COVID-19 update: NY Gov. Cuomo advances the timeline to re-open. Testing 3x = cases up. HY issuance 2nd strongest week ever
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.
The developments over the weekend have been mostly positive. Most notably, it looks like the improvements for NY state have been sustained sufficiently for Gov Cuomo to mention that some parts of the state may open after May 15th. This is quite a milestone. Now the phased opening would be for manufacturing and construction and more likely in Upstate and Central NY. Not NYC at this time. NYC with >18,000 cases per 1mm residents did 3X worse than Lombardy, Italy (see chart below). Recall, Italy was the first developed nation to see a COVID-19 outbreak, and the northern region was overwhelmed. Yet, NYC managed to see confirmed case prevalence 3X worse than Lombardy.
But the other development over the past few days has been a significant increase in US testing to about 300,000 per day, 3X what it was just a week ago. And this figure could surge in the coming weeks as more testing capabilities and capacity are added. But the consequence of this is “confirmed cases” are surging. Over the weekend, the US reported 35,780 net new cases (4/25/2020) which exceed the 34,298 high on 4/10/2020.
We had several clients email over the weekend asking if a new wave of cases is taking place. But as we discuss below, this surge is due to 3X rise in tests, and in fact, NY state accounts for almost half of the surge. And NY is certainly not getting worse, because Gov. Cuomo is advancing the timeline.
And as for equity markets, we continue to believe HY is a leading indicator of risk appetite. HY managed to price $20.6 billion in bonds last week (2nd highest EVER for that market) and saw $2.2 billion of inflows. All of this despite the catastrophic crash in May WTI futures (20% of HY is energy). The fact that HY was only modestly “nicked” by the oil armageddon should be a clue.
We believe HY is underscoring the fact that the balance of power in risky assets, and stocks, has shifted into the hands of buyers (“half full”). And the market is telling us that stocks/EPS recovery likely follows a path that is a lot steeper than consensus expects (we will have more insights over the coming week).
POINT #1: Governor Cuomo looks like he is advancing timeline to re-open NY State to sometime after May 15th…
Governor Cuomo even advanced the timetable to re-open NY state, sometime after May 15th with upstate and central NY first
In his press briefing today, Governor Cuomo talked about how NY state continues to make good progress, sufficiently, actually that the state is somewhat advancing the timeline to re-open NY state. Cuomo advanced the timetable for a phase re-opening of NY state, to sometime after mid-May with Upstate and Central opening before NYC.
– the first phase is to resume construction and manufacturing jobs.
– the second phase, open additional “essential businesses”
– 14 days would separate the two.
– Schools would need to re-open if NY is going to have large-scale re-opening. Schools may have “summer sessions” to make up for the lost time.
In each case, the organizations/entities need to create mitigation plans that meet the state requirements (not yet set).
New York state cases surged recently, not really due to a “new outbreak” but expanded testing… 3X increased testing past 5 days
Over the weekend, we saw some big increases in cases reported by NY state. Below, cases surged to 10,553 on 4/25/2020, following 5 consecutive days of higher reported cases (4,178 on 4/21/2020, see below). And then on 4/26/2020, this figure fell to 5,902. If methodology and testing capacity and timing were all constant, this would be an alarming jump.
New York state since 4/21/2020 has seen a tripling of tests from 15,464 to 46,912 and the cases reported positive proportionately tripled as well. This is the best explanation for why the case numbers have surged in NY state in the past few days.
– But take a look at 4/26/2020 figure. Tests were 27,782 (+80% from 4/21/2020) but new cases were only +40% (5,902 vs 4,178).
– The positive as % total tests is actually falling and is now 21% from 27% 5 days ago.
The best evidence perhaps NY state is improving is the fact that % positive tests is falling and down to 21% (lowest ever)…
The percent of NY state COVID-19 tests positive is 21% on the most recent date, which is the lowest figure since the data has been available. This figure peaked at 50% (one day spike to 75%) and has steadily improved. This may be the best evidence that NY state is past the apex in cases.
New York state hospitalizations and net hospitalizations down… even as COVID-19 cases remain high, fewer need hospitalization
NY State new hospitalizations continue to trend lower. The most recent figure is 1,045 which is the lowest number since 3/25/2020. That remains a pretty high number, actually.
– But 1,045 is way from 3,500 reported 4/3/2020. Down 71%.
– This is one of the reasons, we believe, Gov. Cuomo feels the timeline to re-open NY can advance.
For each of the past 4 days, NY state has discharged more COVID-19 patients than admitted…
The figure for “net hospitalizations” is even more encouraging. The state has discharged more patients in each of the last 4 days. In fact, the state has been essentially “net discharging” since 4/18. Or in the last 8 days.
POINT #2: NYC/Westchester fared worse than Lombardy, Italy. US new cases surge over the weekend, as testing tripled 3X
As NYC/NY seem to have passed the apex of the crisis (not just cases, but as measured by the constellation of factors of hospitalizations, new cases, and deaths), it might be helpful to see how NYC fared vs Lombardy, Italy (which at one point, was where the worst outbreak took place). The chart below puts this in perspective.
– NYC fared far worse than Lombardy, Italy with 18,377 cases per 1mm residents vs 7,245 fro Lombardy, or nearly 3X the level of cases.
– Westchester County fared even worse with 28,146 cases per 1mm residents or 4X Lombardy.
Italy was thought to be hard hit because of the high number of China nationals, plus the football match (w/Spain) and with the effect of multi-generational families. The worst possible factors.
Yet, someone NYC/Westchester was 3X-4X worse than Lombardy. Again, this is one of those puzzles that really remains incongruous from what we can see.
In fact, as you can see below, the rest of the US, the rest of Europe, and even cities like Los Angeles and Houston are in a very different trajectory/COVID-19 prevalence compared to NYC.
US Daily cases surge to new highs over the weekend, as testing has 3X to 300,000 per day…
The US also reported a new high in cases at 35,780 surpassing the prior peak of 34,298 on 4/10/2020. As shown below, daily new cases were trending lower but surged in the past 5 days.
There are some who are going to suggest a “new wave” is happening and there is a breakout as people have ventured outside as the weather improved. This is certainly a possibility. But we believe the rise in reported cases is more a function of a surge in testing.
US tests have surged to 300,000 per day in the past 5 days compared to 100,000 per day from April 1 to April 21…
There has been a rise in daily tests administered in the US to about 300,000 per day, triple what it was for most of April. Testing will continue to expand as the National Governors Association (NGA) would like daily testing to be >1 million per day. Or at least 3X more than it is currently.
The good news is the percentage of tests that are positive is generally trending lower and is around 11% currently. That means 9 of 10 tested for COVID-19 are negative. That is a pretty high figure.
– And eyeballing this chart since early March, it does seem like it is trending lower, even as testing has expanded dramatically.
Much of the increase in reported cases is due to NY state (where cases were +5,000 higher over a period of a few days). And we discussed how the 3X of testing in NY state happened during that period of time. But with testing expanding, more cases will be detected.
That is a good thing. But the overall reported cases will rise and this rise is not necessarily a rise in transmission spread (R0) or in a new wave happening in a new region or even in an existing outbreak. I think this is important to keep in mind.
The trend in deaths is also improving as total deaths reported on 4/26/2020 is back to levels seen in early April…
The reported COVID-19 deaths are also improving and at 1,180 is down from a horrifically high 2,685 seen just 6 days ago. For the country as a whole to have a sense for the crisis to diminish, daily reported deaths do need to consistently improve.
– By this measure, staying at the 1,000 level, or even falling below 1,000 would be a progress, considering the 2,000-ish level seen for much of April.
POINT #3: The first states moved to re-open the economy over the weekend. 13 states announced plans (ex-NY), ~27% of GDP.
Away from NY state, the COVID-19 crisis has not hit other states nearly as badly (NJ got hit hard) and in fact, 13 states have announced tentative plans to re-open the economy. It sounds like Gov. Cuomo is about to set a date for NY state and if he does, it will be the second-largest state to announce re-opening plans after Texas (which has “phased openings” planned).
– this weekend, Georgia moved to open several businesses, including hair salons and other non-essential businesses.
– Georgia cases are only modestly off their peak, so the state is somewhat aggressive in its move.
Whether Georgia is making a wise decision will only be known with the passage of time. But it is also too simplistic for critics to argue that states cannot open until cases fall to zero. If states had to wait that long, the US economy would be decimated.
Moreover, NYC’s continued high daily reported cases seem to counter the suggestion of social distance and stay at home will eradicate COVID-19. The city has seen the same level of reported cases for weeks now. And the serological tests for NYC show the prevalence of COVID-19 is potentially 13X what is reported.
If Georgia does not see an outbreak, this will suggest mitigation measures plus social distance plus hygiene and sanitation may be factors that keep COVID-19 controlled, and without the need for “shelter at home” requirements. In that sense, it would be positive if Georgia does not see a new surge in cases.
There was some reporting of Georgia re-opening over the weekend, including this article below about hair salons opening. The hair salon Three-13 Salon took cues from Asia, with customer temperatures being taken before entering.
https://www.reuters.com/article/us-health-coronavirus-usa-spa/as-georgia-re-opens-an-atlanta-area-salon-tests-limits-of-social-distancing-idUSKCN226375
Similarly, the NY Times had an article about how restauranteurs are thinking what a safe dining experience is, including managing tables, sanitation procedures, how to handle menus, and all the various processes in a restaurant.
https://www.nytimes.com/2020/04/26/dining/restaurants-open-coronavirus.html?referringSource=articleShare
POINT #4: Earnings seasons have taken a back seat but this is the heaviest week of 1Q2020 earnings reports.
We are now in the busiest part of the earnings season with 167 companies set to report this week. Among them as 19 Consumer Discretionary stocks (in S&P 500) which are the most of any week. And a very heavy slate of Industrials (29 this week).
Source: Fundstrat
Earnings missing by 19% but topline by 1% and Defensives see EPS growth of 6%
Earnings are not surprisingly missing by 19% but topline overall is missing by a modest 1% overall. Of the 120 which have reported results so far, only 44% are beating. Again, this is not a surprise. Within Defensives, 68% are beating and by a pretty large margin (+670bp).
1Q2020 and 2Q2020 EPS are not expected to be strong quarters — with the global economy shutdown, businesses will naturally report significant losses.
– But every recession is a chance for a business to re-engineer costs. Thus, we believe companies will have V-shaped EPS recoveries post-pandemic trough.
Source: Fundstrat
Sales similarly are weak but not as bad as expected. It looks like overall topline is +1.3% (right side) and with Defensives reporting +4.8% topline growth. So the 1-month negative effects of the global shutdown still did not destroy 1Q2020 results.
Source: Fundstrat
STRATEGY: High-yield performed pretty well last week, despite the Oil armageddon = supportive for equities.
20% of the high-yield market is Energy and the collapse of WTI oil futures last week was a massive negative development for the high-yield market. Yet high-yield, while off 28bp (yield was +0.33% higher), seems like it was only “nicked” by the WTI collapse.
In fact, the HY primary market was able to price 24 deals totaling $20.6 billion. According to JPMorgan’s HY research team, that is the second-highest weekly total of all time. Think about that.
If the global economy was heading into a sustained Depression, we would not expect the HY market to be able to issue the second-highest level of issuance in its history.
I would take this as another data point that the market is telling us something positive. Conversely, from an equity perspective, we think that the market has shifted into the hands of buyers, and thus, stocks will likely surprise the upside in the coming weeks.
