COVID-19 UPDATE: 5 regions in NY state open up in Phase I -- not NYC, but progress still. There is actually a lot more "certainty" than we realize. Europe re-openings (some 30D ago) have not led to second waves. Array ( [cookie] => 9da911-ba41bb-33753b-6c0533-0974da [current_usage] => 2 [max_usage] => 2 [current_usage_crypto] => 1 [max_usage_crypto] => 1 [lock] => 1 [message] => [error] => [active_member] => 1 [subscriber] => 0 [role] => fsi_macro [visitor_id] => 592985 [reason] => [method] => ) 1

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.


It looks like the day is finally here for NY state.  Gov. Cuomo confirmed that 5 (of 8 regions) of the state meet the 7 (of 7) criteria needed to move to Phase One, this Friday 5/15.  The opening includes manufacturing, agriculture, hunting/forestry, many parts of retail.  It is comprehensive (discussed below) but NYC/Long Island and Western NY are not among those opening.

The most obvious reality regarding COVID-19 is that nearly everyone would agree there is a lot of uncertainty.  There is no playbook for a pandemic.  And 10-yr histories, 20-year and even 50-yr datasets are not useful, because they encompass exactly ZERO similar episodes. And because of this, most investors say there is too much uncertainty.  If I had to highlight the two biggest uncertainties, it is:

- Path of the COVID-19 healthcare crisis --> When will it end? When is the vaccine/cure coming? Will there be a second wave in the Fall?
- Economic resilience --> Will consumers ever return to a restaurant, movie or concert? How much damage has been wrought? What is the new normal?

And these are biggies.  In fact, these 2 alone explain why we all end up saying "the future is uncertain."

On the flip side, there are actually 5 things (+1 bonus) are in fact, "certain" 

- We are certain this is not a normal business cycle --> it is a pandemic cycle leading to policy decisions;
- We are certain policymakers, both White House and Fed acted with lightning speed --> never have they been this fast and large;
- We are certain bond market is functioning well, both on new issuance (HG + HY) and liquidity --> reasons might vary
- We are certain that consumers are emerging from their bunkers --> the speed is unknown
- We are certain everyone is "uncertain" --> right?

Bonus: S&P 500 has retraced 50% of its losses and since 1929, in the 10 declines >30%, a 50% retrace has eliminated a retest of the low.

The 5 certainties are actually quite important.  Because these 2 uncertainties and 5 certainties can anchor a framework around understanding the crisis.   Foremost, it tells us that one cannot really have an investment view without have a sense for where we are in the healthcare crisis.  This is the reason that half of our commentary has focused on this.  But at the same time, as the economies re-open, we need to calibrate our "certainties" against these incoming data points.  

In the commentary below, we focus on the two "uncertainties"

-- Europe has "re-opened" for 1M (Austria) and the good news, no sign of 2nd wave.  The opposite in fact as cases still collapse.

-- Refining NYC mortality rates, to reflect 4 serology studies.  Bottom line? If someone has no underlying condition, COVID-19 mortality is nearly identical to seasonal flu (please read carefully, and not jump to conclusions).  This poses less risk to employees + customers as restrictions are relaxed.

Equities have wobbled this week, sinking 5% through Wednesday, before having a solid reversal today.  But the S&P 500 is still within those two levels we see as a battleground 50% retrace (2,794) and 62% retracement (2,934) and the current close is almost in the middle (2,864).  But the sentiment remains negative, which means stocks do not have to correct as deeply.  Even the AAII retail investor survey came in at -28, identical to last week and shows deep skepticism by the public on this rally.



POINT #1:  NY state set to open Phase One 5 regions on 5/15, pretty comprehensive opening.  USA cases rise to 26,375, 3 consecutive days of increases... 6 states account for 2/3 rise...
Total USA COVID-19 cases rose to 26,735 reported today, up +5,861 from 20,875 yesterday.  This is a material rise.  And mix explains most of the rise as 6 states account for 2/3 of the rise. 

- Total COVID-19 cases +5,851 (+28%) vs 1D ago
- Total tests rose to 377,601 from 312,130 (+21%) 

Source: COVID-19 Tracking Project


6 states account for 2/3 of the rise in cases today... and testing was up 28%...
The 6 states contributing to this gain:
- IL     3,239 vs 1,677 (1D)  +1,562
- MI    1,191 vs    370             +821
- MA   1,685 vs 1,165             +520
- MD   1,091 vs   751             +340 
- FL        808 vs  479              +329
- NJ    1,144 vs   817             +327
Total 6 states                       +3,899 (66% of rise)

Are these 6 states seeing a new breakout?  This is not entirely clear.  IL posted a >4,000 1D change earlier this week and this 3,239 is quite high.  IL is not really relaxing restrictions, relative to other states.  So this is potentially explained by the rise in IL testing.  

- IL conducted 22,678 tests today vs 17,668 1D ago but the case increase is still higher.
- MI is on this top culprit for the first time. The state attributes these two factors: (i) to "backlogged test results" being reported to MDSS (Michigan Disease Surveillance Systems) and also (ii) expanded tests at prisons.

So the MI rise certainly looks more like a lagged effect, rather than a change in trend.  But IL, we are not so sure.  We have to monitor the case count there.  In the meantime, we view this for now as a mix shift. But this does bear watching.  In Points #2, we talk about the case re-opening experiences of Europe, some countries have been open for >30D now.