Here be dragons and other signposts for the Covid – 19 experience

We have defined 2 baskets Away and Home for studying the impact of COVID-19. The Away basket (think Airlines, Casinos & Hotels) selling down roughly 65% in 3 weeks relative to the Home basket (think Clorox & Netflix). Investors may have priced in the first leg of the pandemic. In our Here be dragons report, see attached, we flag signs of optimism (smaller energy firms down 56%, credit spreads for Energy high yield bonds blew out to 1750) suggesting the first phase has been priced in… now for the next stage… pricing in the economic fallout to the rest of the economy… this latest use of sentiment data (supplied by Stocksnips) on our baskets of Home & Away indicate that expectations have sharply tumbled for the Away basket. Importantly, the broader market expectations, including the Home basket, are too benign… sell side analysts are slow to change and therefore yet to adjust to the “new” normal.