COVID-19 UPDATE: Texas reports massive >3X rise in cases, but state changed re-classification of prison cases, double counting?

There are ever growing signs of "V" across a constellation of US economic data, with today's retail sales +17.7% growth (vs +8.4% consensus), the latest example.  The plurality of investors expects the US economy to stage a sluggish/lumbering recovery, and these "V-shaped" rebounds represent upside surprises.  And more importantly, the stock market's +45% gain since 3/23 implied the equity markets were suggesting a vigorous recovery was underway, and now the incoming data supports this framework. 

Are investors appropriately positioned for a V-shaped recovery?  Empirically, nope.  We discuss in this commentary, how many investors have outright gone to cash positions and those institutional investors who are "EPS-centric" remain skeptical of equity gains, since prices have moved so much faster than fundamentals have improved.  Hence, most clients are either positioned for slow GDP (OW Growth) or "US is Japan" and defensively positioned (OW Growth + Defensives).  If a V-shaped recovery takes root, the appropriate strategy is to OW Epicenter stocks (Discretionary, Financials, Energy and Industrials), all of which have horrifically bad trends in EPS revisions.

If there is a simple guideline for markets, we think it is simply watching this growing mountain of money market cash on the sidelines, still $4.7 trillion.  Wow.  Investors remain unconvinced of this rally and as we commented in several recent pieces, the pullback seen in the past week could solidify one's skepticism of this "sucker's rally" -- but I don't recall in my +27 years of equity research ever seeing a market top characterized by record cash on the sidelines.  It is almost a contradictory statement. 


Source: ICI and Fundstrat

Daily cases surged today +4,684 led by Texas (see below).  But we think there may be double-counting in Texas today as the state decided to reclassify "prison cases" to the county of the prison (not clear where these cases previously tallied).  13 counties in Texas reported 1D jumps (from virtually ZERO in past 7D).  

We will know if Texas is seeing an accounting fluke based on reported cases later this week.  If they remain ~4,000 per day (like today) vs previous run-rate of 1,200/day, then the state has a serious surge on its hand.  But notably, daily net hospitalizations (admissions less discharges) is flat and not surging.

Certainly cases are rising in Texas, but less organically and as wrote in many commentaries, TX, CA and AZ are seeing imported case growth (vs organic).  But Texas could certainly benefit from requiring masks, which are not mandatory in public (but encouraged).  Even 9 mayors are asking for this.




POINT #1:  USA cases rise to 23,177 (+4,684) driven by rises in TX with 13 counties previously reporting ZERO cases now 1D surge, with 5 showing 100-900 cases -- looks like TX "prison" cases counted today
Total US COVID-19 cases rose +4,864 today with Texas accounting for +2,844 more cases vs 1D ago.  Texas saw 13 counties which had averaged roughly ZERO cases in the past week each report a 1D surge with 5 counties posting 100-900 new cases in a single day.  And in each instance, it looks like it is "prison cases" accounting for much of the surge.

- Based on our review of local media reports, it looks like many counties, including Anderson County, TX (+887 today vs ~ZERO past week) included prison cases with Beto and Michael prison accounting for 733 of the 887 (per Palestine Herald).

- So, this does not look like a massive second wave, but rather, better accounting to include prison cases.

Are we making excuses for Texas?  We have no reason to.  Our base case, as many of our clients know, was to expect a massive second wave stemming from the >350 nationwide protests numbering tens of thousands of protestors over the last 2 weeks.  This should have led to a massive nationwide surge, but this has not yet happened.

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