Thoughts ahead of 4th of July weekend... VIX cares about "deaths" > "cases" and watch 4 "nucleus" cities this weekend
July 4th long weekend is ahead of us. And most Americans will be enjoying time-off, outdoor cooking and family time, and generally enjoying the long weekend. But in the back of my mind, I will be minding developments for COVID-19, because the US is facing a delicate balance between mitigating this horrendous pandemic versus safely keeping this economy open.
So here are some of what we believe will be the key thing we are watching;
– US daily cases to continue to surge, perhaps to >60,000 as CA is in “early prevalence curve”
– US deaths hopefully continue this curious divergence (downtrend) while cases explode
– Watching the 4 “nucleus” cities of Houston, Phoenix, Miami and Los Angeles. These are the most important cities in each of the 4 F-CAT “new epicenter” states (FL, CA, AZ, TX)
– Scanning for evidence of improved “compliance” with mitigation measures like masks, social distance, etc.
COVID-19 is spreading at an uncontained rate currently. There has been “course correcting” by states (good) and states are moving ever closer to the “infection break point” so, at some point, this surge will turn into a “turning the corner”
Continuing this divergence is important — that cases and deaths are not linked, a curious divergence since late May
Since late May, daily cases have exploded (see red scatter) but the daily deaths have trended down. This is an important divergence. Why is this happening? We are not sure, but our guess:
– better hospital/healthcare preparedness
– healthier and less naturally vulnerable infected
– younger patients
– disease is weakening?
Source: COVID-19 Tracking Project
This is the week equity markets pivot to focusing on “deaths” not “cases…”
Arguably, one of the most significant developments this week is that equities did not really “flinch” with the massive new highs in cases.
In other words, this is the week the market made a “pivot” to focus on “deaths” over cases.
The VIX is the best barometer of this. The VIX was tracking cases since late March, both moving together and even surged as US cases began to rise
– But notice that VIX is now tracking “deaths” more closely
– Thursday is an example — FL reports record cases and VIX is down.
The VIX is the market’s perception of future volatility. Hence, surging cases is not causing the VIX to expect greater volatility. Rather, it seems falling deaths is soothing VIX.
Source: COVID-19 Tracking Project and Fundstrat
Curiously, the 4 “nucleus” cities in the 4 epicenter states (F-CAT) seem like daily cases might be rolling over...
The outbreak in FL, CA, AZ, TX (F-CAT) started in a specific city in each state (see below). And naturally, these 4 “nucleus” cities are the leading indicator. Think of how NYC was the nucleus of the March wave. Thus, these 4 cities are key:
– Houston seems like cases rolling over
– Phoenix seems like cases rolling over
– Los Angeles potentially cases rolling over
– Miami seems like cases rolling over
You get the picture. Watch these 4 cities.
Source: Johns Hopkins
And quite possibly, infections are slowing, but it is only “detected cases” that is rising…
A new element of our framework on COVID-19 is thinking about the true “infection” rate — that is:
– “infections” are people COVID-19 positive
– “cases” are people with symptoms
– “detected cases” is what is confirmed with a PCR-test and thus tabulated (can also include serology)
I think there might be growing discussion around the fact that “infections” daily might have actually peaked much earlier in this crisis — like late March and we are on the downtrend. But “detected” cases are rising because of testing.
– the IHME model is below and their model suggests infections are down dramatically.
Source: COVID-19 Tracking Project and IHME
But cases are rising faster than testing… so the surge in USA is not just the inceases in testing…
But as this chart below shows, states are seeing cases rise faster than the increase in testing. So, the surge is beyond just greater testing capacity.
Source: COVID-19 Tracking Project
Have a great weekend. This past week was very solid from an economy perspective:
– ISM back >50
– HUGE jobs beat
Expansion is underway. New bull market, etc.
