It was quite a reversal in equity markets today. On Sunday evening, futures fell 100 points to 2,950, building upon 5 days of weakness and it looked like Monday’s session was going to be bloody. At the open, S&P 500 fell to 2,966, or >8% off recent highs and then rallied +100 points to close up ~1% to 3,067. Here is why this reversal is so telling. More specifically, the shallowness of this sell-off is telling.
Equity markets have rallied relentlessly, up ~45% from 3/23/2020 lows and are currently overbought (which is never a tactical sell signal), and given the widely held view that stocks are disconnected from fundamentals, and many investors see this as a “retail investor suckers rally.” Shouldn’t this sell-off be gaining momentum? But instead, equities only retraced 250 points (Sunday evening futures) or 25% of the 1,000 point rally before reversing.
In our view, this reflects how much dry powder is on the sidelines, and how more investors, in our view, are uncomfortably sidelined, rather than uncomfortably long. After all, after a prodigious rally like this, and the bloody Sunday evening futures trading, Monday should have seen a massacre.
One thing we noticed in the past week, is growing recognition that the measuring stick for US COVID-19 progress is becoming less about “confirmed cases” (up as testing up) and more about healthcare burden (hospitalization and deaths, both down). And add to this, there has not been an exponential rise in cases stemming from nationwide BLM movement protests — sure, confirmed cases are modestly higher (one really needs to squint) but nothing like the superspread events we saw in Italy following the Champions-League event — 1 case to 2,131 in two weeks.
I am not sure “masks” explain this — if every one of the 40,000 fans wore masks at the Champions-League match, do we really think Italy would have not had a pandemic breakout? The only reason I ask this, is we have not seen a subsequent multi-hundred breakout in any city, town, community in the past 2.5 weeks in the US. COVID-19 is a very difficult disease to understand and the future is uncertain, but the path of this disease in the US is not fitting the path seen early in 2020.
As for sector leadership, as the last 2 days were ultimately “risk-on” (positive closes), we can see the rebound is led by epicenter stocks. This is a change. Investors are not necessarily turning to secular growth/FANG for positive exposure to rising stocks. It is now the epicenter groups.
Source: Fundstrat
There are more signs of “Vs” in the US, with the latest BofA credit card data showing their customer credit card spend is flat YoY. At the worst point, it was down -40% YoY (late March) (see below). Think about that. At S&P 500 2,200, there was a devastating collapse in consumer credit card spend. But this has been entirely recovered since then. This again shows the strength in stocks is suggesting a vigorous economic rebound is underway. And more and more incoming data supports this.
The latest Gordon Haskett consumer survey, led by Broadline and Hardlines sector head, Chuck Grom, shows that for the first time, consumers are showing an abruptly increased willingness to travel on a cruise and on a plane, even without a vaccine. This is the first increase (week #14) in the survey of such willingness. A fuller discussion is in this commentary below.
POINT #1: Daily COVID-19 cases fall to 18,493 (-2,723)…still no “second wave” 2.5 weeks since nationwide protests.
There is no second wave. There are 5 states reporting a rise in cases that is consistent with a sustained rise in case load: 3 states with imported cases (CA, TX and AZ, from overflow from Mexico) and 2 states with organic rises (AR and UT). But outside of these 5 states, we are not seeing a sustained rise, although Florida is kind of on the cusp. Thus, despite:
– the opening of economies PLUS
– >2 weeks of nationwide protests
We have not seen a second wave.
The US reported 18,493 cases in the past 1D, down from 21,216 1D ago (-13%). Daily tests were down 12%, so this largely explains the drop.
Source: COVID-19 Tracking Project
On a week vs week ago basis (to adjust for daily lags), daily cases are up +1,617 from 7D ago but keep in mind, daily tests are up 6% since then, so the rise versus the same day a week ago is largely due to >testing.
– so testing is up, and this is resulting in more detected cases.
– hospitalizations, as we noted yesterday (see attached chartbook) are down in the same period
Source: COVID-19 Tracking Project
Even at the state level, there are more states reporting declines than increases…
3 states with large increases
Louisiana 553 vs 336 +217
Indiana 521 vs 366 +155
Ohio 428 vs 300 +128
Total 3 states +500
6 states with sizable declines
California 2,597 vs 3,212 (1D) -615
Texas 1,254 vs 1,843 -589
North Carolina 983 vs 1,443 -460
Alabama 657 vs 1,014 -357
Florida 1,758 vs 2,016 -258
South Carolina 583 vs 840 -257
Total 6 states -2,536
Source: COVID-19 Tracking Project
POINT #2: Latest GHR COVID-19 Consumer Survey (week #14) shows positive inflection consumer “risk perception” towards cruises and flights
The latest Gordon Haskett (GHR) COVID-19 Consumer Survey is released, week #14 (conducted June 10th-11th). We have been following the results of this survey closely given it is conducted bi-weekly and asks consumers a comprehensive set of questions around their behaviors and preferences. This is put together by the Broadlines and Hardlines team led by Chuck Grom.
As Grom notes there, this survey (the 9th) is the most bullish, by far, regarding consumer behaviors. While a number of positive conclusions were reached, the biggest change is in regard to what consumers see as “risky”:
– Regarding willingness of consumers to do things, Grom notes an “across the board pick-up – with venues that are most at fear (i.e. planes, sports stadiums, cruise ships) seeing the most improvement”
Source: GHRA
The percentage of consumers that are “limiting” public leisure visits fell almost 1,000bp to 69.9% — granted, this means only 30% of their respondents are moving about freely. But still, this is up from only 20% in the prior survey.
But the most notable shift, as Grom noted, is in this question:
“Willingness to visit venues a month from now, without a vaccine”
– Cruises jumped from 16.5% to 25.2% or an 8.7% increase in a single week.
– Planes jumped from 25.8% to 33.4%, up 7.7%
As Grom notes, these figures were flat for much of the past 14 weeks, but it seems like Consumer willingness to do these perceived “risky” behaviors is rising. And this is why we think the surprise regarding consumer behavior remains to the upside. And particularly, to the extent consumers are willing to travel and take cruises, this is certainly pointing to a more vigorous recovery in consumer spending
Perhaps it is not so crazy to look at this trendline and realize travel is recovering faster than expected…
We realize some of you may have laughed when our data science team, led by tireless Ken, added the trendline to the TSA throughput data and showed travel is showing a V-shaped (log, not linear) recovery in travel. And that travel could recover much faster than expected.
– the latest data seems to support this. Over the weekend, >544k travelers passed through TSA compared to 440k the week before.
Source: TSA
BofA credit card spend is V-shaped already and furniture spend is blasting off = de-urbanization
Both Chase and Bank of America are providing insights of consumer spending, particularly compared to their pre-COVID-19 levels. And yesterday, we highlighted how the Chase data certainly points to a “V” in consumer spending. The latest BofA credit card data shows this V is already here.
– BofA retail ex-Auto is already flat YoY and even with autos, is only down 10%
– It was down -40% YoY in late March
Think about that. In late March, at S&P 500 2,200, credit card data was showing consumer spending was in utter collapse at -40% YoY. But it has vigorously rebounded and is now only down 10% YoY.
The rebound in Consumer spending looks pretty broad-based and strong even in states that have been closed the longest (least opened) (Group 3 below).
– Notice how “furniture” spend is up big YoY?
– This kind of affirms what could be a de-urbanization trend
Source: BofA
POINT #3: US testing is the highest of any major nation in the World…
President Trump tweeted this today and it employs unique logic. It is testing (and kind of implies, testing alone) that is resulting in the large number of US cases.
But the first sentence that is quite true — US “testing is so much bigger…than any other country”
Source: Twitter
USA at 1,436 tests per 1mm residents, there is no major country that is doing this much testing per 1mm residents…When comparing US testing versus the RoW, there is no country even close. The US is doing >40% more tests than the UK and even 2.5X the number vs Sweden and much higher than Italy.
– so it is true that the US will have more detected cases, because of the higher level of testing.
– But US cases are still rising and even adjusted for testing, at least 5 states (mentioned above) are seeing case growth.
Source: Our World in Data – University of Oxford
At the state level, NY leads with the highest number of tests per 1mm residents. We show both tests per 1mm residents and positivity rates below.
– If we use 10% as the “bad” positivity threshold, 4 states have positivity rates that are in this range.
Source: Johns Hopkins and COVID-19 Tracking Project
