by Brian Wesbury, First Trust Portfolios
General comments
· Data will be atrocious. Unemployment rate will be ~ 14 to 16%. It may go as high as 20% or more
· GDP in the Q2 quarter will be down 20-30%, these are the worst drawdowns since the great depression
· Investors should not make decisions on negative lagging data
· First Trust publishes high frequency data every Thursday (please visit First Trust Resource page)
· High frequency data will improve before the monthly and quarterly data.
· Pandemic models by epidemiologists were inaccurate similar to SARs, MERS, Swine Flu by overstating the death rate significantly and creating a significant overreaction
· Why did we overreact? 1) Political 2) Group Think
· Every country has followed a bell curve pattern in terms of cases and deaths
· The data in NYC indicates the number of hospitalizations have gone down
· The overall economic damage done is severe. When you shutdown the world’s growth engine 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
· 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.
· Supply chains have been destroyed. Restaurants, Hotels
Overview of the Markets
· 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
· The violence of the move that we saw in March shows how difficult it is to trade
· Focus on companies with good balance sheets with the cash to survive and thrive once this shutdown is over
· 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
· 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
· There is so much group think in today’s society that it creates opportunity for returns, patience as an investor will be rewarded
· FINT –First 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)
• Fact Sheet | Holdings
· FST –First 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)
• Fact Sheet | Holdings
· FTCS –First 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)
• Fact Sheet | Holdings
Energy
· Cash oil will not trade at a negative number however supply is over abundant
· 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
· Demand is down 50% from a year ago
· Fair value of oil is $50 per barrel which will not be achieved for years
· FHE – First Trust AlphaDEX™ U.S. Energy Sector Index ETF (Tracks an index of US energy companies using a tiered weighting and proprietary selection process)
• Fact Sheet | Holdings
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