COVID-19 UPDATE: While COVID-19 cases surge, COVID-19 not yet a "Stage 5 clinger" = good

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

To all, I really appreciate all the kind words of encouragement following my ACL surgery.  It turns out that I also had meniscus damage, so my recovery will be longer but I am glad to be on the road to recovery. 



STRATEGY: “Tape Bombs” pushes S&P 500 into deeply oversold = “when rally”
Equity markets on Monday was an old-fashioned blood bath, with the Dow falling nearly 1,000 points at the worst and all sectors declining.  There were a few “tape bombs” fueling this carnage:

– fiscal stimulus “clock ran out” and looks more like a December timeframe
– COVID-19 cases surged to a new all-time high over the weekend
– 2020 Presidential election continues to be one of the most contentious/ mud-slinging in modern times
– SAP and other cos reporting 3Q2020 warn of poor visibility

So there was no shortage of reasons for investors to risk-off.  However, equities are now severely oversold.  And in past setups like this, set the stage for a sustainable bottom.  So what would we catalog as signs of oversold:

– VIX surged 18% to  >30
– VIX term structure inverted to -2.5 (4M less 1M), usually a sign of markets pricing in near term event risk
– S&P 500 4-hour RSI fell below 30 (see below).

Since April, the 4 times the S&P 500 4-hr RSI fell below 30, we were in the vicinity of a major trading bottom.  Our TA, Rob Sluymer thinks there might be a few more days of sloppiness.  But,  the S&P 500 has held two key levels –> 3,224 and 3,363.  And as such, we see the uptrend still largely intact.

– in short, a 1,000 point Dow drop in the days before the 2020 elections sounds like lots of “bad news priced in”
– aka, we believe the tilt is risk-on from here

Source: Bloomberg


Tom Block, Fundstrat’s Washington Strategist, notes that it looks like both House Speaker Pelosi and the White House have given up on fiscal stimulus before election day.  The bill most likely, in his view, gets taken up during the lame duck session into year-end.  This is a disappointment for the millions of Americans without work and desperately needing this financial bridge.  Does this change our view on equities or even epicenter groups?  Not really, since, this is still a “when not if” issue.

COVID-19 is getting worse in the US, but it is not a “stage 5 clinger”
Over the past few weeks, we commented that COVID-19 trends, if measured as daily cases, was worsening.  And indeed, daily cases on Saturday reached an all-time high.  But at the same time, we think the real benchmark remains healthcare severity versus case count.  And by this measure, we are not even yet at levels that would warrant becoming more alarmed.

Think of it this way, the chain reaction that is the “worst case” scenario, is:
Stage 1- Cases surge
Stage 2- Hospitals run out of capacity
Stage 3- American deaths surge
Stage 4- Economy shutdown
Stage 5- Stock market disaster

So, we want to avoid reaching stage 5.  

Source: Wedding Crashers


Daily cases would need to exceed 105,000 per day for hospitalizations to match wave 2…
For those who did not watch “Wedding Crashers,” a stage 5 clinger is an emergency situation.  And the point where US hospitals are running out of beds would bring us to this point.  As we discuss in point #2, we are not anywhere close to this point for several reasons –> (i) incremental severity is 1/4th and 1/13th of what we saw in wave 2 and wave 1, based upon incremental hospitalization rate (1% now) and (ii) hospitalizations are not geographically concentrated like wave 1 and wave 2

In fact, based on analysis by our data science team, led by tireless Ken, daily cases would need to exceed 105,000 for US hospitalizations to match what we saw in wave 2.  This coefficient analysis is shown below and explained in point #2.

Source: COVID-19 Tracking Project and Fundstrat


Testing in the US has expanded, and that remains a good thing. Testing is as important as therapeutics. Think about the extreme, if Americans could self-test at home everyday with a quick diagnosis, we could significantly improve detection, which helps reduce spread.  The positivity rate in the US overall is 6.9% (trending higher) which is a level suggesting the US is doing a decent job of detecting cases at the moment.

Source: COVID-19 Tracking Project and Fundstrat




POINT 1: Daily cases 62,160, up 10,632 vs 7D ago — still more linear than parabolic
The latest COVID-19 daily cases came in at 62,160, up +10,632 vs 7D ago. Daily cases already hit a new all-time high a few days ago of 81,944, so we are seeing a surge in cases.  Last week, we spoke of the likelihood that daily cases would move past 70,000 and we are already past that level.

– Because the spread is primarily in 11 states, we might be nearing peak velocity in those states (daily cases per 1mm >500 trigger policy response)
– Hospitalizations are more important, in our view, and while hospitalizations are rising, the levels are still quite low
– as discussed in point #2, because of the lower incremental hospitalization rate, daily cases would need to exceed 100,000 daily for hospitalizations to match wave 2

Source: COVID-19 Tracking Project  and Fundstrat


US daily cases 7D delta is up but not exponential…
Again, the daily change vs 7D ago, in our view, is the leading indicator as it is what influences the 7D moving average.
– Daily cases are rising vs 7D ago, but the rate of increase is been constant.
– It does not seem to be accelerating (becoming exponential), which is key
– there was 1 day where daily cases surged 23,000 (exponential-like) but it was a 1-day surge

Source: COVID-19 Tracking and Fundstrat  

Source: COVID-19 Tracking and Fundstrat




POINT 2: Wave 3: to match peak “hospitalizations,” daily cases >105,000
Two reasons hospitalizations are not yet worrying…
In fact, while there is a lot of media coverage of a surge in hospitalizations, that is the minority of areas in the US.  There has not been any massive surge in hospitalizations. There are two reasons for this:

– the incremental hospitalization rate (coefficient) is still very low
– hospitalizations are occurring in a wider set of states, and so far, hospitalization intensity is low everywhere


The hospitalization rate is only 1% vs 3.3% in wave 2 and 13% in wave 1…
Below shows the incremental hospitalizations for the cumulative 7D rise in cases. That is, how many incremental confirmed cases require hospitalizations.  This figure is only 1% currently.

– this compares to 3.3% in wave 2 and 13% in wave 1
– healthier cohorts and better treatment explain this

Source: COVID-19 Tracking Project and Fundstrat



The coefficient is currently so low, that daily cases would need to reach >105,000 per day for hospitalizations to match what we saw in wave 1 and wave 2.  The coefficient is plotted below, with daily cases on the x-axis and currently hospitalized on the y-axis.

– daily cases are averaging 60,000 now, so daily cases need to roughly double, before we see hospitalizations match the prior waves

Source: COVID-19 Tracking Project and Fundstrat



But the broader spread of hospitalizations means less intensive use of local hospitalizations…
The other factor that makes hospitalizations less worrisome, is that few hospitals will really run out of capacity, relative to other waves.  Below is a chart showing the rate of hospitalizations, or more specifically, hospitalizations per 1mm residents:

– the level of hospitalizations per 1mm residents is still under 100 in every region.
– in NY tristate, this got to >750 in wave 1
– in F-CAT, this got >300 in wave 2

So, we are hardly at the level of hospitalizations that warrants fearing a massive surge in hospitalizations.  Unlike past waves, because this is reaching a much broader set of states, we are also seeing local intensive utilization of hospital resources.

Source: COVID-19 Tracking Project and Fundstrat





POINT 3: Wave 3 still driven by 15-16 states.  If so, chances higher that daily cases peak by month end…
The path to reaching a new all-time high in US cases varies from wave 1 and wave 2, to the extent that we are seeing a much broader geographic reach in new cases.   Almost as if COVID-19 is sweeping across areas of the US that previously did not see much as much an impact from wave 1 and wave 2.  In fact, if we look at the color-coded states below, based on daily cases per 1mm residents, we can see the 15-16 states at the heart of this wave 3 outbreak.

– these states have daily cases per 1mm >300
– >300 daily cases per 1mm is where wave 1 and wave 2 regions peaked
– at that point, we expect policymakers to react and mandate masks, etc.

Source: COVID-19 Tracking Project and Fundstrat


Another way to see COVID-19 wave 3 is to measure what % of the US has daily cases >100 per day (per 1mm residents).  This figure measures the spread across the US.

– wave 1 was concentrated in NY tristate, so less of USA involved
– wave 2 saw 60% of the US with daily cases >100
– wave 3 is similar to wave 2 now

Source: COVID-19 Tracking Project and Fundstrat


So this gets back to our question, whether we see daily cases rise linearly or go parabolic.  A parabolic surge would be bad.  We can look at the US 50 states and see how the daily cases have increased over the past two weeks. 

– the delta looks very linear for much of the US
– but it looks parabolic for those 15-16 states

These are the states to watch.  When daily cases peak here, we could be looking at US cases peaking.

Source: COVID-19 Tracking Project and Fundstrat