Feeling a Strong U-Shaped Rebound on the Horizon

We continue to see some profit taking in equities here in May after a huge rally in April. However, the market continues to hold up extremely well given the horrific economic headlines that keep crossing the wires.

Last week we found out that retail sales in April plunged by more than 16%, while industrial production was down better than 13% during the month. Three million more Americans filed for unemployment claims during the week, bring the two-month total to a surreal 36 million. The Atlanta Fed's GDPNow is now predicting a contraction in GDP of better than 40% in the second quarter on an annualized basis.

These are headlines none were expecting to see at the start of the year when the economy and stock market were humming along, nor is this situation something I think any of us will see again in our lifetimes. Given all that, the markets have held up much better than could be hoped.

The country is starting to reopen on a state-by-state basis. While I still don't see a V-shaped recovery, I am feeling somewhat more confident of a solid U-shaped rebound.

Consumer confidence held up much better than expected in April, probably helped along by the massive amounts of stimulus money coming consumers' way via legislation and the Treasury. It also sounds like the Paycheck Protection Program is going to be revised in a way that should help keep more small businesses viable.

Most of all, I think people across this country are completely fed up with sheltering in place and lockdown decrees, most of which should have never been issued in the first place. You see this in the recent massive protests against governor-ordered shutdowns in Michigan and Wisconsin. The latter was overturned by the state's Supreme Court last week, resulting in bars and restaurants being flooded upon opening their doors again.

Even in New York City, which has yet to spell out a well-thought-out timeline for reopening, dozens of bars throughout Manhattan are basically operating as speakeasies. The police are largely giving up on social distancing enforcement.

I know we can't wait for most businesses reopen here in Miami on May 27. In fact, I and several friends here are going to jump the gun a bit and take the tri-rail up to Delray Beach Wednesday for a day of dining, beach walking and enjoying some suds as that town has just reopened 90 minutes north of here.

In short, folks have had the biggest case of cabin fever in American history and are beyond ready for a return of normality. In an anecdotal and early sign of this, my buddy's restaurant here in Miami did $20,000 of takeout this Saturday, more than doubling its best day for this service. This high-end dining establishment barely offered takeout before the Covid-19 outbreak. Necessity is indeed the mother of invention

I think the next few weeks will be critical in determining if we see a strong U-shaped recovery. I will be watching closely to see how fast sales bounce back as businesses reopens. If all goes well, we should see a substantial reduction in unemployment by the end of June. Getting people back to work also will help society develop "herd immunity" -- a key to preventing a second wave of Covid-19 in the fall. Hopefully, six weeks from now the markets and investors should have a better handle on what sort of rebound lies ahead.