COVID-19 UPDATE: F-CAT rolling over. But of 12 states "last to open," 5 relapsing -- VA, IL, MD, MI and PA -- VIMMP

Well, it looks like the 4-week COVID-19 surge is finally ending.  This is best measured in two ways:

– The new epicenter, FL, CA, AZ, TX, or F-CAT, looks like it is clearly rolling over now (more than a plateau)
– The 7D change (cleans seasonality) in daily cases is down.  The first time since June 9th
– It looks like the 4-week surge (post-BLM protests, we believe) is now running its course

Source: COVID-19 Tracking Project

Source: COVID-19 Tracking Project

We realize that skepticism is going to run high.  After all, there have been other “false dawns” and there remain the testing lags.  Plus, we know mayors and governors are still in a “panic” but recall, NYC officials were still in a panic 45 days past the peak.  But hospitalization trends (7D change of the daily gross admissions) and even daily deaths (7D change) are showing a similar plateau/decline.  Thus, it is not just cases.

STRATEGY: No such thing as a “triple top” = new all-time highs next key level…
The S&P 500 once again showed the old adage, “there is no such thing as a triple top” played out again today.  The S&P 500 closed decisively above 3,233.

The strength of the equity market is an understandable puzzle.  We are in the midst of the greatest economic contraction in 5 lifetimes and the pandemic is still not under control in the US.  But, at the same time, the continued and persistent strength in equity markets cannot be overlooked.  Look at the key levels the S&P 500 has cleared in the past 4 months:

– it has retraced above the key levels of 50%, 62% and 76% of losses
– it has taken out the June 8th highs
– the next key level is the prior all-time highs of 3,394

And unless there is a serious relapse in the fundamental trajectory of the disease, Central Bank or economic health, we think this is a matter of time before old highs are taken out.

And while many have said stocks are in a bubble, we continue to believe there are 5 reasons stocks should be rising here.

Source: Fundstrat


The epicenter is the most sensitive to economic re-opening…
We think COVID-19 data has become “show me” to markets, meaning, investors are going to remain skeptical until we are well past the peak, because of the possibility of false dawns.  But let’s say that this is indeed the apex:

– NY/NJ/CT/RI/MA took 25 days past peak for daily cases to be down -75%
– thus, F-CAT could see daily cases -75% by mid-August
– economic restrictions would be easing by mid-August

But the close today compared to the June 8th highs, shows that investors were buying Technology and Healthcare and Amazon (Discretionary) in the past 6 weeks.  But they were dumping “epicenter”

– In other words, this S&P 500 3,233 close was comprised of a rotation into “bond proxies” = 76% of the market cap.
– Epicenter got even cheaper in the past 6 weeks, due to the worsening COVID-19 case metrics

Source: Fundstrat


Here is the observation.  If US cases are down 75% by mid-August to under 18,000 per day, will investors be buying FANG/bond proxies?

– We think epicenter stocks will rally on this binary outcome.

Source: Fundstrat




POINT #1: US daily cases are down week over week, the first time since June 9th
Daily US cases fell to 56,117 today, the best level in more than two weeks and well off the 76,736 reported just 5 days ago.  There was a widespread decline but CA and FL, in particular, reported sharply lower cases.

Source: COVID-19 Tracking Project


6 states with sizable 1D increases
Mississippi        1,251 vs   792 (1D) +459
Illinois               1,173 vs   965         +208
Minnesota           903 vs    734         +169
Nebraska            264 vs    102         +162
Ohio                 1,236 vs 1,110         +126
Texas               7,404 vs 7,300         +104
Total 6 states                                +1,228

6 states with sizable 1D declines
California          6,846 vs  9,329 (1D) -2,483
Florida            10,347 vs 12,478        -2,131
South Carolina 1,459 vs   2,374           -915
Arizona             1,559 vs   2,359           -800
Georgia             2,452 vs  3,251           -799
Kentucky              253 vs     977           -724
Total 6 states                                      -7,852

Source: COVID-19 Tracking Project




POINT #2: If F-CAT is peaking, how long to see cases -75%?
Daily cases for F-CAT seem to be finally rolling over.  This is a good thing and the chart in the introduction showed the trend for each of the 4-states.  But the peaking of cases does not mean the level of cases is now “benign.”

Quite the contrary.  Below is a chart showing the new daily confirmed cases per 1mm residents (3D avg) for the 50 states.

– Note FL at 515 is the highest in the nation, although off its peak
– CA, AZ and TX are in the 200-300 range, while NY tristate is in the 15-30 range

So, the peaking of cases is a good development, but the bigger question is how long before daily cases collapse?

Source: COVID-19 Tracking Project


The 5 states that “crushed” the curve and have not seen a resurgence are the NY tristate (NY, NJ, CT) and Rhode Island and Massachusetts.  These are all Northeast states.  But here is the decline curve seen in these 5 states:

           Date     -75%     -90%
           case       off         off
           peak     highs     highs     
NY       4/3     30 days   52 days
NJ       4/3      39           50
CT     4/22       6            29
RI      4/24     30            52
MA    4/24      18           45          
Avg              25 days    46 days


So if F-CAT is peaking, we should see daily cases -75% within 3 weeks…
So, there is a bit of a waiting game underway.  If F-CAT daily cases are rolling over, we should soon see a sustained downturn in daily cases.  We think this is more likely in FL and AZ, where the prevalence surged so greatly, that the nucleus cities of Miami and Phoenix actually surpassed NYC on its worst days.

Source: COVID-19 Tracking Project

Source: COVID-19 Tracking Project

Source: COVID-19 Tracking Project

Source: COVID-19 Tracking Project

Source: COVID-19 Tracking Project


POINT #3: 5 of 12 states “last to open” could be re-lapsing.  VA, IL, MD, MI and PA, or VIMMP
5 of the 12 states that crushed the curve and “waited to open” are seeing daily cases rise — post BLM protests…
12 states held off opening the economies (more liberally) until after 5/11 and those states have, in total, been the most successful at containing the spread of COVID-19 cases.  Below is the composites for the 3 types of states, and in red, are those states that opened only after 5/11.  

– Daily cases in 5 of the 12 states are beginning to rise;
– Overall daily deaths are continuing to fall;
– Daily testing in these 12 states has continued to increase rising to 220k per day from <100k 8 weeks ago;

Source: COVID-19 Tracking Project


Thus, to an extent, the rise in daily cases reported in these 12 states is somewhat attributable to improved detection.  The daily number of tests is shown below, 

Source: COVID-19 Tracking Project


And the positivity rate for these 12 states is still below that 10% threshold.  Currently, this is around 3.8%.

5 states are “re-lapsing” — VA, IL, MD,  MI, PA — or VIMMP (not a great acronym)
5 of the 12 states, as we just noted, account for the rise in cases for these “late opening” states.  The states are, in order of the opening:

– MD
– PA
– VA
– IL
– MI

Source: COVID-19 Tracking Project


Why did these states see a rise?
The important question is why did these states see a rise?  We do not have an answer to this question.  And these increases all seem to have taken place around the same date, sometime during the second week of June.  We can name a few reasons:

– BLM/George Floyd protests
– Memorial Day
– Economic re-opening

The latter is less explanatory, as each of these states had a different opening date.  The GDP and even population impact of these states is considerably smaller than F-CAT and NY tristate.  So, to the extent, these regions see a rise in cases, there is less overall risk to the US re-opening narrative.  But it is a setback nonetheless.