Please join Brian Rauscher, Head of Global Portfolio Strategy and Asset Allocation at FS Insight, TODAY, July 15th at 2:00 pm Eastern Time for a Webinar “Climbing the COVID Wall of Worry – Positioning for 2H20” with Q&A. Register here to attend
After the close, Moderna announced that its vaccine candidate produced significant antibodies in all patients tested (n=45), a major positive development. And more importantly, a reminder that in many ways, a COVID-19 cure/vaccine is a binary event for markets, and there are many “shots on goal” on the healthcare side and only one needs to be successful.
Source: Bloomberg
In case you are interested in reading the primary data, tireless Ken has included this link below.
https://www.nejm.org/doi/full/10.1056/NEJMoa2022483?query=featured_home
https://clinicaltrials.gov/ct2/show/NCT04470427?term=moderna+COVID-19&draw=2&rank=1
Additionally, July 15th is the “Tax Day” and we believe much of the sloppiness seen in markets stems from this extended deadline.
The combination of Moderna + July 15th “Tax Day” potentially marks a turning point for markets. And as we highlighted on Monday, there are piles of cash seen in HF, macro funds, mutual funds and individual investors. In the cadence of healthcare data continues to support some sort of cure, the focus on “re-closings” ultimately fades. And markets continue to be “risk on” / “half-full”
Texas reported a huge jump in cases today, so we were too early to call a peak there. But it does seem like AZ is certainly past its peak. And FL and CA fortunately had calmer days. Daily deaths remain the most important metric and it remains mostly muted, diverging from the surge in daily cases seen.
Source: COVID Tracking Project
STRATEGY: Moderna is a reminder of binary catalysts
Much of our writing is day to day, commenting on developments regarding both disease path, investor positioning as well as external factors such as healthcare and elections. But the Moderna news is a reminder of how “binary” catalysts exist. We have cataloged a few of the potential catalysts, and their impact on investor positioning.
Epicenter/ FANG/Growth
Cyclicals Defensives Stay-at-home
Vaccine developed BOOM
Cure/ antibody treatment BOOM
F-CAT cases peak BOOM
Second wave NY tristate BOOM BOOM
White House gets coronavirus BOOM BOOM
As you can see, a vaccine, cure or even a peak in F-CAT is highly favorable to epicenter stocks (Discretionary, Industrials, Energy, Financials) and these are the groups that investors eschew today. In fact, the epicenter has suffered a slow bleed since June 9th. That is the date that US cases began to creep up.
And this rotation out of “epicenter” will quickly reverse on one of two factors:
– F-CAT cases peak (AZ, TX look like so)
– Vaccine/cure is developed
Source: Fundstrat
Epicenter stocks and the Growth stocks likely get re-rated, because they are unkillable…
This is why we think the best risk/reward is “epicenter” and if the S&P 500 surpasses its all-time high and moves beyond that, we expect this to include a heavy dose of market cap gains from epicenter groups. Moreover, keep in mind, if these companies are not “killed off” in the worst economic crisis since the Great Depression, their associated equity risk premiums should fall during the economic recovery. That is, they are “unkillable.”
POINT #1: USA cases rise as Texas cases explode (so it has not peaked), but rest of F-CAT better…
New USA total cases came in at 61,911, up from 1D ago and it seems like daily cases in the 60,000 range has lost its “shock value” — but a reminder, at this pace, 22 million Americans would get infected annually. So, it is an astonishing rate of new cases. The “half-full” observation is that the rate of increase seems to be slowing.
– TX is the primary driver of the surge in cases today, +5,090 more cases today vs 1D ago and explains the entire +3,707 increase in USA 1D gains.
Source: COVID-19 Tracking Project
6 states with largest 1D increases
Texas 10,745 vs 5,655 (1D) +5,090
Arizona 4,273 vs 1,357 +2,916
South Carolina 2,221 vs 1,520 +701
Pennsylvania 929 vs 328 +601
Louisiana 2,215 vs 1,705 +510
Missouri 936 vs 447 +489
Total 6 states +10,307
6 states with sizable 1D declines
Florida 9,194 vs 12,624 (1D) -3,430
Tennessee 1,514 vs 3,314 -1,800
California 7,346 vs 8,358 -1,012
Wisconsin 154 vs 494 -340
Washington 1,101 vs 1,438 -337
Georgia 3,394 vs 3,643 -249
Total 6 states -7,168
On a “seasonally” adjusted basis, the number of new daily cases is slowing compared to a week ago. The change vs 7D ago is +10,037 cases and this is the lowest level in 5 days. So perhaps, the parabolic rise seen in recent weeks is reaching its apex.
Source: COVID-19 Tracking Project
Source: COVID-19 Tracking Project
POINT #2: COVID-19 has “burned” through 60% of USA, or ~200mm Pops…
You might wonder why we view apexing in F-CAT is so significant. One has to keep in mind that F-CAT is 30% of the US population and also encompasses many of the top 10 GDP states. But more importantly, once COVID-19 is receding from F-CAT, roughly 60% of the US would have cleared “wave 1”
– NY tri-state is 10% of USA
– 7 US states, PA, IL, OH, MA, MI, WA, MD, already had severe outbreaks, or 20% of USA
– F-CAT is another 30%
So the remaining 36 states are about 40% of the US population. And many are already seeing contemporaneous outbreaks matching F-CAT.
Source: Fundstrat
F-CAT, AZ and FL are likely peaking, but we were too optimistic on TX and CA continues to see prevalence…
It might feel like eons past when NYC and NY tristate were in the midst of their crisis. But two things from that experience still echo in my mind today:
– NYC was stubborn in establishing its “peak” but once it did, cases fell sharply, and were down 90% in 30 days
– Mayor DeBlasio and even NY tristate governors were not “taking any chances” and implemented/remained restrictive well past the apex which was early April.
Thus, when we watch the healthcare crisis unfolding in F-CAT, we need to be mindful of the fact that policymakers will “overreact” and continue to overreact well past the apex in the crisis.
This NY Times story shed some light on some unique factors contributing to Texas persistent spread
This NY Times story, by Edgar Sandoval, is quite informative on some of the factors that have contributed to a persistent spread of cases in Texas. Even as many Texas followed the initial guidelines of social distance during lockdowns, a tradition of close family gatherings seems to have contributed to a rapid spread. This is not that different than the social fabric of Italy that contributed to the rapid spread in Italy. The article profiles several families and how some gatherings resulted in the majority of attendees of these events becoming infected.
https://www.nytimes.com/2020/07/14/us/coronavirus-texas-rio-grande-valley-border.html
And as some city administrators note, there is a high infection rate within family clusters.
https://www.nytimes.com/2020/07/14/us/coronavirus-texas-rio-grande-valley-border.html
POINT #3: A curious thing, Latin America might have “peaked”?
Our data science team recently updated COVID-19 analytics around Latin America, and it seems like recent trends have been surprisingly positive.
– Brazil cases peaked in late June
– Peru peaked in early June
– Chile peaked late June
Source: Johns Hopkins
In fact, in total cases, the US has now overtaken Latin America this past week. The first time in 5 weeks. This is pretty surprising to us, since Latin America has not really taken new measures in the past few weeks. Instead, it seems like the path of the disease seems to be hitting that “infection break point” that we saw in NY tristate and also saw in Europe.
Source: Johns Hopkins
Case prevalence in those nations peaking (based on cases per 1mm residents) is matching the US for Chile, Peru and Brazil. In fact, Chile went well past the US. Chile cases surged to 17,000 per 1mm residents, or a confirmed rate of 1.7%. And if serology estimates are correct, this would imply 17% of Chile was infected at some point.
Source: Johns Hopkins
