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- Monday
- Tuesday
- Wednesday
- SKIP THURSDAY
- Friday
STRATEGY: Delta variant + US 10-yr create bulk of investor angst = August resolution
High anxiety…
August is a generally quieter month for markets, but investor jitters remain elevated because of two primary factors:
– lack of visibility of the path of the COVID-19 Delta variant across USA (currently parabolic)
– continued fall in US 10-yr rates and hence, fear the bond market “knows something”
In short, we think a reversal of one or both of these trends would reverse the building investor anxiety.
Source: 20th Century Fox 1977
…Delta surge continues and our base case remains a peak before mid-August
Daily cases in the US continue to rise and have been >100,000 in 3 of the past 7 days (see below). So while a peak in cases might be coming, this also means cases will rise for some time.
And as shown below, the 7D delta is still rising and stands at 22,821. Again, the fact that this remains high and rising does not change the possibility for cases to peak by mid-August. But naturally, it is this rise in cases that is triggering increased apprehension by policymakers and Americans broadly.
…Policymaker panic about Delta variant is triggering a vaccination resurgence = good
The positive upshot of a panic by policymakers is that more Americans are getting vaccinated. The rise in vaccinations is most evident in states hit hardest by this recent Delta variant.
– policymakers panic = good
– businesses respond by pushing/ mandating masks = good
– businesses respond by pushing/ requiring vaccinations = good
– Americans witness COVID-19 severe illness and get vaccinated = good
Source: https://abcnews.go.com/Health/live-updates/covid-delta-variant/?id=79213051
…Daily vaccinations are rising and up to 667,000 per day from 503,000 per day in early July
The daily vaccinations (and 7D avg) are shown below and while vaccinations have generally trended lower since the start of June, the number of vaccinations since early July are rising:
– daily vaccinations in early July: 503,869
– daily vaccinations most recent: 667,295
So, the panic about Delta variant is actually leading to a helpful reaction. More Americans are seeking to get vaccinated.
…48 of 50 states have seen vaccinations rise –> 27 states show signs of vaccine “panic”
Tireless Ken compiled the latest vaccination statistics below and compared vaccination levels (7D avg) versus two weeks ago:
– 48 of 50 states see vaccinations rise (VT and Alaska exceptions)
– 27 states see “panic” vaccination, as vax increase by +30% or more
– Louisiana and Iowa are at the top
NEW: Point 3 now focuses on “seasonality” of cases and hospitalizations
But this rise in vaccination rates is a really positive development. After all, vaccinations have a “network effect” to the extent the vaccinated population can slow the spread of a variant/disease. Thus, the greater the vaccination penetration, the reduced severity of subsequent outbreaks.
But there seems to be a striking seasonality to this current wave of cases. We are introducing a new section (Point #3) which compares the seasonality of both cases and hospitalizations for the 50 states — 2021 vs 2020. Some highlights are below, but check out Point #3 for the full detail:
– surge in Pacific states (CA, Alaska, Hawaii, etc) seem to be seasonal
– Similarly, in the Southeast, surges in FL, NC, SC, GA surely seem like a seasonal surge
Thus, while Delta is more transmissible, seasonality seems to play a role in enabling spread. In Southeast, it’s air conditioning season. Is the West Coast tourist season? I am not entirely sure.
…hopefully vaccinations are not a political party issue… or is it?
A new study by Monmouth University is again raising a question whether vaccination adoption is a political issue — that is, there seems to be striking differences between Republicans and Democrats on this issue. Sure, there are plenty of Republicans encouraging vaccinations and many Republican governors are urging as such. And I know many friends, self identified as Republicans who were eager to get vaccinated.
But this poll of ~800 does highlight the political divide:
Self-identified…
Republican Democratic Overall
– % vaccinated 51% 92% 70%
– % “never” get shot 31% 2% 17%
So you can see the vaccine resistance/skepticism is strikingly higher among Republicans. Personally, I don’t understand how this is a political divide. But if you have a view, please share with me.
Source: https://www.businessinsider.com/31-republicans-say-they-will-likely-never-get-covid-vaccine-2021-8
https://www.monmouth.edu/polling-institute/reports/MonmouthPoll_US_080221/
STRATEGY: We see two likely catalysts in August –> Delta variant peak + US 10-year could surprise to upside
Based upon our recent conversations, equity investors seem most focused on two issues impacting markets:
– Delta variant parabolic rise in USA
– declining interest rates –> does bond market know something
In general, we see these two issues linked. That is, the surge of the delta variant is reducing economic visibility and thus, interest rates drift lower as a risk-off response. In fact, the rally in Defensive stocks speaks to this.
However, our base cases remains the Delta USA variant surge will peak in August. And this should be viewed as a relief by investors. Given August is already a poor liquidity month, a buyers strike makes markets more turbulent.
But if our base case plays out, August will ultimately be a “risk on” month and we will chop higher. Thus, the July chop will continue into August, but with an upward bias.
…And if Delta in the USA does peak in August and seasonals kick in, then Epicenter will lead
We realize investors are wary and tired of this market chop — understandably so. But as we have highlighted several times recently, we don’t think financial markets are universally signaling risk-off:
– VIX can only manage low energy surges
– Oil has remained solidly above $70
– the yield curve, 30Y less 10Y has been steadily steepening since mid-June
A steepening yield curve is not consistent with an economy about to teeter into stall speed. Thus, we think the probabilities are high that interest rates will respond to a reverse in the trajectory of COVID-19 cases in the US.
– and keep in mind, IHME forecasts states like FL to see a peak as early as this week
…JPMorgan upgrades Energy stocks, citing “catch up” gap between oil and Energy equities
Energy stocks are caught in the same COVID-19 panic tractor beam as other epicenter stocks. There is a generalized buyers strike, amplified by the fact we are in August. And now made worse by the Delta surge.
– however, as we look into 2H2021, we still see an “everything rally” into YE
– this will likely take place after the Delta surge apexes
– and is aided by the rise in Americans seeking vaccinations
So while we don’t advise anyone “be a hero” in August, the risk/reward remains positive.
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POINT 1: Daily COVID-19 cases 136,132, up +44,969 (ex-FL&NE) vs 7D ago…
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Current Trends — COVID-19 cases:
– Daily cases 136,132 vs 103,938 7D ago, up +32,194
– Daily cases ex-FL&NE 136,132 vs 91,163 7D ago, up +44,969
– 7D positivity rate 7.8% vs 5.8% 7D ago
– Hospitalized patients 48,346, up +37% vs 7D ago
– Daily deaths 368, up +32% vs 7D ago
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*** Florida and Nebraska stopped publishing daily COVID stats updates on 6/4 and 6/30, respectively. We switched to use CDC surveillance data as the substitute. However, since CDC surveillance data is subject to a one-to-two day lag, we added a “US ex-FL&NE” in our daily cases and 7D delta sections in order to demonstrate a more comparable COVID development.
The latest COVID daily cases came in at 136,132, up +44,969 (ex-FL&NE). Considering the delayed data for Florida, the actual total daily cases could be about 150,000. In our last two reports, we noted the 7D delta might be apexing. However, Monday’s new high in 7D delta of daily cases (ex-FL&NE) caused the 7D average trendline to turn upwards. This once again shows how unpredictable the COVID pandemic is. That said, we still believe US cases could roll over in two weeks as forecasted by IHME and as suggested by the pattern we observed in UK and India. If that’s the case, the US daily cases could reach 200,000 before rolling over, according to current speed of case rise. We will be watching the relevant data closely.
7D delta in daily cases is still rising…
In the last two reports, we noted that the 7D delta in daily cases appeared to be apexing. However, the latest data suggests that the rise in 7D delta persists. Again, we are waiting for the 7D delta to apex because that is the first sign of case rollover. However, US cases will continue to rise but will do so at a slower speed until the day that 7D delta turns to negative.
Low vaccinated states seem to have a larger increase in daily cases compared to their recent low…
Below, we added a new section called “Parabolic Case Surge Tracker” to monitor the possible parabolic surge in daily case figures. In the table, we included both the vaccine penetration and the recent case trend for 50 US states + DC. The table is sorted by the multiple of their current daily cases divided by their recent low in daily cases.
– The states with higher ranks are the states that have seen a more significant rise in daily cases
– We also calculated the number of days between now and the recent low date; a state with a high multiple but low number of days since its low means the state is facing a relatively rapid surge in daily cases
– The US as a whole, UK, and Israel are also shown at the top as a reference
Hospitalization and positivity rate continue rising… Daily deaths is also trending upwards now…
Below we show the aggregate number of patients hospitalized due to COVID, daily mortality associated with COVID, and the daily positivity rate for COVID.
As you can see, hospitalization and positivity rate have exceeded the peak level we’ve seen in April’s “mini” wave. Daily deaths have been trending upwards recently, but far less “dramatic” than the cases or hospitalization trends.
POINT 2: VACCINE: vaccination pace has been gradually rising over the past week… on average, ~670,000 doses are administered each day…
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Current Trends — Vaccinations:
– avg 0.7 million this past week vs 0.6 million last week
– overall, 49.3% fully vaccinated, 57.3% 1-dose+ received
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Vaccination frontier update –> all states now near or above 80% combined penetration (vaccines + infections)
Below we sorted the states by the combined penetration (vaccinations + infections). The assumption is that a state with higher combined penetration is likely to be closer to herd immunity, and therefore, less likely to see a parabolic surge in daily cases and deaths. Please note that this “combined penetration” metric can be over 100%, as infected people could also be vaccinated (actually recommended by CDC).
– Currently, all states are near or above 80% combined penetration
– RI, MA, SD, CT, NJ, IL, NY, DE, NM, UT, PA, ND, AZ, MN, CA, FL, NE are now above 100% combined penetration (vaccines + infections). Again, this metric can be over 100%, as infected people could also be vaccinated. But 100% combined penetration does not mean that the entire population within each state is either infected or vaccinated.
Below is a diffusion chart that shows the % of US states (based on state population) that have reached the combined penetration >60%/70%/80%/90%/100%. As you can see, all states have reached 80% combined vaccination + infection. 69.0% of US states (based on state population) have seen combined infection & vaccination >90% and 48.1% of US states have seen combined infection & vaccination >100% (Reminder: this metric can be over 100%, as infected people could also be vaccinated. But 100% combined penetration does not mean that the entire population within the state is either infected or vaccinated).
There were a total of 461,771 doses administered reported on Monday. As you can see from the chart below, the vaccination pace apparently has improved over the past week. Perhaps people are becoming more inclined to get vaccinated over growing delta variant concerns. Although the improvement is small, it is still a good sign since vaccination not only could lower the chance and mitigate the severity of getting COVID, but also reduce the virus’s transmission and potentially help contain the virus spread.
Currently, over 2/3 (67.5%) of the US population eligible (age 12+) to receive COVID vaccines have already received at least one dose. For some people among the remaining 1/3, vaccine hesitancy concerns might not easily be reversed. But in order to prevent surges in daily cases, hospitalizations, and fatalities, getting more people fully vaccinated remains the key.
99.1% of the US has seen 1-dose penetration >40%…
To better illustrate the actual footprint of the US vaccination effort, we have a time series showing the percent of the US with at least 45%/45%/50% of its residents fully vaccinated, displayed as the orange line on the chart. Currently, 88.8% of US states have seen 40% of their residents fully vaccinated. However, when looking at the percentage of the US with at least 45% of its residents fully vaccinated, this figure is 67.8%. And only 44.5% of US (by state population) have seen 50% of its residents fully vaccinated.
– While 99.1% of US states have seen vaccine penetration >40%, 95.5% of them have seen 1 dose penetration >45% and 81.6% of them have seen 1 dose penetration > 50%.
– 88.8% of the US has at least 40% of its residents fully vaccinated, However, only 67.8% of US has fully vaccinated >45% and 44.5% of US has fully vaccinated >50%.
This is the state by state data below, showing information for individuals with one dose and two doses.
The ratio of vaccinations/ daily confirmed cases has been falling significantly (red line is 7D moving avg). Both the surge in daily cases and decrease in daily vaccines administered contributed to this.
– the 7D moving average is about ~10 for the past few days
– this means 10 vaccines dosed for every 1 confirmed case
In total, 345 million vaccine doses have been administered across the country. Specifically, 190 million Americans (57% of US population) have received at least 1 dose of the vaccine. And 164 million Americans (49% of US population) are fully vaccinated.
POINT 3: Tracking the seasonality of COVID-19
In July, we noted that many states experienced similar case surges in 2021 to the ones they experienced in 2020. As such, along with the introduction of the more transmissible Delta variant, seasonality also appears to play an important role in the recent surge in daily cases and hospitalization. Therefore, we think there might be a strong argument that COVID-19 is poised to become a seasonal virus.
The possible explanations for the seasonality we observed are:
– Outdoor Temperature: increasing indoor activities in the South vs increasing outdoor activities in the northeast during the Summer
– “Air Conditioning” Season: similar to “outdoor temperature”, more “AC” usage might facilitate the spread of virus indoor
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If this holds true, seasonal analysis suggests that the Delta spike could roll over by following a similar pattern to 2020.
We created this new section within our COVID update which tracks and compares the case and hospitalization trends in both 2020 and 2021 at the state level. We grouped states geographically as they tend to trend similarly.
CASES
It seems as if the main factor contributing to current case trends right now is outdoor temperature. During the Summer, outdoor activities are generally increased In the northern states as the weather becomes nicer. In southern states, on the other hand, it becomes too hot and indoor activities are increased. As such, northern state cases didn’t spike much during Summer 2020 while southern state cases did. Currently, northern state cases are showing a slight spike, especially when compared to Summer 2020. This could be attributed to the introduction of the more transmissible Delta variant and the lifting of restrictions combined with pent up demand for indoor activities.
HOSPITALIZATION
Current hospitalizations appear to be similar or less than Summer 2020 rates in most states. This is likely due to increased vaccination rates and the vaccine’s ability to reduce the severity of the virus.
