treatments are reporting.

Multiple Shots on Goal for Vaccine Success

At least 165 separate efforts are underway worldwide to develop a Covid-19 vaccine.  Of these, 27 are in human trials.  Four are in Phase III, the last phase before potential approval for use.  Recent trial results from three specific programs, in particular, seem to have given investors comfort that a scientific solution to this problem is at hand.  Boston-based Moderna is conducting a 30,000 patient Phase III trial that begins nationwide on Monday.  Swedish-British drugmaker AstraZeneca and Oxford University are also teaming up on what looks to be a promising vaccine and have committed to deliver at least one billion doses.  U.S.-based Pfizer and Germany’s BioNTech are developing a vaccine for which the U.S. government has already ordered 100 million doses at a cost of nearly $2 billion.  It is still too early to project precisely when a vaccine will be ready, but the data from the trials thus far indicate Covid-19 is not an uncrackable nut.

As always, I welcome your comments and feedback. Feel free to call or email us to discuss your portfolio or the markets.