Given the awful deluge of novel coronavirus stats and sharply negative economic metrics, we could all use some good news. Heading into Good Friday last week, senior White House adviser Dr. Anthony Fauci provided exactly that. Rather than the 100,000 to 240,000 deaths that epidemiologists forecasted, Dr. Fauci now anticipates “only” 60,000 deaths. In theory, this augurs well for consumer-sensitive names like Wynn Resorts (NASDAQ:WYNN) and specifically, Wynn stock.
Obviously, I’m not trying to make light of the casualties. Anytime you lose tens of thousands of your fellow Americans, it’s a national tragedy. But if Dr. Fauci is right, we can at least save 40,000 families from having to suffer grievous losses.
As well, insiders within the Trump administration reported that the President is doing everything he can to reopen the economy by the beginning of May. With staggering job losses becoming part of our new normal, this would potentially represent a vital lifeline to Wynn stock, along with other Las Vegas-centric organizations like MGM Resorts (NYSE:MGM) and Caesars Entertainment (NASDAQ:CZR).
As much as I would love to see us return to our old normal – I’m sure you’re just as tired of living on rations like I am – I can’t help but notice that Trump’s motivations run counter to Dr. Fauci’s. Let’s face it – the President is in an election year. Though cynical, he needs the economy to get back up and running. Frankly, so does beleaguered Wynn stock.
But to Dr. Fauci’s point, reopening the economy prematurely can undo the tremendous sacrifices that this nation has made. Further, a resurgence of Covid-19 would both hurt our collective health and render unthinkable damage to society.
Wynn Stock Faces a Tougher Road Than You Think
Again, although I share the same sentiment with President Donald Trump, I don’t think reopening our country in his preferred timeline is realistic. On Thursday, jobless claims jumped to 6.6 million, matching the figure for the week ending March 28. Further, economists noted a sharp decline in hours worked.
Not surprisingly, JPMorgan Chase downgraded their GDP forecast for the second quarter. They now anticipate a 40% reduction in economic activity along with April unemployment hitting 20%. Previously, they anticipated a 25% reduction in Q2 GDP.
Not to pour salt on festering wounds, but I believe the big bank is being optimistic.
According to the latest read from the University of Michigan’s consumer sentiment index, April 2020’s point level has dropped to 71. That equates to a month-to-month decline of nearly 27%. If you think that’s bad, it is. In fact, it’s an all-time record low, going back to 1978 when complete records were kept.
But what makes this circumstance so different from the Great Recession is that the erosion happened almost immediately. In February of this year, the consumer sentiment index was up at 101 points. We’ve never witnessed such a rapid deterioration from raging bull market to crippling bear market. Obviously, this doesn’t inspire confidence in an investment like Wynn stock.
Prior to the Great Recession, consumer sentiment deteriorated over a two-year period. In October 2006, the index was at 93.6 points, well within the range of normal sentiment readings. One year later, sentiment dipped to 80.9 points. Then, in October 2008, it hit 57.6 points. A month later, it dropped to a Great Recession-low of 55.3 points before starting its long recovery trek.
How long will it take us to recover from Covid-19’s economic crisis?
Pray but Be Prepared
Many people are hoping for a V-shaped recovery. Indeed, such a trend represents the best-case scenario for Wynn stock. And to that, I say you can hope and pray for such a turnaround. Nevertheless, for practical-minded investors, you should prepare for a long, drawn-out grind.
According to my research, where the consumer sentiment index bottoms out is pivotal to forecasting how long it takes to recover. Unfortunately, the rate at which we plummeted suggests that we could see devastating new lows nominally in the sentiment index. Look, if JPMorgan is forecasting 40% unemployment, we could see ghastly numbers in the months ahead.
If so, more than likely, we will endure an arduously long journey back to normal sentiment readings. I’m not talking in terms of months but several years at least. So no, I wouldn’t buy Wynn stock right now assuming that the worst is over.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.