COVID-19 UPDATE. NY hospitalizations soon to turn "net negative" = Good. Despite 3 waves of crisis coming, S&P 500 >2,800 confirms bottom is in (we realize this makes no sense)
COVID-19 remains a global crisis and we realize that many people need to keep up with COVID-19 developments, particularly since we are moving into the more critical stage ("restart economy"), so feel free to share our commentary to anyone who has interest.
Taking a step back, it is clear that in the past week (few weeks), the US progress against COVID-19 is outperforming expectations. This is evidenced by the case data (which we discuss below) but it is also evident in the powerful recovery of risky assets, both equity and credit (investment-grade and high-yield). In fact, the S&P 500 closed above a key milestone (2,793, specifically, which is a 50% retrace) and since 1929, a bear market recovering 50% of losses historically signals the bottom is in (we realize some of you may protest that we don't know if this is the low low, but see our comments later, we explain this).
You might think that this recovery in stocks is mere "noise" or a "deadcat bounce" and that we will soon resume a deadly decline. But think of it this way. After February 19th, the equity markets felt into a slide and by the time the first US non-Wuhan/non-cruise case was reported in early March, the S&P 500 was already down 15%. And by end of the first full week of March (10th), the US only reported 300 cases yet the S&P 500 was down 27%.
In other words, as COVID-19 spread, the equity markets were WAY AHEAD of the data.
If this is true, then the converse should be similarly true. After all, if it was "signal" on the velocity of the decline, this blistering recovery is also "signal"--and this milestone is even more critical as S&P 500 closing above 2,793 is a 50% recovery of losses. Since 1929, this has signaled a bottom in.
So in this note, we discuss progress around COVID-19, including some proposed framework by CA and NY governors. But we just observe that the stock market fierce recovery is telling us that the economic recovery path may be a lot steeper than many expect.
POINT #1: With each day passing, it looks like past "apex" for the USA. Still not entirely clear why New York City metro area was worst
From a high level, the incoming data for new cases and even hospitalizations for the US and NY state support the notion that we may already be past-"apex" on daily new case growth. Now this doesn't mean that there will not be more cases, nor more deaths, rather, this is observing that we are:
- past exponential growth
- past linear growth
- entering declining growth <-- we are here!
- towards zero growth
NY state reported 7,177 new COVID-19 cases today. This is an uptick from Monday but this is not the "two-step forward, three steps back" but rather, a lumpy but steady decline in cases.
- Gov Cuomo in his press briefing today was more definitive in his belief we are past the apex. Interestingly, during Q&A, there was some discussion of the "real prevalence" of COVID-19 because testing misses undiagnosed cases plus asymptomatic patients. He and his team estimated at 10%-20% of NY state has or recovered from COVID-19.
- NY state has a reported 10,394 cases per 1mm residents, or about 1% of the state is "confirmed positive" and Cuomo's team estimated it is closer to 10X to 20X the reported number. Michael Hourigan, of Fortress Investments, shared with me a New England Journal of Medicine article (link to NEJM article) where an NYC hospital administered COVID-19 tests to all incoming birthing mothers and found 13% were positive and yet, 90% of the positives had no symptoms.
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