COVID-19 UPDATE: Worst 3-day stretch of COVID-19 data since late March, but markets take in stride. Updating "trifecta" epicenter stock list +3 names. 28 total.
From a healthcare timeline, the past 3 days have been the worst since early March — we have seen back to back record surge in cases, Texas “pauses” its opening, Disney delays indefinitely opening of Disneyland, and Apple closes more retail stores. I mean, this is just horrific. And we have not seen any news this week on the healthcare side. And 2020 election race is becoming tighter and tighter. In the face of this major setback, we have seen a 4% decline in equities, which reversed today into a 1% rally.
This is quite interesting to us. This is the worst stretch of news since the dark days of March — a new all-time high in cases. Yet:
– VIX barely budged
– Stocks fell for 1D
– If this happened two months ago, we would be expecting S&P 500 to be visiting 1,700 or lower
I think this reflects the real positioning of the market. Investors have little need to sell because few investors are “uncomfortably” long. Remember that WSJ article a few weeks ago about how 30% of Fidelity account holders went to 100% cash? Well, the best sentiment metric to track >age 60 is the AAII survey.
– this week, the AAII bulls less bears is -25.
– this is the 3rd worst reading since the great crash of 2020
Think about that! Retail investors, age >60, are as bearish now as they were when COVID-19 was burning down NYC. If investors are already bearish and sitting on record cash, downside moves are just not that dynamic. Now, I think a consolidation is healthy. I am not trying to say stocks have to surge from here. But, this is not much downside given how the “headlines” have not been great for COVID-19.
Of course, another reason stocks may not be tanking, is that case figures matter less than “death” and hospitalizations. We showed a chart yesterday showing daily case growth for 50 states broken into 3 composites: F-CAT (Fl, CA, TX, AZ, border states), NY/NJ/CT and other 43. Below is the same composites, but for daily recorded deaths.
– from this lens, there is not even any resurgence of any kind.
– in other words, cases are exploding but hospitalizations are more benign, and deaths trending lower.
Source: COVID-19 Tracking Project
And the US is not faring too badly overall. Remember how Singapore has been lauded as a model nation because of how well they contained COVID-19? Well, Singapore’s case prevalence at 7,286 cases per 1mm is actually higher than the USA at the moment. Yup.
– and we wonder if F-CAT simply need to get case prevalence to a level that could create some level of herd immunity.
– Dr. Scott Gottlieb yesterday on CNBC mentioned he believes NYC prevalence is 30%, which is herd immunity, and likely explains why cases have not surged despite massive protests (superspreader events).
Source: Johns Hopkins, COVID-19 Tracking Project
STRATEGY: Texas pause = good and very wise. Stick with “epicenter” and 28 trifecta stocks ideas (+3 new names).
Texas Gov. Greg Abbott today announced the state is pausing its re-opening. Much of the state is already open, so this is a “pause” and not a rollback. I think this is really wise and the best course correction. Texas is experiencing the outbreak that NY/NJ/CT saw in March. And my personal experience was that a lot of my family, friends, colleagues, neighbors took action, much due to fear. And this fear might compel people to social distance, mask, etc. even without government edict. More discussed below.
And markets continue to show impressive resilience. Let’s be honest. Given the “case setback” seen in the past few days, ala new highs, investors would have panicked two months ago. But today, markets are taking this in stride. I think it speaks either to the fact many are just not that long, or that markets are focusing on other metrics.
Stick with “epicenter” even because they are “unkillable”
In face of this setback on healthcare data, the natural question is whether we want to be buying “epicenter” stocks. After all, if states pause/rollback, this group is hit the hardest. In short, we think the right strategy is epicenter. Here is a simple observation:
– we get a new high in cases
– Texas is pausing
– Apple is closing store
This is “massacre-level” bad news. And the epicenter got massacred. But will they get pounded even more? They are hardly owned today. And the fact that the NASDAQ made a new all-time high shows “bond proxy” (NASDAQ is the new bond proxy?) is holding up. So, the upside in the S&P 500 is the cyclicals, aka epicenter.
Updating “trifecta stock list” — now 28 stocks, + 3 new names
We are updating our “trifecta” epicenter stock lists. These are stocks which:
– DQM ranked top quintile
– Rob Sluymer rates OW technically
– Brian Rauscher OW on his model
New Long ideas: DRI, EQH, HWM
Discretionary: GNTX, BBY, GRMN, TPX, DHI, LEN, EBAY, DRI (New)
Energy: CVX, XOM, COP, PXD
Financials: GS, MS, SBNY, SIVB, EQH (New)
Industrials: GD, ALK, FBHS, MAS, CMI, OSK, ITT, GWW, MSM, SNDR, HWM (New)
Source: Fundstrat
POINT #1: COVID cases 6/25/2020 “less horrifying” as +39,020 is only slight >1D ago
We are seeing a new level of case rise for COVID-19 as daily cases rose to 39,020, +725 from 1D ago. The renewed rise in daily cases is very evident looking at the chart below.
Source: COVID-19 Tracking Project
F-CAT leading US surge, and imported cases could be a factor…
And we illustrated yesterday, the US border states, F-CAT (Florida, California, Arizona, Texas) are leading the surge in US cases. So, this is not a second wave, but it is a wave of severity as these cases are driving renewed concerns about the economic recovery. We discuss in a later section how there is pretty hard to ignore anecdotal evidence that a contributor to the surge in F-CAT are imported cases from Latin America.
Source: COVID-19 Tracking Project
To get a sense for the sustained trend, it is helpful to look at the daily cases compared to a week ago and you can see, the surge in case growth. But at least the delta is slightly smaller today compared to Wednesday.
Source: COVID-19 Tracking Project
6 states posted material increases in 1D case rise…
Arizona 3,056 vs 1,795 (1D) +1,261
Mississippi 1,092 vs 526 +566
Texas 5,996 vs 5,551 +445
Missouri 553 vs 291 +262
Ohio 892 vs 632 +260
Indiana 515 vs 269 +246
Total 6 states +3,040
6 states posted material decreases in 1D case change…
California 5,349 vs 7,149 (1D) -1,800
North Carolina 1,009 vs 1,721 -712
Florida 5,004 vs 5,511 -507
South Carolina 1,125 vs 1,284 -159
Tennessee 799 vs 932 -133
Virginia 432 vs 520 -88
Total 6 states -3,399
Source: COVID-19 Tracking Project
More Healthcare professionals urging a focus on the severity of illness, not “case #s”
The are more doctors and healthcare professionals who are urging that the mindset of case numbers may be less important than the severity of illness. Thus, watch hospitalizations and deaths.
https://www.pennlive.com/news/2020/06/upmc-doctor-sees-too-much-focus-on-rising-covid-19-cases-too-little-on-declining-severity-and-hospitalizations.html
The picture on hospitalizations is not as dire as the case rise. We have provided the two types of data that states report. Some use “ever hospitalized” (we can compute gross admissions) and other use “current hospitalizations” (and we compute net change).
– The trends in both are not “falling” but they are certainly better than what case data is showing
And as we have commented in the past, we think healthcare burden is ultimately going to matter more. The linkage between cases and hospitalizations has changed since May.
Source: COVID-19 Tracking Project
There are conflicting reports about Texas hospital capacity, but the TMC (Texas Medical Center) says Houston has capacity…
We received a few inquiries from our clients (yesterday) about Texas medical capacity, particularly since there were some media headlines saying Texas is out of capacity. But the TMC has said their comments were “misinterpreted” and there is sufficient capacity in the state.
https://www.chron.com/houston/article/TMC-leaders-Despite-rising-COVID-19-cases-15366132.php
No second wave in Deaths either… deaths even in F-CAT are not parabolically rising…
Daily death trends have also been encouraging, generally drifting lower. And we can see that even daily deaths in F-CAT have not been rising as quickly as cases have.
Source: COVID-19 Tracking Project
Source: COVID-19 Tracking Project
POINT #2: Texas course correcting by “pause” encouraging and not a shutdown…
Texas Governor Greg Abbott announced the state is “pausing” its re-opening. This is a very healthy and needed course correction.
https://www.nbcdfw.com/news/coronavirus/gov-abbott-pauses-texas-reopening-plan-as-coronavirus-cases-soar/2395493/
The state is largely open and, in fact, the pause essentially does two things:
– limit capacity on what is open at restaurants, bars and amusement parks
– freezes elective surgery.
https://gov.texas.gov/news/post/governor-abbott-announces-phase-iii-to-open-texas
The state is making a necessary and wise course correction. For whatever reason for the surge in case growth, Texas needs its citizens and policymakers to mitigate transmission. I think too many people are critical of the state. Texas did not experience the carnage that NY/NJ/CT saw. And thus, saw less need for masks, social distance, etc.
– Now that the state is taking serious action + fact more cases are seen, we think “survival instincts” should kick in
POINT #3: Latino share of cases surging
We have written about the surprisingly high share of COVID-19 cases that are Latino/Hispanic in the US. The overall share of the Latino/Hispanic population is 17%, but data gathered by our data science team, led by tireless Ken, shows that Latinos are 42% share of cases.
You might be tempted to think this is concentrated in just a handful states. But that is not the case. This heatmap below shows the Latino share of new cases in the past 14D relative to their population representation:
– Red if cases share less population exceeds >20% — this is huge excess share
– Green is where the share is below 0%
As you can see, there are many states where this figure is solid red (>20% share) and by our count is 17 states. Overall, 39 of the 50 states have “excess shares” of cases by Hispanics vs population.
Source: COVID-19 Tracking Project
39 of 50 states in the US have seen Hispanic share of cases (past 7D) > population share…
We have listed the 50 states below and Hispanic share of overall cases in the past week. The overall share in the US is 42% of cases in the past 7D are Hispanic/Latino vs 17% of the overall population:
– Texas is not included here because the state made a big reclassification in the past week, so this will be “clean” by next week
– Tennessee 39% cases vs 6% of pops
– Arkansas 30% vs 8%
– North Carolina 42% vs 10%
– Georgia 30% vs 10%
– South Carolina 20% vs 6%
Source: COVID-19 Tracking Project
Why is there excess share? Multiple explanations but we are not sure…
The NY Times carried a story about this about two months ago, with their noting that this may be a function of two factors:
– Multi-generational living
– Less accessibility to healthcare, and hence, more compelled to work while sick
But a third factor, we have written about is the low Vitamin D levels among Latino/Hispanics (see abstract from NIH below).
https://www.nytimes.com/2020/05/07/us/coronavirus-latinos-disparity.html
https://pubmed.ncbi.nlm.nih.gov/24871915/#:~:text=The%20highest%20prevalence%20of%20low,risk%20for%20vitamin%20D%20deficiency.
Another factor for the high Latino share is potentially overflow from Latin America…
There have been a few articles about this, including this one from the Washington Post. This notes that many dual-citizen Americans who are getting sick in Mexico are coming to the US to get treated.
https://www.washingtonpost.com/world/2020/05/27/coronavirus-mexico-border/?arc404=true
This partially explains why 79% of the new COVID-19 cases are in Southern California, as this chart below highlights. The share of the population is 60% but is nearly 80% of cases.
Source: California Department of Public Health
But the US has significant inbound travel from Latin America and Mexico. As this data from International Trade Association shows, 18.7 million Mexicans have visited the US in the past year (2016 data) and there is substantial inbound travel from other Latin American countries from April to July (see the second chart).
Source: https://travel.trade.gov/
Source: https://travel.trade.gov/
The reason this impacts US COVID-19 cases is that Latin America is now the epicenter of the COVID-19 crisis, with more cases from here than anywhere else in the World. India + Pakistan + Bangladesh is seeing a surge in cases and could overtake the US in regional share soon.
Source: Johns Hopkins
The case prevalence, or cases per 1mm residents in Chile, Peru and potentially Brazil is set to exceed that of the US.
Source: Johns Hopkins
And daily cases figures in these countries continue to soar and look particularly parabolic in Mexico, Argentina and Brazil. Incidentally, these 3 nations have many visitors to the US. So, there is a heightened risk of overflow or spillover of cases from Latin America to the US. But we do not know the exact share of cases stemming from this overflow.
Source: Johns Hopkins
Positivity rate, or % tests positive is staggeringly high in Latin America. This reflects the insufficiency of testing there.
Source: Johns Hopkins, Our World in Data
In case you are wondering, Latin America is woefully behind on testing. Mexico is conducting 3,456 tests per 1mm residents vs 86,306 for USA. The US is 30X higher. So, good chance case prevalence is multiples higher in Latin America.
Source: Our World in Data
