The incoming news around COVID-19 and economy has been “half-full” for the past few weeks and even today, the overall cadence of the data was positive. The most eye-catching is a CNBC story about the WHO which now says asymptomatic infected do not transmit the disease. It is not clear if they are referring to only “asymptomatic” infections (est. 20% of total) or if this includes pre-symptomatic COVID-19 infected (who are previously believed to be shedding virus). But this is a welcome development, for many reasons. If only “symptomatic” are infectious:
– contact tracing is more effective
– quarantine measures are more limited
– self-diagnosis is easier
Source: twitter.com
Overall, it reduces the risks to an economy and population. I have not been able to find the full report, so I do not have more information. But for the US, the understanding of COVID-19 has improved greatly in the past few months:
– the epicenter of COVID-19 is primarily in NY tri-state, nursing homes and Hispanics (vitamin D deficiency?)
– re-opened states not seen a second wave, despite media reports otherwise (see below) as only Arkansas is reporting higher hospitalizations
– no signs, yet, that >350 protests across the US is leading to a new wave of infections and hospitalizations (June 11 is the key date)
So, if one wants to really measure “second wave,” we have to squint at Arkansas hospitalization data.
Also, “squint” and one can see money market cash is -$34b from $4.8T on 5/20/2020
Money market cash balances have fallen $34 billion in the past two weeks to $4.75T from $4.89T two weeks ago. This is a modest change and still about $1T higher than it was at the start of the year. Thus, despite the strong rise in stocks, fueled by futures and options moves, the cash on the sidelines is still tremendous.
Source: Bloomberg
But one thing that need reminding is that there is nothing normal about 2020. The crash in the economy and markets in Feb-March is something never seen in modern civilization, never in the last 300 years. Thus, the market behavior post-crash is probably going to be non-normal. Something we will never see again in 5 lifetimes. So far, the equity market is telling us the economic recovery will be far more vigorous than consensus expects.
We got a few questions about the 25-yr price charts for “epicenter” groups (Energy, Industrials and Financials) from our email commentary, with a few asking how the sector relative performance looks using longer-term charts. Our data science team, led by tireless Ken, produced these charts going back to the 1930s. The takeaway is the same:
– Energy price underperformance has never been seen — this is 90-years bad (or massive opportunity, yes??)
– Industrials and Financials are “nearly 90 years bad” but basically, the worst in our lifetimes
The takeaway is if these charts are turning upwards, this is a massive value rotation signal.
Energy is “90 years bad”…
Source: FAMA, DataStream, Bloomberg and Fundstrat
Financials is almost “90 years bad”… and worst since GFC
Source: FAMA, DataStream, Bloomberg and Fundstrat
Industrials is almost “90 years bad”…
Source: FAMA, DataStream, Bloomberg and Fundstrat
But a “value turn” requires a sustained upturn in interest and inflation, honestly, it is too early to call
Our clients are aware that we believe a sustained upturn in Value (vs Growth) ultimately hinges upon whether interest rates and/or inflation are making a sustained rise. The best way to see this is our chart below.
– Value consistently outperformed Growth during 1938-1981 period, but interest rates were generally rising
– From 1981 to today, interest rates have been generally falling and Growth led.
Stick with “epicenter” stocks given rising visibility of “V-shaped” economic recovery — 17 stocks
So, the long-term Value call requires a view on interest rates and/or inflation. There is just too much uncertainty to declare this. But the near-term, we have high-conviction on the “epicenter” stocks, given the obliteration they saw in Feb/March and their positive sensitivity to better growth. We came up with 17 names that are in the earliest stages of what we believe is a strong upward stock move, one that will outperform the S&P 500 and outperform their respective sectors and peer stocks.
The “early in the barbell recovery” tickers are:
– TJX, GM, BKNG, CCL, WYNN, CVX, XOM, FITB, CFG, MS, RE, CMI, NOC, GD, SNA, FLS, PCAR
Source: Fundstrat
POINT #1: USA COVID-19 cases plunge to 16,928, -2,288 from 1D ago but it’s early in the weekThe timeline for COVID-19 has been fractured by the nationwide protests, and we will know by 6/11 whether a massive second wave is upon us. But so far, the daily COVID-19 case data and hospitalizations have been encouraging:
– Daily US COVID-19 cases is down to 16,928 today, down -2,288 from 1D ago
– not quite a new low, but still close to the all-time low of 16,853
Source: COVID-19 Tracking Project
And the 7D change (weekly seasonal adjustment) shows that cases are down -3,031 from 7D ago. So, adjusting for weekend effect, lags, etc., the 7D change is encouraging.
Source: COVID-19 Tracking Project
There is also not much evidence of a second wave showing up in daily cases. And there is zero evidence, really, that a second wave is showing up in hospitalizations (see next section). The future remains uncertain. And COVID-19 is a completely new and not well understood disease. But the evidence of a second wave is not here. It could change. But so far, there is none.
4 states saw an increase >100
Illinois 1,382 vs 867 (1D) +515
Tennessee 563 vs 310 +253
South Carolina 514 vs 370 +144
Iowa 320 vs 189 +131
Total 4 states +1,043
6 states had sizable declines:
Texas 638 vs 1,425 (1D) -787 <-crashing
Virginia 570 vs 1,284 -714 <-crashing
Arizona 789 vs 1,438 -649 <-crashing
California 2,507 vs 2,796 -289
Florida 966 vs 1,180 -214
Indiana 226 vs 400 -174
Total 6 states -2,827
Source: COVID-19 Tracking Project
Daily tests fell from a high of 548,167 to 412,206, so the -11% drop in cases is mostly from -25% drop in tests…
Daily tests fell to 412,206 from 548,167, so we can kind of say that the 11% drop in daily cases is due to the 25% drop in daily tests. But the daily changes are mostly the ping-pong we are used to seeing.
Source: COVID-19 Tracking Project
Positivity rates have been pinned around 4% as well. So for every 25 tests, only 1 case is COVID-19 positive.
Source: COVID-19 Tracking Project
POINT #2: No signs of second wave when looking at “gross” daily new hospitalizations across the US
Hospitalizations as a measure of “second wave” from protests and re-opening…
To better gauge the risks around re-opening, we have divided the US into 3 buckets. For those regular users of our commentary, you have seen this breakdown in numerous prior comments. The 3 categories:
– states open prior to 5/1 (13) (in charts, green)
– states open between 5/1 to 5/11 (26) (yellow)
– states open after 5/11 (12) (red)
The total exceeds 50, because we also look at the D.C. and territories.
Source: State Govt websites and Fundstrat
Of the 50 states where we have consistent data, only Arkansas has a rise in hospitalizations…We are providing the daily hospitalizations (“gross admissions” for most and where not provided, “net admissions”) for the 50 states, grouped by the date opening. Since all 50 are provided, you are welcome to take a visual look to see the trends. Of all the 50 states, we can only see 1 state with a potential rise in hospitalizations:
– Arkansas.
– The state never really ordered shelter-at-home and the daily admissions have risen from 20s a month ago to 70s now
But outside of Arkansas, we see no other states showing a resurgence. And as the composite chart below shows, hospitalizations in the US are all generally trending down. In all the 3 categories of states.
Source: COVID-19 Tracking Project
States open prior to 5/1/2020… open >5 weeks and counting
This group of 13 states is the most interesting, because these states have been open for >5 weeks and if COVID-19 was spreading through cities and communities, we should see a parabolic surge in cases and hospitalizations.
– But as shown below, these 13 states have seen steady/flat to declining hospitalizations.
Source: COVID-19 Tracking Project
26 states opened between 5/1 and 5/11. So far, so good.
Take a look at the 26 states below, which have been opened for about a month. Not all of these states report “gross” admissions, and instead, show “net admissions” (net of discharges) and we shaded those states grey. While not all of these states report consistently, we do not see any surges.
– Media reports have talked about a rise in reported cases.
– Indeed cases are up, along with testing, but it seems many of the newly identified cases have not required hospitalizations.
– Thus, the level of hospital admissions is not rising.
Source: COVID-19 Tracking Project
Source: COVID-19 Tracking Project
Source: COVID-19 Tracking Project
Lots of good progress on the states that opened after 5/11….
It looks like states that opened most recently (waited for the longest) have seen absolute crushing declines in hospitalizations. Look at NY state. There is a spike in Virginia, but similar to Michigan and some other states, these often stem from a “one-time adjustment” to reflect changes in methodology or reclassification of past cases.
Source: COVID-19 Tracking Project
POINT #3: Deep Macro Big Data analysis suggests job recovery could be “V-shaped”…
I like the work done by Jeff Young, founder of Deep Macro. It is economic research using and utilizing big data and alternative data to come up with insights. And given the fact this recession is far from “normal,” mapping the path of the recovery is not as simple as looking at past recessions. The best example of this is those who suggested that since recessions last 18 months, this one will be at least 18 months.
The NBER just declared the current contraction a “recession” with a start date of Feb 2020. But it looks like the US economy has already bottomed and is now in expansion. (So the NBER declaration is a backward indicator, again).
Source: twitter.com
Deep Macro sees evidence of a “V-shaped” job recovery because of a somewhat higher co-variance of job postings…
The team at Deep Macro writes detailed commentary in their work, and I am including a few abstracts here to highlight some of their points. The first they note is that there was a widespread rise in the job posting across sectors (120 sectors, per their definition) and breadth is a good measure of improving outlook. Moreover, they note there was a higher than expected correlation between industries between higher postings (the greater this figure is, the more “V-shaped”)
Source: Deep Macro
New job postings are up 5.5% in since May employment survey week, a sign of continued and expanded hiring…
They highlight that online job postings, based on their data sources (see footnote) show that job postings were expanded since the May employment survey. The number of job postings is overall up 5.5%.
– Looking only at those sectors with higher postings, the gains are about 15%-plus
– These gains are taking place at a time when much of the economy was only beginning to open
Hence, they expect this data to strengthen further in the coming weeks.
Source: Deep Macro
The 10 occupations with >increase and highest covariance (correlations)… and the converse
Deep Macro also highlights where job postings are rising and declining. The easiest way to highlight this is to show the abstracts below.
– Jobs growing are those at the “epicenter” and particularly “social distance victim” companies like restaurants, etc.
– Jobs seeing continued declines are in “managers” and “healthcare”
Overall, this is a constructive conclusion regarding the jobs recovery. But the key takeaway is to make sure there is a widespread and growing correlation of job postings. If this is the case, then this would point to a stronger economic recovery. And as we mentioned, this is consistent with the message from equity markets.
Source: Deep Macro
STRATEGY: 14 of 18 sellside strategists see median 14% downside to equity markets before year and only 4 see any upside into YE
The latest Bloomberg Strategist survey of Strategists is below. This poll is conducted monthly and asks sell-side strategists for EPS and price objectives for the S&P 500.
These surveys are useful to see the relative sentiment of the sellside, whether the sellside is bullish or bearish. The level of the S&P 500 target is not meaningful, since this is a difficult task (I can attest). But many sellsiders tend to “echo” their client sentiment (unfortunately, some also “echo” price action). Hence, they tend to get bearish if their clients are bearish.
– Of the 18 Strategists who have “price targets” 14 (of the 18) see downside into YE –> aka, not buyers of equities
– The median decline is -14%, S&P 500 <2,800, or >400 points of downside from here
– 3 additional strategist outright “suspended” price targets –> hence, “gave up” on this market
Overall, this reinforces what we perceive to be widespread uncertainty. As we have written multiple times in the past 3 months, this is understandable because this is not a normal market. But the message from the equity market itself has been pointing to a vigorous economic recovery.
– and the fact that Deep Macro job analysis suggests a “V-recovery” in labor is supportive of risk assets.
Source: Bloomberg
