COVID-19 UPDATE: Total USA cases fall to 18,790 (-3,862 past 2D). Korea CDC affirms immunity. Before fearing Memorial Day crowds--> FACT: 13 states open "prior to 5/1" have seen cases -29% since 5/1.

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.


Americans view Memorial Day weekend as the “start of Summer” and this weekend saw droves of Americans leave their homes and crowd at beaches, parks, streets, highways, restaurants, basically places outside their homes and involving a lot of movement.  And naturally, this brings apprehension, because movement = transmission risk.  But the past few days has been more a story of positive developments involving the re-opening.  Foremost, USA cases are down to 18,719, still not the lowest “official” print (17,653 on 5/11) but testing on 5/25/2020 was a new high at ~495k (up +60% in the past month) and positivity rate fell to a new low of 3.8%.  Moreover, 13 states have been open >3 weeks now (prior to 5/1) and these states have since seen daily cases fall 29% to 2,497 (see below).

There were also positive developments on the healthcare front.  Perhaps the most important is the study by the Korea CDC (below), which shows there is actually no re-infection for any recovered patient in Korea.  It has been reported, that 447 Koreans showed “positive” test results after recovering, but their study of 64% of the “re-positive” patients showed that 100% of them did not have the disease–but rather, a non-active (dead?) virus.  This is major news because it supports strongly there is no re-infection (immunity) and changes the dynamics around those recovered (they are the safest and basically not susceptible). The study even prompted Korea to change its testing around recovered patients, as it no longer sees it necessary to test any recovered patient. 

And on the vaccine front, Novavax has entered Phase 1 trials for its vaccine.  There are now 10 vaccine candidates in clinical evaluation, +2 in the past week.  And now 114 candidates in pre-clinical evaluation (+4 in the past week).  There are now 124 “shots at goal” up +6 in just the past week.  This highlights the enormous global efforts at finding a vaccine and is a sign of positive progress.


POINT #1:  USA daily cases fall to 18,790, -3,862 over past 2D.  And despite scary headlines about Memorial Day crowds, states open prior to 5/1 are reported cases down 29% in the past 3 weeks…
Total US reported daily COVID-19 cases fell to 18,790 (Mon) and is down -3,862 over the past 2 days (Sat).  Weekends tend to see under-reporting, and this is often resulting in higher case counts mid-week.  And the CDC is also going to revise its methodology for tabulating COVID-19 cases, as it has been combining PCR test (COVID-19 cases) with the results from serology (antibody tests). The mixing of the data does not give the complete picture of disease progression and this could potentially be contributing to the lumpiness of the data.  By July, the CDC plans to provide complete data between the two.

– total tests reported for 5/25 surged to a new high of 495,054 (almost 500,000) so the drop in reported cases is not due to lower tests
– the % tests positive in the US dropped to a new low of 3.8%

So both are signs of progress.

Source: COVID-19 Tracking Project + Johns Hopkins

https://www.theatlantic.com/health/archive/2020/05/cdc-and-states-are-misreporting-covid-19-test-data-pennsylvania-georgia-texas/611935/


Daily reported tests surged on 5/25 (see below) and the annualized run-rate is now 180 million tests annually.  There has been a major ramp in testing capacity and looking at the change over the past month puts this in perspective.  The moving average is about 60% higher compared to just 4 weeks ago.  And testing capacity is expected to increase further in the coming weeks.

Source: COVID-19 Tracking Project + Johns Hopkins


The good news is the “% tests positive” (positivity rate) is falling and is at a new low of 3.8%.

Source: COVID-19 Tracking Project + Johns Hopkins

A lot of churn in the past 2 days… no real signs of new wave… but too early
There was a lot of churn in the states reporting cases.  And we highlight the movers below.

4 states a rise >100 cases in past 2D.

–  Virginia         1,483 vs   799 (2D)   +684
–  New Jersey    938  vs   385           +553
–  Louisiana        640 vs    115           +525 <- due to “server issue”, no commercial lab results on Sat & Sun
–  Florida              879 vs   676          +203
Total 4 state                                   +1,965

There were considerably more states reporting a drop in cases.  And the 6 below, are 6 states that are fairly important. 

–  Illinois              1,713  vs  2,352 (2D) -639  
–  New York         1,249  vs  1,772         -523  <- epicenter
–  Texas                  623  vs  1,060         -437 <-re-open
–  Georgia               506 vs     914         -408  <-re-open
–  Colorado               95 vs     477         -382
–  North Carolina    742 vs  1,107         -365  <-re-open
Total 6 states                                     -2,754

Source: COVID-19 Tracking Project


Memorial Day panic.  Keep in mind, the 13 states open since before 5/1/2020 have reported daily cases down 29% to 2,497 per day from 3,512… 
There were many media reports about the crowds forming across many states as the Memorial Day weekend holiday is the start of the Summer, and as such, many Americans took the opportunity to leave their homes.  This is widely reported.  Time will tell if this increase in movement will lead to a second wave in the US. 


But so far, the 13 states that have been open since before 5/1 are not reporting any sustained rise in cases.  The states (2 digit abbreviation): AK, AL, AR, GA, IA, ID, KY, MN, MS, ND, SD, UT, WV.

These states have been open for at least 3 weeks now, so if there was to be a parabolic surge associated with a second wave, we should expect to see it by now.  The “green” line is the states open since before 5/1/2020.

– the 13 states reported 3,512 cases on 5/1/2020. 
– those same 13 states are now reporting 2,497 cases, down -29%

Source: Fundstrat and COVID-19 Tracking Project and various states health dept




POINT #2: Korean CDC study shows no re-infection, bolstering the case for ‘herd immunity’ and Novavax starts clinical trial of vaccine bringing total to 10 (+2) vaccines now in clinical evaluation and 114 in preclinical evaluation (+4)
Among the many concerns around COVID-19, one of the more prominent risks was getting re-infected, as the CDC and the WHO had previously stated that no study has shown that a recovered person is immune to catching COVID-19 again.  And many concerned pointed to multiple cases in South Korea of a recovered patient again testing positive for COVID-19.

On 5/22, however, the Korea CDC published a study of the recovered patients who re-tested positive for COVID-19.  This was tweeted by Scott Gottlieb on 5/22 (see below) and the key abstraction is:

– not a single instance of a re-infection for those recovered patients, despite testing “positive”
– virus was dead on PCR test

Source:  https://twitter.com/scottgottliebmd/status/1263989372317294594?s=12

The Korea CDC study looked at 285 re-positive cases (64% of the total 447) and also traced 790 contacts (those around those re-tested).  The results, as described above by Gottlieb, have led to a change in the protocol by Korea.  Once a patient is discharged, no further tests are needed. 

– That is a huge change.
– They no longer see a discharged patient as a risk for transmitting infection to others.

https://www.cdc.go.kr/board/board.es?mid=a30402000000&bid=0030

The link to the report is shared below, but the researchers could not find a single instance of re-infection.  And they did not find an instance where the 790 contracted COVID-19 from the recovered patient.  

https://www.cdc.go.kr/board/board.es?mid=a30402000000&bid=0030



The fact that one is essentially immune to COVID-19 post-recovery is a pretty critical finding.  It suggests that herd immunity could be achieved.  And moreover, it drastically reduces the risk of transmission and re-infection by those recovered.

– perhaps those “immunity” passports will make sense;
– cities hardest hit like NYC may have the most diminished risks once re-opening is in full force

2 more vaccines in clinical evaluation (10 total), Novavax and another trial by Institute of Medical Biology, Science Academy of Medical Sciences…
On 5/25 (Monday), Novavax announced it was starting Phase 1 clinical trials of its vaccine candidate and has already enrolled candidates.  The Novavax vaccine candidate, NVX-CoV2373, used with its Matrix-M adjuvant is designed to trigger an enhanced immune response.  

Source:  https://www.cnbc.com/2020/05/25/novavax-starts-phase-1-clinical-trial-of-coronavirus-vaccine-candidate.html


There are now 124 “shots at goal” for finding a vaccine for COVID-19, up from 118 a week ago.  That is +6 additional candidates for a vaccine in just a week.  This is quite a lot of progress and speaks to the enormous global resources, lab power, manpower and ingenuity behind developing a solution to COVID-19.  While there is not a known probability of success, we can see measurable progress: 

– in 1 week, the number of vaccines in clinical trial rose 25% to 10 from 8.

POINT #3: As America begins opening, we need to be aware of the “second wave” of economic hit is underway, asset owners taking the hit…
The speed of the economic crash and the velocity of the re-opening are moving at a pace no economist ever imagined possible for a global economy.  The shutdown came nearly overnight and the re-opening is taking place within 8 weeks of a total shutdown.  And as the economy opens, this is placing a “bottom” on the GDP print — that is, the worst of the economic hit is taking place in the second quarter of 2020. This is becoming more widely acknowledged, by the economist and by the media (see WSJ article below).

https://www.wsj.com/articles/for-economy-worst-of-coronavirus-shutdowns-may-be-over-11590408000


But as the economy moves past the nadir, we still have a second wave of economic hit — the asset owners…
But the nadir of the economy is not a nadir for all parts of the economy.  The asset owners, landlords, banks, biz owners are now facing the economic hit, and this is the second wave of carnage.  This is one of the reasons we expect the S&P 500 EPS to be much worse in 2Q2020 than consensus is looking for.  And in all likelihood, S&P 500 EPS will be negative for 2Q2020, leading to $50 FY EPS (it was $32 in 1Q2020).

Wave 2: Already quite a bit of evidence this tsunami is underway…
As the headline below shows, 15 million credit card accounts and 3 million auto loans are in “hardship” programs and did not get paid in April.  Per the WSJ:

– ~3% of credit cards are in “hardship” compared to 0.03% a year ago
– ~3.5% of auto loans are in “hardship” compared to 0.5% a year ago

The massive rise in unemployment and stoppage of the economy explains this (obviously), but this is going to create a cascade of problems for assets owners (in this case, banks and lenders).

Source:  https://www.wsj.com/articles/millions-of-americans-skip-credit-card-and-car-payments-11589985381


Hertz also filed for bankruptcy protection on Friday evening with greater than $25 billion in debts outstanding. The list of major bankruptcies is set to grow.  But Hertz, along with major retailers, are examples of weak businesses, which are dealt with the “death blow” from COVID-19.  The problems with Hertz have been years in the making, a reason its debt traded so poorly prior to 2020.  But a bankruptcy still creates losses for asset owners.

https://www.reuters.com/article/us-hertzglohldg-bankruptcy/hertz-files-for-u-s-bankruptcy-protection-as-car-rentals-evaporate-in-pandemic-idUSKBN22Z03W


And another example is Mall of America, which as Bloomberg reports, has now missed 2 months of payments on its $1.4 billion in loans.  Tenants for Mall of America are likely delinquent, so it is not a surprise to see mall owners facing a cash crunch.  But we want to flag this cascade of economic pain coming.

Source: https://www.bloomberg.com/news/articles/2020-05-21/biggest-u-s-mall-is-two-months-delinquent-on-1-4-billion-loan

…even Healthcare workers (higher income) will take a big hit…
And even Doctors are not being spared.  The healthcare system suffered from a drop in profitable elective surgeries and visits.  And as CNBC reports, this is causing many hospital systems to look at major pay cuts.  This is part of the second wave of pain coming.

Source:  https://www.cnbc.com/amp/2020/05/25/coronavirus-family-doctors-face-pay-cuts-furloughs-and-supply-shortages.html?__twitter_impression=true



JPMorgan forecasts 2Q2020 Global GDP to decline 24% with a 42% hit to Developed economies… only 9% to EM (yup)
We are not trying to case the world in a dark light.  We just want to flag the massive potholes coming in 2Q2020, despite the positives of a re-opening.  In fact, a good way to see the level of damage in 2Q2020 is to look at the global economic forecasts of JPMorgan for 2Q2020:

– Global GDP is set to fall 24%
– Developed markets is crashing 42% (yup)
– Emerging economies will see a milder 9% (yup)

Source: JPMorgan Economic Research




STRATEGY:  Markets are still in the hands of buyers, as everybody else sold in Feb/March…
We have a shortened trading week ahead of us and S&P 500 futures are strong (+1.3%).  The improvement in case data plus the healthcare news is positive.  And the fact is, sellers are done selling.  Last week, we highlighted many charts from BofA Fund Manager survey, to the AAII sentiment, to the record money market balances.  There are just more people on the sidelines.

And Goldman Sachs’ Global Markets team put together a near chart below showing the path of S&P 500 compared to panic measures like Corona virus searches and some movement data (Apple).

As for investment strategy, we still think one wants to own Growth but there is a lot beta in “epicenter” stocks.  Energy is already one we discussed last week, but the real epicenter is Energy, Financials and Discretionary.  

Source: Fundstrat

Source: Fundstrat