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.

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%) 

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.


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.


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. 1


Source: COVID19 Tracking Project


NY has the worst COVID-19 cases per 1mm in the country and is opening. CA is among the lowest and still closed…
The fact that NY state is opening is setting up an interesting contrast to CA’s somewhat more cautious approach.  CA is easing restrictions in phases, but the state counties have taken their own interpretation of these guidelines.  Hence, the Alameda dispute with Tesla.  And LA county extending its stay-at-home orders.  


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. 2


More recently, though, NY state figures have shown steady improvement.  This after being the epicenter of the COVID-19 crisis in the US (the other epicenter is nursing homes).  Total cases in NY state are drifting lower (in choppy steps).

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. 3


source: COVID-19 tracking project

And even % tests positive has fallen to 10% and remained at those levels.  So even higher testing levels (see blue line) are not resulting in higher levels of cases.  This is the reason the state is confident in approving several regions to move to Phase One re-opening (see below).

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. 4


source: COVID-19 tracking project


5 regions in NY state meet the 7 of 7 criteria to open Phase I 5/15 –> Central New York (new today), Finger Lakes, Mohawk Valley, North Country, Southern Tier
Gov Cuomo in his press briefing today announced 5 regions of NY state meet the 7 criteria to open by this Friday.  The 7 criteria encompass case growth, hospital resources and capacity as well as contact tracing capabilities.  And this number of regions grew to 5 by today (from 3 earlier in the week).  The regions noted are:

–  Central New York (new today),
–   Finger Lakes,
–   Mohawk Valley,
–   North Country and 
–   Southern Tier

NYC, Long Island and even Western NY are not on this list (see map below).

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. 5


Source: NY Governors office

Phase One re-opening is fairly comprehensive
The Phase One opening for NY state is fairly comprehensive.  It encompasses:

–   Construction
–   Agriculture, Forestry, Fishing and Hunting
–   Retail (see below) 
–   Manufacturing
–   Wholesale Trade

So it looks like parts of NY state will be well ahead of CA in terms of breadth of economic re-openings.

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. 6


Source: Governors office

Retail trade has a broad definition and it looks like most businesses (see below) and even covers all types of retailers.

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. 7


Source: Governors office





POINT #2: 5 countries in Western Europe have been open for at least 3 weeks.  No signs of “second wave”

14 countries have opened, representing 66% of Europe’s GDP, $14.5T USD…
Based on the data gathered by our data science team, led by tireless Ken, 14 countries in Europe have eased stay-at-home restrictions and are in some state of re-opening.  The countries are summarized below and are sorted based on the date of the re-open (earliest at top).

– Austria is the first nation to open up, having opened on 4/14/2020, and now open for 30 days and running
– 5 nations have been open for at least 3 weeks: Austria, Denmark, Germany, Norway and the Czech Republic.

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. 8


Any second wave in Europe? Looking at 3 nations: Austria (30D), Germany (24D) and Italy (10D)…
Of the 14 nations, we looked at 3 nations we view as significant — rest assured, this is not ‘cherry-picking’ as each country in Europe looks exactly like these nations. We have time-series charts, showing daily reported cases, scaled as “daily cases/ 1 million residents” and for comparative purposes, added the current equivalent statistic for New York, California and USA overall, each represented by a horizontal line.

–  Austria.  Since opening 30 days ago, daily COVID-19 cases down 82%
–  Germany.  Since opening 24 days ago, daily COVID-19 cases down 62%
–  Italy.  Since opening 10 days ago, daily COVID-19 cases down 47%


Austria — Open 30 days, cases down 97% from the peak (48 days ago).  Current daily cases are 4 per 1 million residents…
Austria was the first European nation to re-open (and thus, the longest) has been open for the past 30 days.  The re-opening has been smooth enough that the nation is set to open borders to European travel by next month.

– Daily cases has plunged from the data of open, at 22 cases per 1mm residents to 4 cases per 1mm.  
– Daily cases peaked at 147 per 1mm on 3/26/2020, or 3 weeks before the country re-opened.
– Since opening, daily cases have fallen another 82% (see below)
– Even Apple re-opened its retail stores in Vienna on 5/5, or two weeks ago.

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. 9



Source: Johns Hopkins, COVID-19 Tracking Project and Fundstrat



Germany — Open 24 days, cases down 87% from peak (47 days ago).  Current daily cases are 11 per 1 million residents…
Germany is Europe’s largest economy representing 18% of the Europe GDP.  Construction did not fully cease in Germany, enabling the economy to still function (9% of Germany’s GDP).  The country did not have the most restrictive lockdown, either, allowing many non-essential activities to remain open. 

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. 10



And yet, Germany outperformed other European nations in terms of deaths with 94 per 1 million compared to 515 for Italy (see above). Chancellor Angela Merkel has focused on striking a balance between public health and reviving the economy.  In this way, Germany is a model for many Western nations.

– On 4/20, small shops, hardware stores and auto retailers were open. 
– On 5/4, salons opened
– On 5/6, restaurants, hotels, retailers, tattoo parlors and night clubs

So it has been a fairly comprehensive and liberal economic opening.  And in the 24 days since opening, Germany’s case data has continued to improve.  And this, in spite of a broad easing of restrictions.

– Daily cases peaked at 83 per 1mm on 3/27/2020, or 3 weeks before the country re-opened.
– Since opening, daily cases have fallen another 62% (see below)


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. 11


Source: Johns Hopkins, COVID-19 Tracking Project and Fundstrat


Italy — Open 10 days, cases down 86% from the peak (53 days ago).  Current daily cases are 15 per 1 million residents…
Early in this global pandemic, Italy was the hardest hit nation, and despite a high-quality healthcare system, saw their healthcare system become overwhelmed and leading to a mortality rate of 14%, one of the highest in the World.  Since cases peaked on 3/21, Italy finally eased restrictions on 5/4/2020.

– Since opening, daily cases have fallen another 47% (see below)
– Daily cases are now off 86% from their peak
– The trend in daily cases is still falling

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. 12


Source: Johns Hopkins, COVID-19 Tracking Project and Fundstrat 

The takeaway is that European nations are not seeing a second wave since opening.  This should give some comfort about what the US experience might be in the coming weeks.



POINT #2: Revisiting NYC COVID-19 Mortality.  ~3X deadlier than flu (2017-2018) and ~9X deadlier for 50-64 years old (but 83% of these had “higher risk underlying condition”…

NYC fatality rate = 8.2%, >25% for those >age 65.  Adjusted for implied prevalence per serology, overall 0.73% and 2.23% >age 65
NY Gov Cuomo has conducted 4 serology studies statewide, totaling >40,000 antibody tests, so it is exhaustive and two were focused on the general population (see below) with the other two focused on healthcare workers and ‘essential workers’ (NYPD, transit, etc).  But the antibody studies showed NYC prevalence of COVID-19 is somewhere between 9X to 13X higher (see below).  And since then, NY Gov Cuomo has referred to COVID-19 prevalence as >20% of NYC residents (vs official case prevalence of ~2%).

– this naturally alters the case fatality rate, since with a higher number of cases (denominator), the CFR would be lower.

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. 13


Source: NYC governors office.

Adjusting the denominator, we recalculated the CFR for COVID-19 below.  And given NYC provides CFR by age groups, we have those listed below.  The CFR overall drops to 0.73% (still high) but way better than 8.2%.  The adjusted figures basically show that many cases are mild and do not require hospitalizations.  But that this does not reduce the human toll of this disease.  As of mid-week, over 15,000 NYC residents succumbed to COVID-19.

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. 14



Comparing serology-adjusted CFR to 2017-2018 flu season… ~3X for most age groups but 9X for age 50-64
But this serology adjusted CFR is useful to compare to 2017-2018 flu season.  This is shown below.  The age groups show that COVID-19 is indeed deadlier than the seasonal flu, but by a much lower margin:

                        COVID        FLU
– age    0-17     0.02%  vs   0.01%   3.3X (rounding)
– age  18-49     0.08%  vs   0.02%   4.0X
– age  50-64     0.45%  vs   0.05%   8.7X  <— WHOA!!!!
– age  65-plus  2.23%  vs   0.86%   2.6X
Overall            0.73%   vs   0.14%   5.3X <— due to age 50-64

There is a few issues with this comparison. 

First, the COVID-19 serology tests could be inaccurate and thus, overstate and even understate the totals.  But given the 4 sets of NY state tests, and very similar results, at least the results are consistent.  In fact, this is the reason we are looking at the NYC data.  Additionally, if there are type i (false positives) and type ii (failed to detect) errors, given NYC has the highest official prevalence of any city, means the testing data generally is more accurate even with both types of errors.

Second, the flu mortality data is from the CDC and is the US overall.  The mortality rate of flu may vary by region, thus, NYC could have a different seasonal flu death rate.  

There are other limitations, but those two come to mind.

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. 15



83% of NYC COVID 50-64 years old had a known underlying “risk factors”… this mitigates the higher death rates, somewhat…
NYC also discloses whether the deceased had any underlying conditions (see table below).  Of 15,101 deaths, 11,290 had one of the known underlying risk factors for COVID-19, or 75%.   The disclosed risk factors are:

– Diabetes
– Lung disease
– Cancer
– Immunodeficiency
– Heart Disease
– Hypertension
– Asthma
– Kidney disease
– GI/Liver disease
– Obesity

This is a long list of factors. And it is a large enough laundry list, that it does make it seem like many adults will fall into this category.  But this also shows that age 45-64 death rates are impacted by this.  

– 83% of COVID-19 deaths in NYC for 45-64 (different age band from above) had a known condition.
– 15% had “unknown” (so not clear, if they had some condition)
– 2% had “no underlying” condition

In other words, the risk of mortality for a 50-64 years old, with no underlying condition is 0.07% [0.45% adjusted CFR x 17% (no condition)].  This is nearly identical to the risk of death from the seasonal flu — 0.05%.


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. 16



Why does this matter? As restrictions ease, employees + customers as restrictions overall lower risk + special vigilance for “underlying conditions”
The key takeaway is again about how this impacts employees and customers as stay-at-home restrictions ease.  The risk to an adult without the underlying condition, even older adults, is actually quite low. 

–  On a total basis, for a 50-64 years old, the overall risk of death is 0.45%.  This is high and 9X higher than flu.
–  But if this adult has none of the above conditions, the risk of death is 0.07%, which is nearly identical to flu.
–  And if someone has mitigation factors like PPE, hand sanitizer, masks, etc., the overall risk is less scary.

This is our takeaway.


Finally, remember the dual epicenter –> NY tri-state area + nursing homes = 74% of all COVID-19 deaths
To summarize, recall that COVID-19 deaths have 2 epi-centers, and outside these epicenters, the experience with COVID-19 is much lower:

– NYC tri-state (NY + CT + NJ) share of deaths                       45% 
– Nursing homes (including tri-state area) share of deaths       42% 
– combined NYC tri-state + nursing homes                               74% (there is overlap)

– ex-NYC tri-state and ex-nursing homes share of deaths        26%

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. 17



This is a shocking statistic.  74% of the COVID-19 mortality is tied to 2 epicenters.  And again, this is not to minimize the tragedy.  But this means of the ~87,000 COVID-19 deaths in the USA.

– it is ~23,000 outside the 2 epi-centers.  

This is a far less deadly disease when considering loss of life from obesity, cancer, smoking, drug overdoses, car accidents, etc.  Now credit to this is, in part, due to the mitigation from stay-at-home.  And this also means the US has a lower “emotional damage” base to deal with, compared to looking at the headline data on deaths and mortality rate (both lower).



STRATEGY:  Stocks have upside because there is more certainty than consensus realizes, not because we think stocks are “cheap” on 2020 EPS.
This has been a volatile week for equites.  But as we have noted in our prior commentaries, it is also perfectly rational for investors to expect profit taking and a sentiment reset.  We just do not think a pullback warrants major tactical changes.  Partly because we do not find the sentiment to be that constructive.  

In every Zoom/call we do (way more Zoom), investors can cite a litany of problems with stocks.   And especially if they are looking at single names:

– there is zero visibility
– the good ones are expensive on 2021 EPS
– hard to know if things have bottomed
etc etc

But the best times to put fresh money into equities, is when economic data is absolutely at the nadir (which a lot of data seems to suggest this).  In fact, one chart we want to post again is the US ISM manufacturing index. The April reading was 41.  And this figure is likely to fall to sub 40 next month. 

If it rises, then the equity case for stocks is arguably stronger, because it shows the magnitude of the contraction is milder than implied by the labor reports (which is our view).

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. 18



Bad news = good news when it comes to the ISM.   Since 1950, S&P 500 has unusually strong 12M gains when USM ISM manufacturing <43…
In the last 70 years (since 1950), the best time to actually invest in the S&P 500 is when the PMIs are below 43.  We broke the ISM levels into 10 deciles and then mapped the forward return of the S&P 500.  As shown below, the best single decile for S&P 500 forward returns is when the PMIs are below 43.  This is an instance of bad news = good for stocks.  

– when PMI <43, 12M S&P 500 return is 19% and positivity 87% of the time
– when PMI >61, 12M S&P 500 return is 1% and positivity 59% of the time

So the opposite is true as well.  When PMIs are strong, S&P 500 returns are poor.

The bottom line?  We think the fact there is more certainty than most appreciate is positive.



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. 19


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