Just to put a capper on yesterday’s discussion about how you can’t invest in GDP, today offers a textbook example of this. The Q1 number came out, which includes the March shutdown, and it was actually worse than expected. Stocks are rallying anyway.
Here’s Peter Boockvar:
GDP in Q1 contracted by 4.8% q/o/q annualized as while the US economy really only shut down in earnest in the last 2 weeks of March, activity closed enough to cause this contraction. The estimate was down 4%. Personal spending led the way with a 7.6% decline, more than the estimate of a 3.6% drop as spending on durable goods contracted by 16.1% and that on services by 10.2%. Spending on nondurable goods, think toilet paper, hand sanitzers and food at the supermarket, jumped by 6.9%.
Bottom line, we know the US economy is in a recession but because we put it there ourselves. Q2 will see a contraction too and we know that also. The question is to what extent we get a rebound in Q3 as most everything should be open and hopefully we’ll get more good news from Gilead and other drug companies on therapeutics that could increase the confidence of people to reengage with businesses again via consumer spending.
In essence, the economy sucks, but who didn’t know that? We made it suck on purpose, for a reason. The S&P 500 fell 32% as it happened, and the Russell 2000, which is even more economically sensitive, fell 45%. I know there are people who are mad that it wasn’t worse, or didn’t stay down. Maybe their dreams will come true someday.
Let me touch on the Gilead news, because it partly explains the bullish tone of the tape this morning, here’s CNBC.com:
Gilead Sciences said Wednesday preliminary results of a coronavirus drug trial showed at least 50% of patients treated with a 5-day dosage of antiviral drug remdesivir improved and more than half were discharged from the hospital within two weeks.
The company also said another trial by the National Institute of Allergy and Infectious Diseases met its main goal. It did not provide further details, however.
Good enough for today, I suppose.