The trend in COVID-19 is a mixed picture:
– Cases are growing at an “uncontained” rate = Bad
– Deaths are diverging (mostly falling but def diverging) = Good
– Estimated Infections have been generally falling = Good (see below)
Source: IHME
But this is not the best case scenario. The best case would be for cases to “peak” in the US and then decisively fall. The epicenter for COVID-19 in the US is four states, FL, CA, AZ, TX, or F-CAT, and thus, for the “best case” to materialize, we need to see F-CAT cases apex. We believe TX has (but seriously, we could be too optimistic, but Houston certainly seems to have peaked) and FL and AZ are not far behind. So, this “peak” could be coming soon. Even with the daily reported cases surging to new alarming high today at +62,947 (+11,073 vs 1D ago), we know nearly every state has “course corrected” and mask compliance is growing, so there are known catalysts to slow this case growth.
Daily deaths are ticking up… this needs to be watched
If I had to flag a new “source of worry,” it is that daily deaths in the US have risen in the past 2 days, with deaths of +905 (1D ago) and +819 (today). This is above the ~225 deaths per day seen over the weekend and a step up from the 550-600 daily deaths seen last week. Deaths from COVID-19 are tragic and senseless. And a rise in deaths is a sign the US is seeing more Americans succumb to the worst outcome. So, we need to keep an eye on this. And it reminds us of the urgency of Project Warp Speed (US effort to get a vaccine by January 2021).
Source: COVID-19 Tracking Project
STRATEGY: Equity markets are challenged to price binary events, so “epicenter” struggles with rising cases + timing of future of vaccine…
Over the past week, something that has come up in multiple conversations (in various forms) is “how much of a vaccine/cure” is the market pricing? Attempting to price an outcome is a straightforward exercise:
– Identify biggest winner –> “social distance” victims –> cruise lines, airlines, hotels, casinos, etc.
– Calculate implied price of “positive outcome” –> pre-COVID levels
– Calculate implied price of “none” –> ???
– Calculate implied probability
There is a glitch –> a cure/vaccine is binary. Thus, it is hard for markets to find equilibrium on a binary event. This happens with all binary events and we have witnessed many in the past decade: trade wars, contested elections, etc.
From a market’s perspective, the “epicenter” stocks are ~25% of the overall market cap, while FANG/secular growth/defensive (aka “bond proxies”) are 75%. So, the “easier” call has been to favor the “bond proxies.” And as we have mentioned in multiple prior pieces, we do see the future valuations of the FANG/Growth to be higher, because these companies managed to produce growth in the midst of the greatest depression in 5 lifetimes.
But we do not think it makes sense to give up on the “epicenter” stocks. Specifically, if one is confident of:
– a cure/vaccine (mostly yes)
– F-CAT (FL, CA, AZ, TX, the new epicenter) will “apex” in cases
– US consumer regains footing
Then these stocks are “touchable” and will have an abrupt binary re-rate on the positive developments of cure/vaccine or a break in cases in F-CAT.
Most down and out of “epicenter” stocks is Carnival Cruise lines (CCL), so this is the “bleeding edge” to watch
There is no more “untouchable” stock than Carnival Cruise lines. Not only are cruises the hardest hit, the industry has been given zero guidance by the White House/CDC on how to safely re-open. And CCL itself has a challenged capital structure.
The chart below is the CCL/SPX price ratio and we have annotated this with the Tom DeMark combo counts. We don’t refer to these often, but Tom DeMark’s system was enormously helpful to us in late March — that is one reason we had conviction that 3/23/2020 was the low. In fact, Tom DeMark was on a 3/24/2020 conf call with our clients (you might recall), where he declared that to be the low. So, while I don’t write about DeMark indicators often, I find them a useful framework.
The 4-hr chart shows that we have seen a ’13’ Buy countdown registered with yesterday’s close (and this follows another combo 13 seen two weeks ago).
– this bears watching, as the DM indicator suggests that the relentless CCL “selling” could be reaching an end.
– and such a reversal would suggest that “binary” event could be coming
Source: Bloomberg
For comparative purposes, the last sell countdown (when to start selling) registered a ’13’ on June 4th. This was only 3 trading days ahead of the top.
– So these ’13’ are important points to watch.
Source: Bloomberg
POINT #1: Daily cases reach new high of +62,947, up +11,073 vs 1D ago
US confirmed daily COVID-19 cases rose to 62,947, rising +11,073 vs 1D ago and a new high for cases. I sometimes forget what this number actually means:
– On an annualized basis, this is 23 million US infections per year. Just an astounding figure.
So, at the current run-rate, the US infection rate is high and ultimately, it is dependent on an apex of cases in the new epicenter, FL, CA, AZ and TX, or F-CAT.
Source: COVID-19 Tracking Project
F-CAT cases rose to a new high today, led by CA and FL. The top 4 states in terms of reporting daily new cases is F-CAT (see below). And the good news is that NY Tristate (NY/NJ/CT) daily cases are still pinned at low levels.
Source: COVID-19 Tracking Project
The individual daily case figures for F-CAT are shown below and we will start to include this chart on a regular basis, just so you can see the individual components of F-CAT.
Source: COVID-19 Tracking Project
TX case watch: Big 4 Houston, Austin, San Antonio and even Dallas did not report “new highs” today…
We are watching Texas closely, because we believe this F-CAT is most likely past its peak in cases. And we continue to watch the top 10 counties, but four specifically:
Houston (first to see breakout)
Austin
San Antonio
Dallas
And as shown below, these 4 counties did not report a new high in cases. But 3 of 4 (not Dallas) reported a rise in cases today vs 1D ago. So, this remains an indecisive situation, and perhaps our belief that 80% probability of a peak is too optimistic. But we will watch these 10 counties closely over the next few weeks.
Source: Texas DHSH
When looking at the week over week change (“seasonal adjustment”) the rate of increase is +10,173 and this rise is lower than the 15,000 level seen a few weeks ago. So at least the “rate of change” is not accelerating but is somewhat more muted compared to a week ago.
Source: COVID-19 Tracking Project
6 states reported sizable increases
California 11,694 vs 6,090 (1D) +5,604
Florida 9,989 vs 7,347 +2,642
Tennessee 2,472 vs 1,359 +1,113
South Carolina 1,557 vs 972 +585
Arkansas 734 vs 259 +475
Illinois 980 vs 587 +393
Total 6 states +10,812
6 states reporting sizable declines
Washington 435 vs 1,087 (1D) -652
Nevada 516 vs 876 -360
Mississippi 674 vs 957 -283
Missouri 575 vs 773 -198
Oklahoma 673 vs 858 -185
Pennsylvania 849 vs 995 -146
Total 6 states -1,824
Source: COVID-19 Tracking Project
POINT #2: Americans “more worried” about traveling since June 7 (when cases started rising)
We have commented from time to time about survey results from a group called Destination Analysts ( https://www.destinationanalysts.com/). They survey ~1,200 Americans each week and publish these results.
– Their survey shows that % of Americans seeing “worse expectations” for COVID-19 has doubled from 33% to 63% today.
– Only 14% of Americans feel expectations are “better” and this is down from 32% a month ago.
This surge is “worse expectations” is contemporaneous with the surge in cases in the past month, and the response of policy makers (rolling back) and consistent with the media coverage. So it is not entirely surprising to see that American’s expectations for COVID-19 worsened.
https://www.destinationanalysts.com/blog-update-on-american-travel-in-the-period-of-coronavirus-week-of-july-6th/
But this also highlights that American’s perceptions and behaviors are dynamically linked to the path of COVID-19. This is an obvious statement, but worth bearing in mind. That is:
– If disease path worsens, then more Americans will worry
– If disease path improves, then fewer Americans worry
– If cure/vaccine, obvious what happens
This simply reminds us that the behavior and response are conditional on the path of COVID-19. And there is simply no consensus today. The case growth is uncontained, but the good news, so far, is that the healthcare consequences have been far less severe.
Since early June, more travelers are “deferring” travel plans to “I have no plans”
Destination Analysts began asking what month their upcoming travel falls under. This survey question started in June.
– The share with “no upcoming” has jumped from 26% to 40% in the past month
– Part of this is explained by those who completed travel in July (thus, “no future plans”)
– Part of this is due to heightened concerns
Again, my read is this is not surprising. Americans are responding to heightened risks and acting accordingly. Again, this points us to the importance of containing virus spread and a healthcare cure/vaccine.
Source: Destination Analysts
And with this rise in concern, Americans air travel, while rising, is “bending” away from recent trendline…
The latest TSA throughput is showing that Americans are still flying in greater numbers, but the last few days have “bent” away from the trendline. Again, this rise in confirmed cases is raising concerns about safety and hence, this is self-reinforcing.
Source: TSA
But Americans still want to go to a beach…
The top choice for destination is Beaches/Resorts with 42%. I was pretty surprised to see that Americans would choose almost equally Cities (34%) and rural areas/small-towns (32%). It would be interesting to see these survey results in a pre-COVID period. I will ask tireless Ken to see if such information is available.
https://www.destinationanalysts.com/
POINT #3: Smell > Fever? Keeping an “open economy” safe. WHO acknowledging airborne risk
When I was in Michigan, one of my distant relatives spoke about how the Ford motor plant is conducting mandatory temperature checks daily. And this, along with PPE and masks, has prevented zero infections at that Ford facility since its opening. The challenge with temperature checks is that fever is only a symptom in less than half of symptomatic COVID-19 cases and therefore even smaller for infections (which include non-symptomatic). Several recent studies have suggested that combining fever checks with “smell” checks might be more effective.
This article in Statnews.com was pretty interesting, as it cited both a Monell and Mayo Clinic study, how the prevalence of loss of smell is quite high. Basically, the article suggests that supplementing fever checks with smell checks might be very useful.
https://www.statnews.com/2020/07/02/smell-tests-temperature-checks-covid19/
In fact, the Monell study (at metastudy) actually found that many infected did not even realize they had lost their sense of smell (the “self-reporting” is like 50% but 80% actually failed smell tests). Thus, the loss of smell is arguably more common than fever.
https://www.statnews.com/2020/07/02/smell-tests-temperature-checks-covid19/
The Mayo Clinic study (found in MedRxiv) compared the cohorts of COVID-19 infected and non-infected. And based on “self-reporting,” the loss of smell is 27X more common in the infect vs non-infected cohorts. But this study showed only 6% of infected (of n=2,317) reported diminished taste or smell. So it is a smaller subset. But it shows that this loss of smell is a very significant symptom.
https://www.medrxiv.org/content/10.1101/2020.04.19.20067660v4.full.pdf+html
A major study in Japan used a supercomputer to suggest ways to limit droplets.
The Tokyo-based scientific research institute Riken harnessed a supercomputer and devised a series of simulations to observe how SARS-CoV-2 might spread indoors, and created a list of suggestions to limit transmission. The researchers enlisted Fugaku, the $1billion supercomputer (crowned world’s fastest supercomputer in June).
http://www.asahi.com/ajw/articles/13526700
The simulation started with the base assumption that a single cough releases 50,000 particles containing COVID-19. To limit the transmission to non-infected. among the recommendations:
– Open windows, which vastly increases air circulation by 2X-3X
– In offices and classrooms, short barriers across shared desks and conference tables
– In hospitals, use of curtains
Basically, these seem like common sense recommendations.
The WHO is finally potentially acknowledging airborne transmission…
The WHO has maintained that the primary form of COVID-19 transmission is large droplets coming from a sneeze or a cough. And while I am not entirely sure why this is their stance, this has also contributed to controversy around the use of masks. Because their related conclusion is that airborne transmission (lingering droplets) has not been proven.
But it seems that the WHO is finally starting to rethink this position.
https://time.com/5863220/airborne-coronavirus-transmission/
Many scientists have been pushing back against this view and it looks like the WHO may be finally acknowledging the possible alternate route of airborne transmission.
