COVID-19 UPDATE: If markets pricing in "worst is yet to come," 62% retrace, or S&P 500 3,224.50 is the key level. US schools and colleges have surprisingly low confirmed infection rate.

Click HERE to access the FSInsight COVID-19 Daily Chartbook.

STRATEGY: Is “worst is yet to come” or are markets trying to price “second wave”?
For the past three weeks, equities faltered as a renewed set of concerns has undermined the generally positive narrative around equities, and more importantly, is building a heightened sense of dread heading into critical election day (11/3).  

Collectively, the set of rising worries results in a sense that the “worst is yet to come:”
– Europe having more lockdowns
– FDA sets a higher threshold for approval of COVID-19 vaccine, dimming hopes of “now”
– Back to school + flu season adding to fear of a massive new wave of deaths
– 2020 election is very close and as a result, cannot look beyond 11/3 — the next 40 days is all that matters
– markets way overbought heading into September


If it is pricing in “worst is yet to come” then we can look at the 62% retrace as key, or S&P 500 3,224.50
So it is understandable if one is worried that the worst is yet to come.  But as we know, one cannot tell the market what to do.  And equities may simply be pricing in “the worst is yet to come.”

– and if the latter is true, we can think of some levels where stocks will make a stand.
– a 62% retrace of the rally since June would be a convenient place to “price in the worst is yet to come”
– that level is 3,224.50

We are within a stone’s throw of that level.  I would view this level as one of the more important levels to watch.  
– US COVID-19 trends are very good, daily cases, deaths, hospitalizations
– US schools and colleges are 21 days into the school year, and a mere 0.075% of US students are infected –> shockingly low
– We see markets able to rally post-election day, with either a Trump or Biden outcome, but less so if it is contested.

POINT 1: Daily cases continue downtrend, 38,025 down -277 vs 7D ago
As we commented over the last few days, the downtrend in US cases is resuming as US cases came in at 38,025 which is down -277 vs 7D ago.  As shown below, the decline in US cases is still drifting to the downside.

– there is quite a bit of daily seasonality, so it is not entirely obvious if one only looks at daily cases and compares it to the prior day

Source: COVID-19 Tracking Project


This week gives us a clearer picture…
Again, the daily change vs 7D ago, in our view, is the leading indicator as it is what influences the 7D moving average.  The 7D delta turned down in the past three days, reversing the previous 7 days of gains.  This is much clearer in the visual below.  The 7D delta peaked last week and turned negative this week and is accelerating to the downside.

Source: COVID-19 Tracking and Fundstrat 


It is common for COVID-19 daily cases to be down on a 7D moving average and as shown below, this 7D looks to be a “v” in it.  This, we believe, stems from the under-reporting during the week of Labor Day and then the subsequent “true-up” in the following week.  

Source: COVID-19 Tracking and Fundstrat  

These same trends are true for hospitalizations and for daily deaths.  Both are declining steadily and in a sustained downtrend.

Source: COVID-19 Tracking and Fundstrat  

Source: COVID-19 Tracking and Fundstrat   

Source: COVID-19 Tracking and Fundstrat




POINT 2: Nearly 1-month into schools, COVID-19 spread surprisingly contained…
Proportionate math would say schools/colleges collectively should be reporting 3,000-4,000 daily cases…
It has been about a month since students returned to schools, both primary (K-12) and colleges.  There have been cases reported at colleges and schools.  But since COVID-19 is spreading across the US, and about 1 in 500 people is infectious in the US (we did the math a few weeks ago), this means that there should be cases expected at K-12 and at colleges:

– K-12 about                                          57 million
– Colleges/universities total enrollment 20 million
Total                                                      77 million

So about 20% of the US population is in schools right now, so about 20% of daily cases should be coming from schools/colleges.  As shown above, this should be about 8,000 cases per day.  Based on what we gather from NY Times data and other sources, this is figure is not nearly that high.

The NY Times has a great database of cases for reported colleges and universities.  Unfortunately, they have not updated this data since 9/10/2020, or nearly two weeks.  We are not sure why the NY Times has not updated this data since they were quite active earlier. 

Source: NY Times


Brown University researchers launch National COVID-19 School Response Dashboard…
Researchers at Brown University have launched a national database for tracking primary school cases.  This has the results from 562 schools and hopefully this will grow over time to be most inclusive.  There are already some useful insights.

First, the confirmed infection rate for students and staff is very small.  
– just 0.075% of students confirmed infection rate
– just 0.15% of teachers

Source: Brown University 
https://statsiq.co1.qualtrics.com/public-dashboard/v0/dashboard/5f62eaee4451ae001535c839#/dashboard/5f62eaee4451ae001535c839?pageId=Page_1ac6a6bc-92b6-423e-9f7a-259a18648318


As for the learning model:
– “full capacity” is 19%
– hybrid is            43%
– remote              37%

So 66% of schools are meeting in person, in one form or another.

Source: Brown University 
https://statsiq.co1.qualtrics.com/public-dashboard/v0/dashboard/5f62eaee4451ae001535c839#/dashboard/5f62eaee4451ae001535c839?pageId=Page_1ac6a6bc-92b6-423e-9f7a-259a18648318


And as for mitigation, I was surprised to see only 73% have staff masks.  I would have expected this to be higher. 

Source: Brown University 
https://statsiq.co1.qualtrics.com/public-dashboard/v0/dashboard/5f62eaee4451ae001535c839#/dashboard/5f62eaee4451ae001535c839?pageId=Page_1ac6a6bc-92b6-423e-9f7a-259a18648318


Recall how cases exploded in NYC and in Italy in the first 21 days… so US schools shockingly low level of cases…
Why do we think these figures are low?

This is 21 days into the school year (assuming 9/1 start).  And look at how daily cases spread in Italy and NYC in the first 21 days.
– Italy   –> daily cases 2,313X greater than the first day
– NYC  –> daily cases 2,307X greater than the first day

Wow.  What an odd coincidence.  And tireless Ken tripled checked this.

Source: Fundstrat

So, US schools and colleges are meeting in class and after 21 days, we should be seeing an epidemic among the 80 million citizens.

– But cases remain muted.

I would consider this a huge success.

The future is uncertain, so it could change.




POINT 3: European policy makers over-reacting? Europe overtakes Latam…
France is following the UK in announcing new lockdown measures, to contain a spread in cases.

Source: Euronews


Europe has overtaken Latin America is now the #2 region in the world for daily cases.  The rest of the World is actually reporting a decline in cases as shown below.

Source: Johns Hopkins


Of the reported cases, the top of the list are Spain and France along with Russia and UK (we add Russia here).

Source: Johns Hopkins


Europe has among the lowest cases per 1mm residents, so there is a greater vulnerability to those areas.  And perhaps the policy decision is:

– Does France want to get to 24,000 cases per 1mm, or a 3X in total cases?
– Let’s hope lockdowns work