Brian Wesbury: We know the data will be atrocious... so what now?

by Brian Wesbury, First Trust Portfolios

General comments

路聽聽聽聽聽聽 Data will be atrocious. Unemployment rate will be ~ 14 to 16%. It may go as high as 20% or more
路聽聽聽聽聽聽 GDP in the Q2 quarter will be down 20-30%, these are the worst drawdowns since the great depression
路聽聽聽聽聽聽 Investors should not make decisions on negative lagging data
路聽聽聽聽聽聽 First Trust publishes high frequency data every Thursday (please visit First Trust Resource page)
路聽聽聽聽聽聽 High frequency data will improve before the monthly and quarterly data.
路聽聽聽聽聽聽 Pandemic models by epidemiologists were inaccurate similar to SARs, MERS, Swine Flu by overstating the death rate significantly and creating a significant overreaction
路聽聽聽聽聽聽 Why did we overreact? 1) Political 2) Group Think
路聽聽聽聽聽聽 Every country has followed a bell curve pattern in terms of cases and deaths
路聽聽聽聽聽聽 The data in NYC indicates the number of hospitalizations have gone down
路聽聽聽聽聽聽 The overall economic damage done is severe. When you shutdown the world鈥檚 growth engine聽 for 30 to 45 days, you lose trillions in output. Our estimates range between 2 and 3 Trillion in output, at the same time we have added 4 trillion dollars to our National Debt
路聽聽聽聽聽聽 The longer we stay shutdown, the longer it takes us to fully recover. Therefore, we expect a U Shaped recovery, it will take ~12-24 months to get back where we were.
路聽聽聽聽聽聽 Supply chains have been destroyed. Restaurants, Hotels

Overview of the Markets

路聽聽聽聽聽聽 2019, Nasdaq was up 35.2%, YTD down 5.7%. S&P 500 was up 28.5%, YTD we are down 13.8% so in other words if you look at the S&P & Nasdaq from December 2018 you would be up 16% & 29% respectively
路聽聽聽聽聽聽 The violence of the move that we saw in March shows how difficult it is to trade
路聽聽聽聽聽聽 Focus on companies with good balance sheets with the cash to survive and thrive once this shutdown is over
路聽聽聽聽聽聽 We believe we have put in the bottom unless we have a second wave of infections which shuts down the economy for a second time
路聽聽聽聽聽聽 Once states begin to open, the pressure on other states to open will build for example, if Ohio opens, the pressure and competition on Indiana and Penslyvania to reopen will be intense
路聽聽聽聽聽聽 There is so much group think in today鈥檚 society that it creates opportunity for returns, patience as an investor will be rewarded
路聽聽聽聽聽聽聽 FINT 鈥揊irst Trust International Capital Strength ETF (40 of the strongest balance sheet stocks in the International markets with low debt, high cash levels and high ROE)

鈥⒙ Fact Sheet | Holdings

路聽聽聽聽聽聽聽 FST 鈥揊irst Trust Canadian Capital Strength ETF (25 of the strongest balance sheet stocks in the Canadian markets with low debt, high cash levels and high ROE)

聽 聽 聽聽聽聽聽 鈥⒙ Fact Sheet | Holdings

路 聽聽聽聽聽聽 FTCS 鈥揊irst Trust Capital Strength ETF (50 of the strongest balance sheet stocks in the U.S. markets with low debt, high cash levels and high ROE)

鈥⒙ Fact Sheet | Holdings

Energy

路聽聽聽聽聽聽 Cash oil will not trade at a negative number however supply is over abundant
路聽聽聽聽聽聽 Federal Government will backstop the energy industry. Alternative, large companies such as Exxon Mobil, EOP Resources will acquire the leases and equipment at very attractive prices which will bring down the average cost of production
路聽聽聽聽聽聽 Demand is down 50% from a year ago
路聽聽聽聽聽聽 Fair value of oil is $50 per barrel which will not be achieved for years

路聽聽聽聽聽聽聽 FHE 鈥 First Trust AlphaDEX™ U.S. Energy Sector Index ETF (Tracks an index of US energy companies using a tiered weighting and proprietary selection process)

鈥⒙ Fact Sheet | Holdings

 

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