Click HERE to access the FSInsight COVID-19 Daily Chartbook.
STRATEGY: The markets prefer stimulus now, naturally
Equity markets saw a painful reversal yesterday, as the White House announced that any fiscal stimulus is set to happen after the election day. This was a surprising negative development since nearly everybody in Washington agrees fiscal stimulus is not only important at this juncture, but the timing was also crucial. However, it seems that the chasm between what Dems vs Republicans saw as appropriate was too large a divide to bring together.
Our Washington Strategist, Tom Block, shared this comment today. He sees this as disruptive, as there is no going around the White House decision. At this same time, we know that nothing is final in Washington, so this could prove to be moving a different path in a few days.
Source: CNBC
Is the US situation better today versus a month ago? Yes
The relative resilience of markets has surprised many people in the past few days, given the myriad of negative developments. Here is a list of the issues that are generally negative:
– US cases are rising = bad
– NY and NYC are seeing cases rise after extremely low case = bad
– President Trump contracted COVID-19 at a superspreader event, engulfing >30 so far = bad
– Europe is experiencing all-time high new COVID-19 cases in Spain, France and UK = bad
– 2020 election is getting more acrimonious and “clean and decided” outcome uncertain = bad
– hospitalizations are rising
So collectively and superficially, this is negative. However, the equity markets have not tanked. And instead, the S&P 500 held a very key level, S&P 500 3,224 and is dancing around 3,363. So, the market is telling us that the superficial data is not what is driving markets.
Lots of “half-full” things in the past month…
This quote from Margaret Mitchell resonates with me, because it reminds me to look at messages from the equity markets. Here are some things that are certainly better than a month ago:
– Daily cases up, but coefficient for incremental deaths and hospitalizations, WAY DOWN
– US got a REAL REMINDER that not wearing masks raises the risk of COVID
– President Trump staged a miraculous nearly full recovery, a result of some very effective Regeneron and Remdesivir treatments.
– Europe surge in cases is seeing a barely detectible rise in deaths
– Treatments for COVID-19 seem to have made a sizable leap in the past few months
– Pres. Trump has several risk factors including age and weight, yet, the virus seemingly has been obliterated
– Economic data is organically strengthening, look at TSA throughput this week
Source: TSA
So you can see, there is a litany of positives to be garnered from the last few weeks. It is not all bad. But COVID-19 has not faded from the US scene. It is still a pernicious and mysterious illness. And at the expense of repeating myself, I think the markets may be too focused on the “game plan into election day.”
Would there be any substantive differences in sector views post-election?
I realize the market is in a waiting game. The game plan from today until election day (next 30 days) is very different than the post-election strategy.
Into elections, most investors are risk-averse, fearing two things:
– a contested outcome, and the associated wait (which just pushes off finality by a few weeks)- something bad could happen before the election day — ala, delayed election, Trump condition worsens, etc.
So I can see the jitters over the next 30 days. But neither issue should cause those trades favorable post-election to wither either.
Here is a high-level view if Trump wins plus Republican keep the Senate:
– Stimulus passes
– White House focuses on further economic stimulus
– virus is probably contained mid-2021 (see below)
– US economy is cranking
– Trump sees mandate and cuts taxes
– inflation risk rises
– investors are “risk-on”
Post-election Strategy: OW cyclicals, aka epicenter. Sell the “economy closed” winners
Here is a high-level view if Biden wins plus Dems take the Senate:
– Stimulus passes
– White House focuses on further economic stimulus
– virus is probably contained mid-2021 (see below)
– US economy is cranking
– Biden White House raises capital gains tax, leading to selling of winners = Technology stocks
– inflation risk rises
– investors are “risk-on”
Post-election Strategy: OW cyclicals, aka epicenter. Sell the “economy closed” winners
Is there any difference?
Thus, to me, the prudent strategy is to build the shopping list for post-election days, rather than optimize returns into early November.
POINT 1: Daily cases rising vs 7D ago, flattish but still up
Daily new COVID-19 cases came in at 38,445, which is +1,035 vs 7D ago.
– But cases are rising vs 7D ago, so the trend is higher.
– Americans are getting too comfortable and coupled with back to school and colder weather (weaker immune systems), we are seeing more cases.
– the key, however, is to not see daily cases rise exponentially, ala Europe
Source: COVID-19 Tracking Project
Again, the daily change vs 7D ago, in our view, is the leading indicator as it is what influences the 7D moving average.
– The next few days are key. But if daily cases rise vs 7D ago, we know the trend is now up.
– so far, we are not seeing 7D delta soar, so cases are not leading to an exponential spread
– the next few weeks are critical
Source: COVID-19 Tracking and Fundstrat
Source: COVID-19 Tracking and Fundstrat
POINT 2: BREAKOUT: 12 states see BOTH higher testing + higher positivity
If we wanted to visualize how COVID-19 is rising in the US, one simple way is to map the rise in daily cases (7D delta) and color-code based on the size of the increase. But this overlooks the size of each state and thus, we would need to adjust for the proportionate rise.
– without going too deep into the minutiae, there are just too many ways to size “where are the breakouts” happening?
Source: Fundstrat
Equally important, we need to be mindful of testing trends. If an area is increasing testing, we will see a rise in cases. Thus, those confirmed increases may or may not be due to an increasing spread. Rather, it could be due to the greater penetration of testing. In other words, this is not necessarily an organic rise in cases. Of course, it could be, because if a state was seeing a breakout:
– testing would rise AND
– positivity rates would rise
These are probably the areas we should be alert to for examples of states seeing a breakout.
This chart is the 50 US states and we sorted based upon 7D % change in daily test, sorting from highest to lowest. Naturally, states with the highest % increase are marked green, because the rise is in almost all cases, a positive thing.
– Alaska has tripled testing in the past week
– NY state has seen a 35% rise
– FL, which lifted all COVID-19 restrictions on 9/25, has seen a 10% rise
Source: COVID-19 Tracking Project and Fundstrat
But then we need to look at the vector of increasing positivity. The states which see a rise in positivity are those where more testing might be warranted. After all, if there is a rise in the percentage confirmed, then one could argue the state is not doing enough testing.
– the standouts here are the states widely seen as having a surge — WY, UT, OK, ID and OR
– NY is also seeing a rise in positivity rates (in the middle of the chart)
Source: COVID-19 Tracking Project and Fundstrat
12 states are seeing a rise in positivity rates AND higher testing…
Combining this, let’s look at current test positivity rates, but color code states based on the criteria above. So, if a state has higher tests and higher positivity, we mark it in red. But if a state has higher tests but lower positivity (vs 7D ago), we mark it in green.
– below, we can see North Dakota has a shocking 27% positivity rate and this is on top of more tests, so there is a big spread there
– NY, Vermont and Maine are at the other end of the spectrum — testing is up along with positivity. But the absolute levels are low.
Source: COVID-19 Tracking Project and Fundstrat
The list of the 12 states where things are worsening from these criteria:
– higher tests conducted AND
– higher positivity rates
Topping this list is NY. And FL is on here as well. But the trouble spot to watch is probably NY.
Source: COVID-19 Tracking Project and Fundstrat
And if you are wondering why we are talking about testing, it is well accepted that testing and widespread testing is key to containing spread. I can’t say it is more or less important than therapeutics, but if testing were widely available, accurate and quickly diagnosed, COVID-19 would be easier to contain.
– In fact, Bill Gates is quoted in CNBC saying the US COVID-19 testing is still “truly a sad thing”
– He is referring to the lack of availability, higher cost and slow availability.
Source: CNBC
Source: CNBC
POINT 3: Spotlight Florida: Almost 2 weeks since “no restrictions” — trends healthy
We wanted to check in on Florida and its COVID-19 situation. On 9/25, FL Gov Ron DeSantis issued an Executive Order lifting all restrictions stemming from COVID-19. In other words, for the past 12 days, FL has been a state economy that is completely open. There are zero restrictions on restaurant capacity, indoor activity, social distance and even the requirements related to masks.
– 12 days in virus time is enough for at least 2 cycles of spread, assuming 1-5 days of incubation and 1-5 days of shedding sufficient levels of virus to be contagious
– has FL seen an uptick in positivity rates or cases since then?
– and is such a rise worse than the rest of the US?
On daily case trends, it is still visibly and clearly down. This even after two weeks of no restrictions is quite impressive. This suggests that FL residents are not as vulnerable to COVID-19 despite no restrictions.
– granted, this could all be a “delayed” effect and we could see a huge surge in the coming weeks
– so we cannot be definitive on the future
– but at the moment, daily case trends have been very impressive
Source: COVID-19 Tracking Project
Similarly, see how daily positivity rates have been trending lower? This is also a good sign. So, the testing is not suggesting any underlying pickup in confirmed cases or the rate that confirmed cases are found.
– so far, so good!
Source: COVID-19 Tracking Project
And take a look at the trends in the largest counties of FL (>100,000 residents). The top 7 have seen essentially flat trends in daily cases. This is quite surprising given these larger counties are where the COVID-19 spread was the worst earlier this Summer. So the fact it is flat is pretty impressive.
Source: FL Dept of Health
At the county level, we can look at the aggregate trends and as shown below, the percent of FL with cases 75% off their highs is continuing to rise.
– this figure has risen in the past two weeks
– thus, despite re-opening the economy without restriction, there is no massive surge in cases seen with county-level data
Source: Johns Hopkins
Some background, on 9/25, FL lifted all restrictions stemming from COVID-19
The reason we found FL so interesting is the state is one of the largest in the US, both population and GDP impact. Moreover, the state is quite popular with tourists from overseas, particularly Latin America, and from the rest of the US. But since Latin America’s outbreak has been so severe, the path of FL spread has been impacted by this inbound overflow. This is not that different from what we saw in other border states like CA, TX or AZ. Collectively, we refer to these states as F-CAT.
https://www.axios.com/florida-lifts-coronavirus-restrictions-restaurants-c05970fd-3f13-4fc3-bf12-63d58a02e33f.html
The rationale for this lifting of economic restrictions is the severe economic hardship wrested on the state. So, we can sympathize with the rationale, but of course, this has to be balanced with public safety. FL also has a sizable retiree population, so the state has a high share of the vulnerable cohorts.
