There are ever growing signs of “V” across a constellation of US economic data, with today’s retail sales +17.7% growth (vs +8.4% consensus), the latest example. The plurality of investors expects the US economy to stage a sluggish/lumbering recovery, and these “V-shaped” rebounds represent upside surprises. And more importantly, the stock market’s +45% gain since 3/23 implied the equity markets were suggesting a vigorous recovery was underway, and now the incoming data supports this framework.
Are investors appropriately positioned for a V-shaped recovery? Empirically, nope. We discuss in this commentary, how many investors have outright gone to cash positions and those institutional investors who are “EPS-centric” remain skeptical of equity gains, since prices have moved so much faster than fundamentals have improved. Hence, most clients are either positioned for slow GDP (OW Growth) or “US is Japan” and defensively positioned (OW Growth + Defensives). If a V-shaped recovery takes root, the appropriate strategy is to OW Epicenter stocks (Discretionary, Financials, Energy and Industrials), all of which have horrifically bad trends in EPS revisions.
If there is a simple guideline for markets, we think it is simply watching this growing mountain of money market cash on the sidelines, still $4.7 trillion. Wow. Investors remain unconvinced of this rally and as we commented in several recent pieces, the pullback seen in the past week could solidify one’s skepticism of this “sucker’s rally” — but I don’t recall in my +27 years of equity research ever seeing a market top characterized by record cash on the sidelines. It is almost a contradictory statement.
Source: ICI and Fundstrat
Daily cases surged today +4,684 led by Texas (see below). But we think there may be double-counting in Texas today as the state decided to reclassify “prison cases” to the county of the prison (not clear where these cases previously tallied). 13 counties in Texas reported 1D jumps (from virtually ZERO in past 7D).
We will know if Texas is seeing an accounting fluke based on reported cases later this week. If they remain ~4,000 per day (like today) vs previous run-rate of 1,200/day, then the state has a serious surge on its hand. But notably, daily net hospitalizations (admissions less discharges) is flat and not surging.
Certainly cases are rising in Texas, but less organically and as wrote in many commentaries, TX, CA and AZ are seeing imported case growth (vs organic). But Texas could certainly benefit from requiring masks, which are not mandatory in public (but encouraged). Even 9 mayors are asking for this.
POINT #1: USA cases rise to 23,177 (+4,684) driven by rises in TX with 13 counties previously reporting ZERO cases now 1D surge, with 5 showing 100-900 cases — looks like TX “prison” cases counted today
Total US COVID-19 cases rose +4,864 today with Texas accounting for +2,844 more cases vs 1D ago. Texas saw 13 counties which had averaged roughly ZERO cases in the past week each report a 1D surge with 5 counties posting 100-900 new cases in a single day. And in each instance, it looks like it is “prison cases” accounting for much of the surge.
– Based on our review of local media reports, it looks like many counties, including Anderson County, TX (+887 today vs ~ZERO past week) included prison cases with Beto and Michael prison accounting for 733 of the 887 (per Palestine Herald).
– So, this does not look like a massive second wave, but rather, better accounting to include prison cases.
Are we making excuses for Texas? We have no reason to. Our base case, as many of our clients know, was to expect a massive second wave stemming from the >350 nationwide protests numbering tens of thousands of protestors over the last 2 weeks. This should have led to a massive nationwide surge, but this has not yet happened.
Source: COVID-19 Tracking Project
Of the states reporting a rise, we know that 3 states have known surges, primarily stemming from imported cases (overflow) and those states are Texas, Arizona and CA. But the Texas surge today is what bears commentary.
6 states saw large increases
Texas 4,098 vs 1,254 (1D) +2,844
Arizona 2,392 vs 1,014 +1,378
Florida 2,783 vs 1,758 +1,025
Nevada 379 vs 106 +273
Illinois 623 vs 473 +150
Massachusetts 195 vs 87 +108
Total 6 states +5,778
As this chart below shows, Hispanic related cases account for:
– CA +76% of incremental cases
– AZ +60%
– TX +48%
This is well above the national average of +40% and that compares to Hispanics representing 17% of the US population.
Source: COVID-19 Tracking Project
5 states saw large decreases
California 2,108 vs 2,597 (1D) -489
North Carolina 751 vs 983 -232
Indiana 356 vs 521 -165
Missouri 225 vs 379 -154
Arkansas 274 vs 416 -142
Total 5 states -1,182
Source: COVID-19 Tracking Project
Total tests rose modestly today to ~460k but the rise in cases today is not about the rise in tests.
Source: COVID-19 Tracking Project
POINT #2: Texas posting a “Texas-sized” 1D increase of +2,844 increase in daily cases, but 13 counties with ZERO cases all report 1D surge… Double counting?
Texas reported a 1D surge of +2,844 increase in daily cases today to a record 4,098 new cases. This is a whopping >3X rise in reported cases. As we discuss below, 5 counties are reporting 100-900 new cases where the previous week, these counties averaged ~ZERO cases.
So is a massive 1D second wave here?
– According to several media reports, the state changed its classification of COVID-19 prison cases to the county where the prison is located
– Is there double counting?
Source: Palestine Herald-Press
Granted, Texas has an imported case problem, leading to a sustained rise in cases. But as we discuss in the next section, 13 counties which previously had ~zero cases, suddenly reported big 1D jumps.
13 counties report a big 1D surge, and had few cases prior to today…
The surge in Texas is driven by 4-5 counties (sorted below):
– Anderson a HUGE 1D gain of +887 SURGE
– Brazoria +631 SURGE
– Harris (Houston) +504 (flat)
– Dallas +305 (flat)
– Hays +265 SURGE
The point we are making is 3 of the top 5 Texas counties reporting large daily cases had very few cases previously.
Source: Texas Department of State Health Services
This is the breakout of the top 15 counties with the largest 1D increase in cases in Texas. As you can see, the rises are led by counties that are not near a big city and not previously on the radar for case surges.
Source: Fundstrat, Texas Department of State Health Services
But as the Palestine Herald reports below, 13 counties with prisons saw a 1D surge and these were largely due to prison reclassifications. Thus, we will know by the end of the week if:
– Texas is really seeing >4,000 cases per day
– or Wed’s 4,000 case figure is a double-counting issue
Net Hospitalizations flat despite a massive 3X surge in daily cases
Moreover, Texas is not seeing a surge in hospitalizations and as we have written extensively, daily cases and daily net hospitalizations (or gross) move in tandem. We think the fact that net hospitalizations is not surging but daily cases surge show there is one of several explanations:
– new cases do not require hospitalizations at same rate = good
– new cases are due to better detection = good
– hospitals are discharging more cases = good
– lag = bad, but this has not been seen in any other state (see prior commentaries on this subject)
So the divergence is mostly good.
Source: COVID-19 Tracking Project
But Texas could benefit from mitigation measures like a mask…
Texas does not require citizens to use masks and PP&E while in public. This is certainly recommended by the TX governor, but it is not required. And as the article below highlights, local governments are asking for permission to require masks:
– Masks reduce spread. It is a fact and is a factor for Asia’s success
– 9 Texas mayors asking for the ability to require this = good
https://www.kens5.com/article/news/health/coronavirus/mayors-of-nine-texas-cities-call-on-gov-abbott-to-allow-them-to-enforce-mask-orders/273-e9f7203a-4b5c-4084-a70c-e131b78d189c
POINT #3: 30% of Baby Boomers+ went to 100% cash. Baby Boomers+ control 76% of $100T of US household net worth, or $76T. Yup.
We have talked for some time about the divide in retail investor positioning in this equity market:
– Robinhood = bullish, but this is younger investors, and with less wealth
– Schwab, etc. = bearish, and this is older Americans, with much greater wealth
This is the reason we have seen persistently net negative readings from the retail AAII survey (older Americans).
30% of Fidelity account holders >age 60 went to 100% cash during the pandemic…
The WSJ carried an article highlighting the extent that many older Americans have liquidated their stock holdings. It is a useful article and highlights how many older Americans sold stocks during the crash but have resisted buying again.
– And thus, sat out a 45% rally, that would have helped recover a huge percentage of those losses
– Account holders >age 60 also do not have the benefit to time on their hands like Robinhood Millennials
https://www.wsj.com/articles/investors-approaching-retirement-face-painful-decisions-11592213401
According to data from Fidelity Investments, 30% of investors age >60 sold all of their equity holdings. And as the article notes, they have not bought back their positions. And with the equity markets near their all-time highs, this is an especially tricky and painful decision.
https://www.wsj.com/articles/investors-approaching-retirement-face-painful-decisions-11592213401
Older Americans control 76% of the $100T of US household net worth… so it’s a huge deal…
Older Americans, as this Federal Reserve data shows, control 76% of the $100 trillion of the US household net worth. $76T is 3.5X US GDP and could buy the stock market 3X over.
– Baby Boomers+ control all the wealth in America
– They control 15X the amount of capital of Millennials ($5 trillion)
Source: Fundstrat and Federal Reserve
Visualizing this for a moment…
Thus, when we hear the media talking about the “retail investor” is all in, I think they are primarily referring to Robinhood account holders and Millennials generally:
Net
Born Age Worth (T 0.32% )
Millennials 1981-2000 28.5 $5T
Baby pre-1964 >60 $76T
Boomers+
So even if Millennials are bullish, their aggregate firepower is much smaller than Baby Boomers. If a V-shaped recovery is underway, we expect market gains to be prodigious in the next few years.
– following each economic contraction, a new bull market is formed
– we will discuss in a later commentary the cornerstones of such a bull market.
If we look at the 3 worst GDP contractions since 1900, the average equity rally is 331% = S&P 500 9,500 –> yup
But here is a parting thought. Look at the cumulative gains that followed each of the biggest economic contractions:
– the average gain following the 3 biggest economic contractions is 331% gain in S&P 500
– this implies 9,500 for S&P 500 by the end of this run… wow
Source: Fundstrat, BEA, Bloomberg
