COVID-19 UPDATE: COVID-19 is DECLINING per IHME model -- "daily infections" down 72% to 73k/day from 260k/day at the peak in late March

ALERT: Equity markets are closed Friday, July 3rd, due to the US Independence Day holiday.  So we do not plan to publish an update Thursday eve/Friday am.  Happy 4th!!

We got some incrementally positive news today from Pfizer and BioNTech, which are working jointly on a vaccine.  Their first clinical trial shows positive results and specifically, those receiving this vaccine showed high levels of neutralizing antibodies (1.8-2.8X that of recovered patients).  This development is adding to the Fauci belief that some type of commercial COVID-19 vaccine will be available in early 2021.  And if this is the case, the pathway to putting COVID-19 behind is visible.

Dr. Scott Gottlieb was on CNBC this morning, and he commented that he believes the “infection rate” is 10X the “case confirmed” rate.  That is, he believes the US has 400,000-500,000 new infections per day, but only 44,000 are “detected” and “confirmed” — a really key suggestion, because this has implications for disease prevalence (closer to the infection break point), but also regarding disease severity (hospitalization rates are far lower, if correct).  Basically, there are:

– infections: people who contract COVID-19
– cases:       people who show symptoms
– detected:  people confirmed positive by PCR test

The datasets we use are based upon “detected” cases, or confirmed positive by a PCR test.  This is how the US mostly tracks COVID-19, although some states include serology tests in the total, which are based on antibodies and show past infections. 


IHME has a model for infections, a leading indicator for cases, then detected…
The Institute for Health and Metrics and Evaluation (IHME), the entity with a widely used COVID-19 forecast model, has a forecast for “infections” COVID-19 is shown on the left. 

– per IHME, infections peaked on 3/29/2020 at 260,000 and currently 73,000
– infections daily are down 72% from its peak
– detected cases since then is up from 19,000 to 44,000

Thus, from an “infected” perspective, we are well past the peak on COVID-19.  This is food for thought.  We discuss this in greater detail below.

Source: IHME and COVID-19 Tracking Project

Cases reached a new high today to +52,774 but this is not entirely surprising — Dr. Fauci yesterday even posited that “detected” cases could hit 100,000 per day.  Even reported cases in some of the worst hit counties look to be past the peak.  Houston and Miami, in particular, have seen daily cases fall well off their peaks.  Houston is really the most signal. This was the worst hit of TX counties and it is now 9 days since the peak and daily cases (as of just now) are off 70% from their recent highs (9 days ago).

Source: State websites



Big shift –> President Trump says ‘masks are good’
Another positive development today is that there is now ‘universal’ support for masks.  President Trump today in a Fox News interview publicly supported the use of masks.  This is a positive development since there was a sense that masks were becoming a political issue.  But now that the White House is in support of masks, this further helps the US COVID-19 crisis, as it allows better ‘course correcting’

https://nypost.com/2020/07/01/trump-says-masks-are-good-urges-americans-to-wear-them/?utm_campaign=iphone_nyp 


During his interview, he made multiple statements about masks, but this is probably the key statement.

https://nypost.com/2020/07/01/trump-says-masks-are-good-urges-americans-to-wear-them/?utm_campaign=iphone_nyp 


There are many arguments to see the world “half-full”
So as we look at the next 6 months (2H2020), we see equity markets in the hands of buyers:

– total infection rate in the US likely has peaked
– the new epicenter, FL, AZ, CA, TX, or F-CAT, are course correcting and potentially <2 weeks from the peak (see note earlier this week)
– there are >11 states which show the economy can be opened safely including NY, NJ, CT, etc.
– Europe is also showing opening the economy can be done safely
– vaccine/cure potentially within 6-9 months and is a massive binary event
– US economy is past the bottom

This paints a positive picture for equities.  And again, emerging from the worst Depression in 5 lifetimes, US surviving companies are unkillable.  When PMIs turn back above 50 (see below), stocks rally strongly, but the stronger is cyclicals.





STRATEGY: Jobs report is a key data point
The key report on Thursday will be the June employment report.  Last month, the May employment report produced a sizeable upside surprise and the June ADP report today showed solid June job gains and a +2.4mm jobs gain and +5.7mm revision for last month. The Street is looking for +3.0mm private payrolls this month.  And we are not sure what number will be “upside” but the fact is, the US economy has bottomed and is gradually expanding.

The June ISM came in with a sizable beat at 52.6 vs Street 49.8 and 43.1 last month.  The US is now officially back in economic expansion.  The June ISM is the best reading for all of 2020.

 

And the VIX continues to fall, a positive for markets.  The VIX recently peaked at 44 and is now done to 28.  A move below 20 would be seen as a risk-on measure.

Since 1949, when PMIs move back >50, Cyclicals and Value lead…
This table compiles the 6M returns of sectors and styles whenever the PMIs move back above 50.  And as shown below, Cyclicals outperform.  This is truer in the past 25 years (see blue shaded rows).  

– And in the past 25 years, Value beat Growth, although by a narrow margin

Thus, given the consensus UW of epicenter/cyclical stocks and their tendency to outperform when PMIs>50, we believe this is the correct focus on 2H2020.

The bottom line, we believe equity markets are still in the hands of buyers.  While many remain skeptical of the economic recovery, due in part to the apparent risks on the healthcare side, we believe infection rates are actually suggesting while COVID-19 is spreading, it is doing so at a reduced pace.  And the positive course corrections in the new epicenter, FL, CA, AZ, TX, or F-CAT, will help mitigate this spread.





POINT #1: Total USA cases surge to +52,774,+8,970 vs 1D ago as CA cases surge to +9,740 (+3,373 vs 1D ago)
Total USA cases surged to a new high with 52,774 cases and the biggest driver of this increase is CA.  CA is ordering indoor businesses to close.  The surge is centered in the known hot spots for CA:

– Los Angeles, Orange, Santa Barbara and San Bernardino.
– These have already seen a massive surge, as we wrote in many commentaries and also reflect imported cases from overflow from Mexico and Latin America

The narrative for COVID-19 cases are largely the same.  Cases have surged in the past few weeks and we see this as driven by 3 factors:
– nationwide protests causing superspreader events
– imported cases from Mexico and Latin America
– greater mobility as the economy has opened

Source: COVID-19 Tracking Project


The 7D change in cases surge to +14,479, reflect this surge.  COVID-19 has spread rapidly in the last few weeks.  What will matter in the next few weeks is whether deaths and hospitalizations similarly increase.  So far, deaths and hospitalization trends have been better than case data.

Source: COVID-19 Tracking Project


6 states reported a meaningful rise
California         9,740 vs 6,367 (1D) +3,373
Texas               8,076 vs 6,975         +1,101
Georgia            2,946 vs 1,874        +1,072
Louisiana         2,083 vs 1,014        +1,069
North Carolina 1,843 vs 1,186           +657
Tennessee       1,806 vs 1,212          +594
Total 6 states                                  +7,866


6 states reported a sizable decline
South Carolina  1,520 vs 1,755 (1D) -235
Oklahoma             355 vs    585        -230
Virginia                  416 vs   598        -182
New Jersey           261 vs   395        -134
Missouri                 376 vs   508       -132
Idaho                      253 vs   365       -112
Total 6 states                                 -1,025

Source: COVID-19 Tracking Project


Total Deaths remain flat, so this divergence with soaring “detected” cases continues…
Total Hospitalizations and Deaths are not tracking this surge in detected cases.  We discuss below how there is a difference between infections, cases and detected cases.  And that rise in detected cases is what we are seeing, not necessarily rising infections or even cases.

– Hospitalizations are rising, but not to the extent of the surge in cases

Source: COVID-19 Tracking Project

And total deaths continue to be quite muted compared to the rise in cases.  This is ultimately the metric that would validate this surge in cases is leading to a worsening healthcare crisis.  This is not the case at the moment.

Source: COVID-19 Tracking Project






POINT #2: F-CAT: Potentially, Houston, Miami and Phoenix past “peak” daily cases

F-CAT accounts for more daily cases than the other 46 states combined…
The epicenter of the COVID-19 crisis is now 4 states, known as F-CAT (Florida, California, Arizona, Texas) and as shown below, there are more daily cases from these 4 states than the other 46 combined.

Source: COVID-19 Tracking Project


The nucleus of F-CAT breakouts…
Within each of these states, the cases are concentrated in some specific cities.  These are what we view as the nucleus, or the heart of the breakout.

–  FL, Miami
–  CA, Southern CA
–  AZ, Phoenix
–  TX, Houston

Source: Johns Hopkins

And this time series chart below shows how the nucleus of the TX breakout is Houston.

Source: Johns Hopkins



Are daily cases in the nucleus of TX, FL and AZ might be peaking?
So it these centers of the breakout that we really need to watch closely.  We have plotted the 3 “nucleus” counties of TX, FL and AZ below.  And in 3 of 3 cases, daily reported cases are “off” their highs.  Now we realize COVID-19 is highly unpredictable, but the data below is interesting.

–  It is pretty impressive that Houston daily cases are 70% off their recent highs.  And Miami daily cases are nearly 50% off their recent highs.  

–   Phoenix has noisy data recently due to the Quest Sonora backup, so we think there is too much noise in Phoenix case trends. 

Source: state websites


We are showing the time series version of these 3 counties below and also show NYC for comparison purposes.  These charts below are based upon “daily cases per 1mm residents” and we use that to common size the data.

Source: Johns Hopkins


There is a lot of uncertainty around this disease spread, but we also know that these states are already “course correcting”
The takeaway is to watch these counties within these states.  And broadly, these cities within the “nucleus” counties of F-CAT are the last major large cities to see an outbreak.  Hence, when these states contain COVID-19, the US should again see progress.  

One thing we have to keep in mind, is these F-CAT states have case prevalence that is approaching what we have seen in the NY tri-state area.  That is, formerly, the tri-state, NY/NJ/CT were the worst hit and the epicenter.  But COVID-19 has been largely controlled since.  As shown below, Arizona prevalence is approaching that of CT.  So, we wonder if we are nearing that “infection break” point, where the number of cases will begin to slow.  And these F-CAT states have also course corrected, by limiting or restricting bars and clubs.

POINT #3: COVID-19 DECLINING per IHME — “daily infections” down 72% to  73k/day from 260k/day at peak in late March
Dr. Scott Gottlieb, the former FDA Commissioner, was on CNBC today and he said something that really resonated with me.  He commented that the US is likely only detecting 1 in 10 new COVID-19 infections per day.  The distinguishes “infections” vs “cases” with infections referring to someone COVID-19 positive while cases are someone with symptoms. 

https://www.cnbc.com/video/2020/07/01/scott-gottlieb-united-states-coronavirus-diagnosis-squawk-box.html

He goes on state:

– “we are only detecting 1 in 10 cases”
– “so there are probably 400,000- 500,000 infections per day”
– “not all of cases as many are asymptomatic, cases are probably 200,000-300,000 per day”

But this is an interesting point, the detection rate is better today but there are still 10X as many cases out there.  This has implications:

– suggests the R0 calculations may not be correct (rate each infection spreads to another);
– hospitalization and death rates are far lower by a factor of 10 (divide these rates by 90%);



IHME model actually suggests COVID-19 is SLOWING in the US, even as “confirmed” cases rise
The Institute for Health and Metrics and Evaluation (IHME) forecast model COVID-19 is used by the White House for tracking this disease. Below is their updated model for estimate infections and just to clarify:

– “infections” are those COVID-19 positive;
– “cases” are those with symptoms
– “confirmed” are those tested and confirmed via PCR (what we use)


IHME model shows “infections” peaked on 3/29/2020 at ~260k and down to ~73k today, down 72%The daily infections, per the IHME model, have actually been trending downward since March 29, 2020 and recently flat-lined.  

– US is past peak “Infections” which was 3/29/2020 at 260k per day and now down to 73k per day
– US “confirmed” cases was 19K on 3/29/2020 and 44k today
– According to IHME model, we are detecting 60% cases today


If infections are the real metric, infections are falling and this means COVID-19 is actually on the decline in the US.  Think about that for a moment, their model suggests that COVID-19 is actually slowing in the US.

Source: IHME and Fundstrat


But their model also says that universal use of masks 
But of course, their infection model also points to the benefit of using masks.  The green line on the forecast model shows daily infections in the US would collapse if masks were widely used.