Market Insights & Analysis from Kramer Capital Research

Whatever Happened to the COVID-19 Crash?

Now that wide swathes of the country are opening up again for the summer, a lot of investors are still holding their breath and waiting for the final economic toll. The market, however, is already ahead of them.

The NASDAQ is up a healthy 6% so far this year and is now once again within 3% of record territory. Even the S&P 500, weighed down with industries frozen during the outbreak, is down less than 10%.

That just isn’t what a once-a-generation market crash looks like. While the initial slide was precipitous and the future is far from certain, conditions at this point feel a lot more like a correction than a long-term crash.

And Wall Street and the American economy have yet to meet a correction, recession or even a Great Depression that they couldn’t handle. I really think history will view this moment as the start of a new transition to greatness.

All we need to do is keep our eye on the future while the tribulations of the past recede.

Whatever Happened to the COVID-19 Crash? The Fed, the Numbers and the Mood Give Answers

We cut through the noise every week on my Millionaire Maker radio show. If you haven’t been listening, you might’ve found yourself trapped on the sidelines watching while U.S. stocks staged their biggest rally in ages. (Click here for recorded episodes and local stations.)

Big, vibrant, dynamic companies are back at record levels. Believe it or not, a full 20% of stocks in the S&P 500 have put the outbreak behind them and are now ahead of where they ended 2019.

The only thing their shareholders have lost is a few months of momentum. That’s how fast the market digested the quarantine’s catastrophic impact.

And while the other 80% of the market still has a little ground left to recover, those stocks are well on their way back from the brink.

Three months ago, the S&P 500 was within sight of a four-year low. Now we’re back at levels from last October and closing the gap week by week.

Of course, Main Street is still hurting. An astounding 39 million Americans have filed for unemployment benefits since the pandemic took hold and government forecasters are looking for a stark 38% drop in the gross domestic product (GDP) in the current quarter.

But Wall Street is already looking ahead to a time when these workers will find new jobs and the strongest economy on the planet once again will start generating massive amounts of wealth. As long as that economic engine keeps humming, we will keep moving forward.

The Fed is printing enough cash to paper over the speed bumps. I know talk of trillions of dollars is abstract to a lot of us, but these are simply the numbers the sprawling U.S. economy needs.

Last year, the economy generated $21 trillion, which translates to about $58 billion a day. Even if every single business shut down for three months, that’s a $5 trillion hit.

But between Congress and the Fed, more than $6 trillion has been created to fill the void. Look at the numbers right and there’s more wealth than ever flowing through the economy.

And a lot of businesses stayed open throughout the quarantine, even if it was only on reduced capacity. McDonald’s Corp. (NYSE:MCD) sales last quarter dipped 3% because 75% of its locations kept the drive-through windows open.

That’s a long way from a total shutdown. In company after company and sector after sector, revenue actually inched up last quarter and is likely to drop at most 12% this quarter.

Again, these are not great numbers, but as long as this is as bad as the quarantine gets, it’s far from the end of the world.

Indeed, the world did not end in February, when states started shutting down and a once-promising quarter hit the skids. March wasn’t apocalyptic either. April came and went. Here we are, looking at Memorial Day and the start of summer.

Week after week, cash kept flowing at levels that sustain the fabric of American corporate life. And executives pivoted day by day to capture as much revenue as they could during the shutdown.

The states that shut down collectively represent 95% of the economy. Unless a secondary outbreak is somehow more savage, we’ve already seen just how bad a quarantine can get.

Everything I see makes me think we’ve already gone through the worst of the crisis and are coming out on the other side now. I live in New York. Things here are getting better, not worse.

SHAK Flattens the Curve

That’s not just a vague wish, either. Restaurants are hiring again to support their new business footprints. Thousands of people are going back to work.

They don’t need their unemployment benefits or any other government support anymore. They survived.

You only need to look to Shake Shack Inc. (NYSE:SHAK) for empirical evidence. This is a quintessential New York chain. It lives and dies with the city.

On April 1, SHAK sales hit bottom with a 72% plunge from last year’s level. Then the comparisons started improving again. By April 29, the chain was operating at better than half capacity.

Under normal conditions, that’s still bad. But the numbers are moving in the right direction.

And the chain that emerges from the virus will be nimbler and more resilient than ever. Managers know now how to take and process orders online for curbside pickup and home delivery. That’s the future.

The virus forced them to face that future. It was painful, but it didn’t kill the company. Remember, SHAK even gave back its emergency grant because it wasn’t needed after all.

That’s true of a lot of companies. The 20% of the S&P 500 that have already shrugged off the virus are the leaders, companies like Microsoft Corp. (NASDAQ:MSFT), Apple Corp. (NASDAQ:AAPL), Amazon.com Inc. (NASDAQ:AMZN), Visa Inc. (NYSE:V) and on and on.

Those winners already account for 50% of the market’s overall capitalization. That’s where investors want to be. And in the meantime, my 2-Day Trader subscribers have been making money as sentiment swings.

CANNABIS CORNER: AURORA MAKES ITS MOVE

Aurora Cannabis Corp. (NYSE:ACB) is poised to benefit from the looming cannabis industry consolidation and we now have data to show that the prediction I previously made is coming true.

ACB just issued $40 million in stock to buy its way into the U.S. cannabidiol (CBD) market. The acquisition in question, a company called Reliva, is small but growing fast.

While $10 million a year in revenue is only a drop in the ocean for established corporate giants, it makes a big difference for ACB, which still earns cheers for bringing in $75 million a quarter.

Bolting on an extra 6% growth on the top line for the coming year is a good thing. Furthermore, Reliva is already profitable at this scale, so any expansion translates right to the bottom line.

That’s practically a miracle in an industry that’s still struggling to grow its way to profitability. The cannabis clouds are clearing as small players get taken out. Better days are on the horizon.

SAVE THE DATE: Join me and some of the smartest traders and investors in the world in this free online event, The Mad Hedge Traders and Investors Summit, on June 4. Click here now to register and learn all the details.

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