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.
If we ever needed a reminder for the extent of the abrupt decline in global economic activity, it is the fact that WTI oil futures saw a negative price today. Think about that. Holders of WTI contracts were pricing in a negative value, because nobody wants to take physical delivery. Of course, oil is not negatively priced in totality as Brent crude is still ~$25/barrel and WTI June oil is $20-ish.
But oil is a residual issue of the broader global “stay at home” and this situation will not change until Western nations and US states begin opening up. And they cannot open up until each jurisdiction feels they have a handle on the healthcare crisis (wave 1) and outlined plans to safely re-start.
In this note, we highlight the 7 US states announcing plans to open the economy in the next 2 weeks, representing 20% of US GDP. And we look at the 3 nations in Europe announcing plans to re-open, including the largest nation, Germany.
POINT #1: NY state case count plunging, latest is 4,726 down -56% from 4/4/2020 peak of 10,841
NY state remains the front end of the COVID-19 crisis in the US, and because ~33% of all cases originate from NY state, seeing improvements in this state is really the leading indicator for the rest of the country. The trend of falling net new cases continues. The daily reported new cases was 4,726, down 56% from the 4/4/2020 peak of 10,841.
– NY state is clearly on the other side of the apex. Governor Cuomo reiterated the “stay at home” orders remain in effect until mid-May.
– But at this rate, NY state could easily meet the gating criteria before the end of the month for a Phase I opening (per White House).
As discussed in the next section, 6 states have already announced plans to phased openings of their economy.
New Jersey might soon surpass NY as state with most daily reported cases…
NY state is improving so quickly, while NJ is still quite elevated so NJ’s ~3,500 cases could soon surpass NY state. We noted yesterday that NJ has 9,300 cases per 1mm residents, the second-highest of any state after NY. CT daily cases tend to be “lumpy” so we do not place too much credence/trend on its daily reported 2,265 but this is a very high figure.
Bergen + Hudson County have
the most cases in NJ…Bergen + Hudson county are virtual suburbs of NYC. and the areas just
west of Manhattan in this map below.
The outbreaks in Bergen, Hudson, Essex, etc are in many ways, just an extension of the metro NYC outbreaks. The cases per 1mm are nearly as high as those seen in NY counties such as Rockland, Westchester and Nassau/Suffolk.
The US overall is making good progress and total daily new cases is down 33% from its peak 10 days ago…
The US reported 23,324 new cases, the best daily count for the month of April and is now down 33% from its peak 10 days ago. NY state cases peaked 6 days earlier and it does seem like the US overall is following the same steep declines posted by NY.
6% of the US has reported ZERO new cases in the past 7 days…
Our data scientist (tireless Ken) has started to track how many counties reported ZERO cases in the past 7 days and ZERO cases in the past 14 days. These would be counties that have largely “eradicated” COVID-19. At the moment, 930 counties, representing 6% of the US population, have reported ZERO cases in the past 7 days. 4% in the past 14 days.
– This figure is slightly rising (squint) and should gain in coming months.
POINT #2: Now 7 states announced plans to re-open, representing 20% of US GDP. We estimate 19 (+1, Missouri) meet the “approximate” criteria for Phase I
Several additional states have announced plans to open in coming weeks, totaling 7 (see below). This table summarizes their approximate phased plans, the share of GDP and days since the peak. We sorted this based on “date of phased opening” and Vermont is the first state.
– In total, these 7 states are 20% of US GDP and 2 of them are top 8 contributors of GDP (TX + OH).
– Of these 4 of 7 are well past their peak in daily cases (>14 days) and ~50% or greater decline in daily cases.
– Ohio and Michigan do not meet Phase I gating criteria (as sustained decline in cases) but their governors have announced plans to not extend the stay at home orders past May 1.
The gating criteria per the White House…
Last week, the White House released its framework for restarting the economy “Opening Up America Again” (WH presentation here) with the idea of surveillance, case growth and resources governing the 3 phase steps to open up the economy.
– the 3 phases have varying levels of easing of restrictions (see our grid below)
– and with a minimum of 14 days between “gating criteria” re-check, a region could be in Phase III by as little as 28 days.
This is purely theoretical for several reasons. First, these are only guidelines by the White House and the state/local governments will make their own decisions about the way forward. Second, the steps and easing of restrictions will require quite a number of rules to be established and communicated to businesses, communities, and citizens.
So the reality is, we are likely to see most states muddling through Phase I for a long time.
Now 19 states/territories have cases down 14 days since the peak… adding Missouri
While there are 3 criteria outlined for the gating factor, the most important is case count trending down for the past 2 weeks. And the simplest way to measure that today is to look at number of days since case peak. We realize this is not perfect because of lumpiness and potential methodology changes. We made a table showing days since peak cases.
– And currently, 18 are 14 days since the peak case (NY is there as well).
– this does not account for the testing criteria (a trend in positives from tests). We have that data but we need more time to see what happens if states have fewer tests (thus positives could go up).
POINT #3: Three Western European nations is moving to re-start economy
Several European nations also announced plans to restart their economies. The list is pretty small at the moment, just 3 nations. Of these, Austria opened its economy last week and plans to open larger stores by May 1 and then most retail by mid-month.
– Germany is the largest nation to announce plans to re-open and in Germany’s case, daily cases are down 73% from the peak and it has been 24 days since its peak. Daily cases are still around 1,881 which is proportionately lower than the US levels today (which is 4X larger). The US would need cases to fall to <10,000 per day.
– Germany plans to open non-essential stores this week and schools by May 4th.
The World is moving to normalize their state from this current “frozen state”. And this will happen in a phased and no doubt lumpy manner. While there is quite a lot of talk about the risk of relapse and therefore a second shutdown, these states and nations will be the leading edge for now.
We have listed various nations and the dates since peak cases and the decline since peak. And as you can see, Switzerland, even Spain, has made good progress. We noted yesterday that if antibody studies are correct, the prevalence of COVID-19 is much greater than realized. And thus, mortality is lower. As such, we see diminished risks of a second shutdown and a diminished risk of a deadly second wave (not zero risk). We are not saying a second wave cannot happen, but rather, with social distance, masks, handwashing, the risks of a second wave are lower.
STRATEGY: 1Q2020 earnings season so far, EPS taking a bigger hit than Revenues
1Q2020 earnings will really ramp up over the next few weeks. This week, 86 S&P 500 companies report and +182 and +128 in the next two weeks. This is the critical period to see if the market can look through the “bad news”
– The sector worst hit by “social distance” mandates are Consumer Discretionary and Industrials (see below) and the bulk of them report this week and through the following 2 weeks.
– So this is a make or break period for the undecided. We know the news will be terrible. But if markets are stable, this supports the notion that the equity market bottomed on 3/23/2020.
Because so many are “uncertain” –> getting certainty from 1Q2020 = on margin benefitting “half full” case…
And recall, investors who are “uncertain” are largely positioned the same way as someone bearish. Thus, having “certainty” is a net shift in favor of “half full”:
– if someone is uncertain and certainty turns them bearish, their positioning is largely the same (Defensive, etc)
– if someone is uncertain and certainty turns them optimistic, they will position for the offense
Thus, any shift in views is actually favoring the “half-full” camp.
EPS miss 27% so far…
So far, EPS has missed by 27% for the 47 S&P 500 companies who have reported and 55% are missing Street consensus. The largest misses so far have been reported by Financials -46% (17 of 66 total Financials reported so far).
Interstingly, sales are missing by a much smaller margin… -0.8% so far…
There is a curious divergence between topline and EPS misses. So far, the aggregate topline miss is only 0.8% (only 47% missing, vs 55% for EPS). And the group with the largest topline miss is Industrials (-11% for 6 companies).
This is early in the season (<10% reported so far) but we will be interested to see how this trend in the coming weeks.
