Road to Recovery Playbook Factor #1: COVID-19 Case Update

Factor #1 in our Road to Recovery Playbook is finding confidence in the peak of COVID-19 cases in the United States.  At LPL Research we are monitoring this factor daily, and we wanted to provide an update into what we are seeing. As shown in the LPL Chart of the Day, while the number of new cases in the United States has continued to climb, the number of new cases seen outside of the US has begun to drop in recent days. In fact, Italy, the worst-hit country in terms of total deaths from the virus, reported on Tuesday that new cases hit a two-week low.

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Road To Recovery Playbook Update

Stocks soared last week, working off historically oversold levels. Although the impact to our economy and American workers has been devastating, we did see some positive developments from monetary and fiscal stimulus, which could set up a powerful eventual economic rebound. This week, we share an update on our Road to Recovery Playbook, as we have seen more signs of a major low in equities. We have upgraded our equities recommendation to overweight from market weight where appropriate.

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Policy-Driven Rebound

Stocks rebounded sharply this week even as the COVID-19 pandemic continues to spread rapidly in the United States. The movement toward passage of the nearly $2 trillion fiscal stimulus package and unprecedented actions from the Federal Reserve (Fed) helped stocks snap back. Slowing growth in new cases in some countries provided reassurance.

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Road to Recovery Playbook Factor #4: Pessimistic Sentiment

We’ve been monitoring the details in our Road to Recovery Playbook closely over the past few weeks, looking for ways to opportunistically take advantage of the sharp pullback in equity prices. The Playbook has five important factors we are scrutinizing in order to be more aggressive with equity allocations. One of those factors emphasizes whether we believe there are limited sellers remaining. For clarity on that particular factor, we reviewed recent statistics from Morningstar on fund flows, and we found some interesting observations.

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A Test of Our Resolve

Dear Valued Investor:

The world continues its battle to contain the COVID-19 pandemic, which now has likely impacted, either directly or indirectly, nearly every person on Earth. This is far more than just a health crisis—this is a human crisis. Its fearful wake will only be bested by the bravery, perseverance, and hope of a determined world. It is more than just a dangerous illness, it is a test of our resolve.

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