CDC predictably brings back mask mandate --> policymakers "panic" so you don't have to...

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STRATEGY: Policymakers “panic” which means markets don’t have to
CDC reverse indoor mask policy for “vaccinated” Americans = policymakers panic
Before the market open, the CDC issued new guidance on indoor mask policy, recommending fully vaccinated Americans wear a mask indoors in states seeing a surge of cases:

– this is pretty logical and my expectation was masks would come back in the Fall (for the Northeast)
– To me, this is hardly a reversal of the economic re-opening
– it’s always good when policymakers panic

As we stated in several of our recent notes, the UK saw the Delta COVID-19 surge peak after 45 days. Hence, we think the US is far closer to an apex in this Delta surge than many realize. This is also consistent with the comments made by Dr. Scott Gottlieb.

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

Source: CDC reverses indoor mask policy, saying fully vaccinated people and kids should wear them indoors (cnbc.com)

…Equity markets reacted immediately to the CDC headline, sending S&P 500 down 60 points, or 1.5%
The CDC headline came out at 8am and the S&P 500 fell 60 points by late morning, or 1%. So the CDC headlines obviously spooked investors, also evidenced by the surge in the VIX.

– in our view, when policymakers panic, investors should add “risk”
– after all, if policymakers panic, you don’t have to
– In fact, markets have mostly recovered by late afternoon, as shown below

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

…USA cases are on track to reach 100,000 next week, but that is close to the peak
In the meantime, daily COVID-19 cases continue to surge, and we believe are on track to exceed 100,000 sometime next week. But as we stated in several recent comments, we think the peak in COVID-19 cases is within the next 12 days or so.

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

…Delta surge hardly seen in “high vax” US states, based on hospitalizations
Below are the 6 states with the highest vaccination rates. And as shown, while cases are up, one has to squint to see higher hospitalizations:

– VT, MA, ME, CT, RI, MD have the highest vaccination rates
– range is 58% to 67% of total state being fully vaccinated
– hospitalizations have barely moved

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

…but Delta scourge very evident in 6 “lowest Vax” US states based upon hospitalizations
But look at hospitalizations of the 6 states with the lowest vaccination rates. Yikes. There is a massive surge in hospitalizations:

– AL, MS, AR, WY, LA, ID have the lowest vaccination rates
– range is 34%-37% of total state fully vaccinated
– the contrast in hospitalization rates is utterly stark

To me, the takeaway is vaccinations surely seem to be limiting the healthcare severity of Delta variant. And in our view, Delta is more “bark than bite.”

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

…strong case that COVID-19 might be seasonal, and hence, mask mandates will come back seasonally
And to reiterate a point we have made several times during the Delta surge, we think there might be some strong argument that COVID-19 is a seasonal virus. There are reasons for seasonality:

– Northeast less sunlight (vitamin D) during Fall/Winter
– South is “indoor season” during Summer and this is where surge most evident

Thus, the surges in FL, AR, AL etc could also be seen through the lens of seasonality.

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

STRATEGY: US equity markets are increasingly attractive, amplifying our 2021 view of “supply chain moves to America”
There is no shortage of “wall of worry” at the moment:

– Delta surge
– Fed behind curve
– “peak everything”
– China crackdown –> first bitcoin, now everything else

But markets climb a wall of worry. As we have stated many times, the risk/reward for stocks is very good for 2021 and our base remains S&P 500 total return in 2021 is +23% or better, implying 2H2021 gains of +9%.

…China peaked in February (sort of when Bitcoin peaked), so the education crackdown is not really “new news”
Below is the relative performance of country indices (vs MSCI all-world) and in two timeframes:

– start of year to Feb 10, China markets surged
– this is consistent with China escaping COVID-19
– but this peak in Feb also coincided with the Bitcoin peak
– China began cracking down on crypto before cracking down on other industries

– since February 10th
– USA has solidly outperformed the rest of the World
– Europe has followed closely

So we can see growing relative strength of USA. This is something we have argued for sometime. That the US will outperform for a combination of:

– US superior demographics
– US wealth transfer
– US fiscal policy superior
– US vaccination policy superior
– US consumer resilient
– US leadership in key industries Technology, Financials and Healthcare

This still remains a central case.

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

…And post-pandemic, we see supply chain moving back to USA… more urgent given China crackdown
And we see the supply chain moving back to the US. This is made more urgent given the recent crackdown by China on several private sectors plus Bitcoin (mining and usage). Thus, “buy American” is gaining relative strength.

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

…markets are still suffering from “chop” but we see positive risk/reward growing
We were hopeful that the July chop might have ended with the UK delta surge ending. And for the most part, we still expect this to be true. But the China actions have added to the chop near term:

– China crackdown creates uncertainty
– USA delta surge still not over, but expected within next 12 days
– Many investors are on “revenge travel” in July/August, so market depth suffers
– Historically, to me, “nobody makes money in July/August” = true in 2021

So, we still remain constructive on markets into YE. And we favor Epicenter stocks. And the risk/reward is most positive in Energy. But at the same time, “July chop” is here and likely ending soon. But this is also a reminder that one cannot be a hero during “chop season”

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

BE WARY OF “CHOP SEASON”


POINT 1: Daily COVID-19 cases 59,180, up +25,386 (ex-FL&NE) vs 7D ago… Current Hospitalizations are surging while daily deaths remain flat…
_____________________________

Current Trends — COVID-19 cases:
– Daily cases 59,180 vs 42,782 7D ago, up +16,398
– Daily cases ex-FL&NE 59,180 vs 33,794 7D ago, up +25,386
– 7D positivity rate 6.0% vs 5.2% 7D ago
– Hospitalized patients 35,815, up +37% vs 7D ago
– Daily deaths 263, up +9.8% vs 7D ago
_____________________________

*** 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 59,180, up +25,386 (ex-FL&NE). The Daily cases is still steadily rising – 7D delta in daily cases (the speed of case rise) has been gradually rising and now is at ~18,000. The number of hospitalized patients is approaching the level we observed during the “mid-wave” in April. However, the daily deaths remain relatively low. As we noted, US could follow the same pattern as UK and India, and peak in next two to three weeks. In fact, the reintroduction of mask mandate could further cut down the transmission of Delta variant and the case trend in US could roll over even sooner. We will be watching the relevant data closely.

 

At state level, TN, OK, AL, SC, LA, AR, MA, MS, NC, and VT are the states with the largest increase in daily cases compared to their recent lows (as shown in the “parabolic” tracker below), and all 10 states except NC, MA and VT have less than 50% of their populations vaccinated with at least one dose, and 40% of their population fully vaccinated. This is consistent with what media have been reported regarding the majority of new cases being amongst unvaccinated individuals. Therefore, the COVID developments (both the case and vaccination trends) in these states along with the other low vaccinated states (such as GA, ID, WY, ND, IN) are worth watching.

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

7D delta in daily cases has been slowly rising, now at ~18,000…
The 7D delta in daily cases has been slowly rising over the past week. A rising 7D delta means the speed of the case rise is increasing. As we noted, if US follows the same pattern as UK/India, the daily cases will continue to rise in next two to three weeks. Based on current speed of case rise, The peak number of daily cases could exceed 150,000.

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

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

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

 

Current hospitalization and positivity rates are rising… Daily deaths remain flat…
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 daily deaths are relatively low compared to the prior waves. However, with the recent increase in daily cases, current hospitalization is clearly turning upwards. Regarding positivity rate, it recently exceeded 5%, which is higher than the positivity rate we observed during the “mini” wave this April and significantly higher than the recent low of <2%. Daily deaths seem to be still flat, but it could reverse if case figures continue to rise.

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

POINT 2: VACCINE: vaccination pace has been slightly rising over the past few days…
____________________________

Current Trends — Vaccinations:
– avg 0.6 million this past week vs 0.5 million last week
– overall, 48.8% fully vaccinated, 56.5% 1-dose+ received
_____________________________

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.

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

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%. As you can see, all states have reached 60% and 70% combined vaccination + infection. 96.8% of US states (based on state population) have seen combined infection & vaccination >80% and 65.6% of US states have seen combined infection & vaccination >90%.

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

 

There were a total of 394,474 doses administered reported on Tuesday. Over the past two weeks, the vaccination pace has been mostly flat, but recently it seems to edge up slowly. Perhaps people are becoming more inclined to get vaccinated over growing delta variant concerns. But this is actually a good sign since vaccination not only could lower the chance and mitigate the severity of getting COVID, but also reduce the virus transmission. Currently, 2/3 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 another parabolic surge in daily cases, hospitalizations, and fatalities, getting more people fully vaccinated remains the key.

 

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

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, 87.3% 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 66.9%. 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%, 93.4% of them have seen 1 dose penetration >45% and 78.1% of them have seen 1 dose penetration > 50%.
– 87.3% of the US has at least 40% of its residents fully vaccinated, However, only 66.9% of US has fully vaccinated >45% and 44.5% of US has fully vaccinated >50%.

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

This is the state by state data below, showing information for individuals with one dose and two doses.

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

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 ~15 for the past few days
– this means 15 vaccines dosed for every 1 confirmed case

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

In total, 341 million vaccine doses have been administered across the country. Specifically, 187 million Americans (56% of US population) have received at least 1 dose of the vaccine. And 162 million Americans (49% of US population) are fully vaccinated.

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

 

 

POINT 3: Tracking restrictions lifting and subsequent effects in individual states

Point #3 focuses primarily on tracking the lifting of restrictions, as states have eased the majority of mandates. Keep in mind, easing/lifting restrictions are contingent upon state of emergency ordinances being renewed.

– States in groups 1 and 2 represent states that let their emergency ordinances expire, or that never had one in the first place
– Note: IL and HI are not listed. This is because restrictions lifting is determined at the county / island level, and no statewide policy will be established to lift restrictions until a full reopening

So there is a spectrum of approaches. Our team is listing 3 tiers of states and these are shown below.

– states that eased all restrictions in 2020: AK, OK, MO, FL, TN
– states that have eased all restrictions in 2021 to now: ND, SD, NE, ID, IA, MT, MS, AZ, SC, WY, TX, GA, AR, KS, WI, IN, AL, UT, NH, LA, NJ, KY, MN, MA, VT, OH, WV, ME, MI, NY, OR, PA, MD, DE
– states that are still easing restrictions in 2021: WA, NC, CA, NM, CO, NV, CT, VA, RI, DC

GROUP 1: States that lifted restrictions in 2020…
The daily case trends in these states are impressive and it is difficult to say that lifting restrictions has actually caused a new wave of cases because the case trends in these states look like other states.

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...
CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

GROUP 2: States that have lifted restrictions in 2021 to now…
Similar to the list of states above, the daily case trends in these states are impressive and it seems that lifting restrictions hasn’t caused an increase in cases.

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

GROUP 3: States that are still easing restrictions in 2021…
These states have begun to lift restrictions, but have yet to ease all restrictions. The date of each state’s most recent restrictions lifting is indicated on each chart. The case trends in these states have been mostly positive.

– Easing restrictions appears to have contributed to an increase in cases in several of these states, most drastically in OR, ME, WA, and MN

CDC predictably brings back mask mandate --> policymakers panic so you don't have to...
CDC predictably brings back mask mandate --> policymakers panic so you don't have to...

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