COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper

COVID-19 remains a global crisis and we realize that many people need to keep up with COVID-19 developments, particularly since we are moving into the more critical stage (“restart economy”), so feel free to share our commentary to anyone who has interest.


We found NY state’s essential worker serology study (>6,000 essential workers) very telling.  Essential workers are transit employees (NYC), NYC healthcare, NYPD, FDNY/EMT, DOCCS, and State Police (these 6 categories broken out). These workers are front-line, exposed constantly without the PPE precautions afforded hospital employees.  And surprisingly, the prevalence of COVID-19 antibodies for these 6, 6 of 6, is lower than the general population:

– NYC transit          14.2%  vs  19.9% (NYC overall)
– NYPD                  10.5%  vs  19.9%
– NYC Healthcare  12.2%  vs  19.9%
– FDNY/EMT          17.1%  vs  19.9%  (yup, even EMTs)

One thing this argues, in our view, is that the return to the workplace may be safer than most appreciate.  Think about it.  The fact that the prevalence is lower, despite higher constant exposure (in the public entire workweek) and in high-risk areas, speaks to less risk of exposure at these locations (which is pretty much everywhere in NYC), particularly for transit workers.

But the stock market has wobbled and is now down 5% for the week in 3 sloppy days.  There has been a lot of sobering discussions this week, from famed investors like Stan Druckenmiller, David Tepper, etc and even Fed Chair Powell.  Add in the controversy from CA (Tesla, and LA opening) and we can understand why markets feel the need to ‘take profits’ and reset sentiment.  Moreover, as we discuss below, the battle is taking place between two key Fibonacci levels, the 50% and 62% retrace, 2,793 and 2,934.  

The stock market is ‘expensive’ if we look at 2020 P/E.  The ‘E’ this year is probably going to be $50 (vs $175-ish consensus at the start of the year) but at the bottom of the cycle, there is no ‘E.’  To give the right perspective on this, we highlight market commentary from GFC, highlighting the periods between June 2009 (3M after low) to May 2010 (past 1-yr after low).  There was no visibility back then (see Point #3) and there is arguably better economic visibility today (because the cycle is in the hands of policymakers, not balance sheets, then).


POINT #1: USA essentially flat at 20,874 (vs 21,469 1D ago), expected given mid-week. UP: NY+LA+CA+KS+MA.  DOWN: IL+FL+TN+MN
USA total COVID-19 new cases was flat today at 20,874, down slightly from 21,469 1D ago and higher than the 17,653 seen Monday.  The figure is still well off the 36,116 high reported on 4/24/2020, so that remains the high watermark and was 19 days ago.  The R0 for the US (reproductive rate) is 0.71, so each new case is only resulting in 0.71 new cases.  That is good.


COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper



+ NY     2,176 vs 1,430 (1D)     +746
+ LA        612  vs    235             +377
+ KS        352 vs        0             +352 <–Kansas only reports M/W/F now
+ CA     1,759 vs 1,443             +316
+ MA     1,165 vs    870            +295
Total 5 UP                              +2,086

–  IL       1,677 vs  4,014 (1D)  -2,337
–  FL        479  vs     941            -462
–  TN       259  vs     567            -308
–  MN      423  vs     695            -272
Total 4 DOWN                        -3,379

So there is a lot ‘churn’ in the state numbers.  This is what happens mid-week.  But the good news is that the surges in IL and FL yesterday were retraced today (lower). And none of these states is really showing a new breakout, yet.  Massachusetts, for instance, reported 1,050 new cases on 5/9/2020, so the most recent figure is essentially flat and is down from the 1,500-ish levels seen a few weeks ago.

COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 1


source: COVID-19 tracking project

NY state, even with today’s rise, is 80% off highs and 39 days since peak…
NY state, despite the 1D rise today to 2,176 is still well off the highs (80%) and the trend, as evidenced below, is still declining.  The trend is in the right direction.  But NYC remains still not meeting the 7 criteria to re-open and NYC remains the most important district/area within NY state.

COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 2


source: COVID-19 tracking project


NY State completes 4th serology study ~6,000 essential workers and shows lower prevalence vs population, and very LOW for State Police, somewhat elevated for transit workers (but below state levels).
NY state completed its 4th serology test and this was conducted on essential workers- police, transit, correctional officers, first responders. The results are summarized below and show that the prevalence of COVID-19 antibodies is actually below that of the general population.  This is interesting:

– essential workers are out facing the public every day, yet, their COVID-19 exposure is LOWER than the general population.
– even transit workers showed 14% prevalence v 20% for NYC overall

Think about that.  This has implications for the safety of returning to work and the workforce.  It seems like COVID-19 is not necessarily widely transmitted at these essential workplaces.  After all, if transit workers have less prevalence than the city overall, then it may not be the reason for the COVID-19 spread.

COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 3


Source: NY governor’s office

10 serology studies continue to show prevalence of COVID-19 is 10X –> 50X –> 85X confirmed…
Our data scientist, tireless Ken, updated this table to show now, 10 serology studies conducted on a wide scale in the US.  And it paints the same picture.  COVID-19 prevalence, as measured by antibodies (serology) is 10X to 50X to 85X greater than the confirmed cases.  And the implication remains that this points to drastically lower mortality risks.  We will discuss our note for Thursday.

COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 4


Source: various studies.


New highs (good thing) in both ‘% counties 75% off peak’ and ‘50% off peak’  — now 36% and 70%, respectively…
We wanted to revisit the diffusion (dispersion) data, which measures what % counties are 50% and 75% off their peak case numbers (based on county-level population).   We like this diffusion measure because it reflects a more targeted geographical view of case progression.  And naturally, the higher the number, the better the progress.  Generally, this data is quite lumpy, similar to the lumpiness we see in the state-level results.  And this is likely due to the same reasons — lags in reporting bring about big jumps and drops.

– but looking at the two series below, we can see that both are making progressive and steady new highs. 
– this is a good thing.

COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 5


source: COVID-19 tracking project and Johns Hopkins



POINT #2: Ohio is opening “retail” this week and 90% of its state economy will be open by the end of the week…

3 states are opening “retail” this week: Ohio (5/12, Tuesday) and New Hampshire and Wisconsin (5/11, Monday).  
Every state is taking a different phased approach to opening their economy and the 7 categories, we created, are shown below.  Not surprisingly, more states have moved to open elective surgeries and manufacturing.  And closely followed are “retail” and much further down the list is dine-in restaurants and bars and gyms.

– Ohio is the 7th largest state economy (GDP terms), so its opening is quite important.  
– And as of today, close to 90% of the state’s GDP is open for business, so it is one of the “most open” as claimed by their governor Mike DeWine.



COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 6


Source: Fundstrat and various state govt websites


Ohio’s approach to opening is more aggressive than other states, but then again, it was not hit as “hard” as many…
We have listed the COVID-19 cases per 1 million residents for the top 8 states (% share of GDP).  And marked OH compared to NY and CA.  Ohio was simply not hit as hard as other states.  In fact, its experience seems to be close to that of CA:

– OH as about 2,200 cases/1 million residents vs 1,800 for CA
– NY stands currently at 17,511/1 million, or 8X higher case prevalence than OH.


COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 7


Source: COVID-19 tracking project

But OH daily net cases at 473 (most recent day) are down 67% from their peak, less than the >85% shown by NY state and other states.  And OH is about 11 days since its recent peak.  And even the White House guidelines used 14D as the “bogey” for opening.

– So in this sense, OH is aggressive in its opening.

COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 8


Source: COVID-19 tracking project


Based on States ‘cases % off the peak’ OH ranks #20… pretty far down the list…
Looking at comparative metrics, OH COVID-19 status is not nearly as improved as many other states:
– Case % off the peak is -68%, rank #20 of 50
– Days since the peak is 11 vs 18 US composite (50 states)
– R0 is 0.87 vs 0.71 for US composite

The other states and comparative statistics are shown below.


COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 9


Source: COVID-19 tracking project


Ohio malls are opening!  We will be looking for incoming ‘data points’ in coming days…
Ohio is opening retail stores and malls.  So this is quite interesting to track.  1D is not enough data to gain insights, so we will have better information in coming days.

COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 10


source: https://www.newsbreak.com/ohio/columbus/news/0P1psdPM/malls-retailers-reopen-in-ohio-today-heres-what-to-expect


The rules for operating retail are comprehensive, but essentially the same rules used by “essential services” such as grocery stores.  So customers are likely to already be well adapted…
The detailed guidelines for operating a retail store are detailed in a comprehensive website titled “Responsible Restart Ohio” (see below) and the actual guidelines for retail stores, both employees and customer interaction, are quite detailed.  

The website of OH news provider, WLWT, provides a decent summary and we have a snip below.  Basically, workers and customers wear PPE (masks), employees’ health is checked and sanitation is done frequently.

COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 11


source: https://www.wlwt.com/article/ohio-retail-stores-opening-back-up-tuesday-heres-what-to-expect/32444223


COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 12


source: https://coronavirus.ohio.gov/static/responsible/Consumer-Retail-Services.pdf


OH stands in contrast to both CA and NY
The opening of Ohio is a contrast to the uncertain openings for both CA and NY (both coasts).  CA has announced phased openings, but as we discussed yesterday, the Stage 2 requirements are so strict, it will be sometime before any county meets that criteria.  In fact, there remains ongoing battles between Tesla and Alameda county, which has not allowed production to resume.  

California’s experience with COVID-19, in terms of case prevalence, is a lot like OH.  But the state (CA) is taking it very slow.

And NY is understandably taking it slow.  NY is the epicenter of the crisis and along with nursing homes, account for nearly 66% of the deaths of COVID-19.



POINT #3: REVISITING HISTORY: Back in 2008-2009 GFC, Warren Buffett ‘seismic’ purchase of Burlington Northern was in Nov 2009 — after S&P 500 already retraced 50% of losses (and 6M after the ‘low low’).

The stock market is expensive if one’s measurement tool is next 12M EPS… but that is not what determines future value
Quite a few investors recently noted that equities have gone “too far, too fast” and that stocks risk/reward is not attractive.  Those cautious statements by investors are reasonable.  

S&P 500 2020 EPS is likely to be $50 or lower, compared to $160-$170 at the start of this year.  There is simply no way for companies to produce earnings when much of the economy is simply shuttered.  But this does not mean we think the S&P 500 should be valued at 20X x $50, or 1,000. 

We are highlighting the challenge of using valuation techniques on equities at turning points — at market tops, stocks P/E should be low (because future earnings will fail to deliver) and at market bottoms, P/E should be high (even ridiculously high) as future earnings should surprise.  And we have written several pieces on why EPS should be stronger than GDP — namely, companies will be cutting costs during this contraction, and as such, will need a lot fewer revenues to achieve the same EBIT/EPS. 

Thus, future earnings growth should surprise to the upside.



REVISITING GFC JUNE 24, 2009: NO GREEN SHOOTS… stocks already +43% from March 9, 2009 lows…
To get some perspective on today, I want to take us back to June 24, 2009.  On CNBC, a well-known investor (revealed in next few paragraphs) was interviewed about the state of economy.  This person is, by many, to be considered one of the most experienced and least biased investor.  

And on June 24, 2009, this person was answering questions about the economy.  I highlighted key observations in red:

– “Everything that I see about the economy is that we’ve had no bounce.”
– “I said the economy would be in a shambles this year and probably well beyond”
– ” I thought maybe now I’ll be able to see green shoots.  We’re not seeing them.  Whether it’s retailing, manufacturing, wherever. “


COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 13


source: full transcript –> https://www.cnbc.com/2009/06/24/transcript-warren-buffetts-live-lunch-interview-on-cnbc.html


Warren Buffett, the Oracle of Omaha, did not put big $$$ to work until November 2009, 3 months after those CNBC comments and 6 months after the low…
The comments were made by Warren Buffet.  The S&P 500 had rallied a stunning +43% from the March 9, 2009 lows of 667. The economic visibility was NON-EXISTENT.  But stocks were rising.  As you can see below, the S&P 500 had a V-bounce at that time.

Today, people look back and say “Warren Buffett was buying stocks in 2009” and point to his purchase of Burlington Northern for $34 billion, the largest ever deal for Berkshire Hathaway.

That Burlington Northern deal was announced on November 3, 2009.  6 months after the March 2009 low (Haines bottom, per CNBC) and 3 months after his CNBC interview with Becky Quick, where he “saw no green shoots.”  



COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 14


http://www.nbcnews.com/id/33599744/ns/business-us_business/t/buffett-buying-burlington-northern-railroad/#.XrwY-2hKiHs



By November 3, 2009, the S&P 500 made the 50% retrace of the entire bear market — ala, 2,794 today…
As shown below, the S&P 500 had already re-traced 50% of the decline (big red line).  This is exactly where we are today. 

– in other words, by the time the Burlington Northern deal was announced, the S&P 500 was already 6M past the bottom and retraced half of the bear market losses.

– Buffett was recently interviewed (two weeks ago), and said he had not put any money to work in 2020.  But now would be the equivalent time to Nov 2009.

The point we are making is that in 2009, even 3 months past the bottom, there was zero economic visibility.  Even November 2009 was early and the move by Buffett (back then) was considered bold and even “much on faith” because the economy was simply still in shambles.

COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 15



In our view, one of the least appreciated aspects of market declines and recoveries is the symmetry.  Something, we have highlighted in past reports.  The faster the decline, the faster the recovery.  And in 2020, the market’s high-speed decline suggests a symmetric high-speed recovery.

COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 16




How does this apply today?  Well, there is evidence the economy has bottomed.  And stocks historically bottom before jobless claim peak and before GDP troughs.  This is an unusual business cycle, because as Fed’s Powell noted today, it was not caused by an excess of inflationary pressures, leading to a tightening cycle.  This is a pandemic led to collapse in demand.

But as highlighted below (per @carlquintanilla on twitter), Goldman Sach’s Chief Economist, Jan Hatzius, believes the “US economy now appears to be through the trough”

– if the economy is past the trough, then the S&P 500 2,192 level is the low (that is Fundstrat’s view).

COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 17


source: twitter.com


Even by 2010, ~12-months past the March 2009 equity bottom, there was more “doom” than boom…
Even by March 2010, one-year past the low, the economy was still quite fragile and many economists and investors remained skeptical, or perhaps more appropriately, seeing the world “half-empty”

For instance, see the comments below from Nouriel Roubini, who said stocks by 2010 would be set to tumble another 20% and cash was the safest place.  By the way, this is AFTER the May 6, 2010 flash crash.

COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 18


source: https://www.cnbc.com/id/37259541

Even Bill Gates made a curiously odd comment in February 2010.  He said he was “bummed” the economy is getting better.  

– Of course, what he meant, was he was hoping the GFC crisis would bring about reform and change. 
– Thus, an extended crisis would bring about the social changes and hopefully address the inequalities.

But we need to think about this today.  Policymakers and many philanthropists want to use this crisis to reshape the social policies and the world economy.  This is what one should expect.  And today, this is contributing to the resistance to easing restrictions.

COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 19


https://www.businessinsider.com/cnbc-bill-gates-bummed-about-global-economic-recovery-2010-2

And for good measure, don’t forget, many economists thought “capitalism was dead” in 2009.  One of many to make this comment is highlighted below.  So every crisis brings about the same doomsayers, and those who think the world is broken.  


COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 20


https://www.cnbc.com/id/34921639


We certainly do not have a crystal ball.  And the future is very uncertain.  We are just highlighting this was also the case in 2009.



STRATEGY:  3 days of ‘sobering’ expectations, leading to a battle between two Fibonacci’s 50% and 62%…
The list of those with ‘sobering’ expectations has expanded in the past few days and today we add Fed’s Powell (speaking at Peterson Institute for International Economics, https://www.federalreserve.gov/newsevents/speech/powell20200513a.htm) and David Tepper, famed founder of Appaloosa Management, a well-known hedge fund, who said this is “second most over-valued stock market” he has seen.  And the S&P 500 finished 2% lower today, bringing its 3D decline to 5%.

The battle for stocks seems to be taking place between 2 ‘Fibonacci’ levels — the 50% and 62% retrace levels, or 2,793 and 2,934.  The chart below highlights those levels.  And as we can see, we have tested the upper level 2X and the lower level 2X.  Pulling from my rudimentary technical knowledge (apologies to our head of TA, Rob Sluymer), there is no such thing as a “triple” top or bottom.  So stocks will soon tell us where the short-term resolution will be.



COVID-19 UPDATE: USA cases steady at 20,874 (vs 1D ago). OH to open up 90% of the state by EOW (biggest yet). The 'sobering' of market expectations continue w/Fed's Powell and David Tepper 21



Given the fact that:
–>  a >30% rally in 6 weeks
–>  a parade of sobering valuation and adverse risk/reward comments from a spectrum of well-known investors

We would agree it is perfectly logical for stocks to break to the downside.  And Rob Sluymer believes such a scenario is possible with S&P 500 correcting to perhaps 2,725 and to as low as 2,640, which is 3.3% to 6.3% downside.

Do we recommend making tactical changes because of a possible 3.3% to 6.3% downside move?  

The pullback, if there is one, is a combo of: sentiment reset + profit taking, and not really warrants tactical changes…
Not really.  If the economy trough is behind us (as Goldman Sachs noted) and is evidenced by the upturn in the alternative/big-data info from multiple sources (DeepMacro cellphone pings, Google anonymous data, Apple Mobility, OpenTable, TSA travel, etc), then this pullback is simply a profit-taking and sentiment reset.  And as we noted yesterday, everybody is uncertain. 

So there is not a ton of reset that needs to take place.

We still remain in the camp that the market has shifted into the hands of buyers (half-full) as the sellers sold everything they could see in Feb and March.

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