Daily cases in the US peaked on 7/17 at 76,737 and in the intervening 5 days, we have not made a new high. Yesterday’s daily cases was 69,293, basically flat with cases on 7/15/2020, or 7D ago. So, we are continuing the pattern of flattish cases vs 7D ago. The key date, therefore, is 7/24, or Friday. Because we will be “lapping” that 7/17 high. The chart below shows the daily cases compared to 7D ago. And as the chart below highlights, the 7D delta has been flat for the last 5 days and is down sharply from the dramatic acceleration seen 3-4 weeks ago.
Source: COVID-19 Tracking Project
The 7D delta is somewhat of a simplified proxy for R0. If the R0 is >1.0, then the 7D delta should be rising. If this is flat/declining, the R0 is essentially falling. From the trend perspective, the R0 seems to be slowing. There has been a ton of course correction in the past few weeks, and with the White House’s full explicit endorsement of PPE measures, we should see this R0 to fall further.
So we think daily cases are indeed peaking. And while deaths are up, this is a residual effect from the surge in cases seen in the new epicenter, FL, CA, AZ, TX, or F-CAT. These 4 states saw the surge in cases and now we are seeing the delayed rise in deaths. But the rate of deaths remains far lower than seen in NY Tristate during March/April.
– Daily cases in F-CAT are 2X what NY tristate saw during its peak
– F-CAT daily deaths are 60% lower than NY tristate, despite considerably higher cases
Source: COVID-19 Tracking Project
Source: COVID-19 Tracking Project
STRATEGY: VIX breaking down = good. Sentiment mixed — best retail metric AAII
In our view, the best measure for retail sentiment remains the AAII retail survey. And the metric is % bulls less % bears. This is published weekly and has been published weekly since 1987. The AAII survey is comprised of older members (>age 60) and this is a better snapshot of the true retail wallet. As we have written in the past, 76% of the US household net worth is controlled by individuals > age 60.
– as this survey shows, for the past 21 weeks, the AAII diffusion (% bulls less % bears) has been negative
– the current -14.5% reading remains one of the worst since the start of this pandemic.
It seems there are quite a number of investors and strategists who think the equity markets are closer to a “top” than a low. Frankly, it is a reasonable argument given we are still in the midst of a depression while stocks have rallied. But take a look at how AAII sentiment behaves at market tops:
– in the 5 meaningful tops since 2009, 5 of 5 times, we saw persistently high bullish readings from AAII-
– retail investors get bullish at the top
This is the most startling reality. Retail investors have remained bearish for 21 straight weeks. There is not a single bullish reading since March!
Another milestone this week is the breakdown in the VIX, or volatility index. It closed at 24 yesterday and as shown below, is essentially at the reading it had right before markets made their infamous 35%-plus plunge.
– the key level is 18. That is the pre-crash VIX reading.
– given the progress made by VIX so far, we think this is a matter of time
And a plunge in the VIX is a good sign. Take a look at the VIX today compared to the behavior of the VIX during the GFC (2008-2009).
– notice how the VIX today looks a lot like the VIX in June 2009.
And we know June 2009 was a good time to be overweighting risky assets.
POINT #1: Daily cases are up vs 1D ago, but flat vs 7D ago… still looks like a plateau
Daily cases in the US peaked on 7/17 at 76,737 and in the intervening 5 days, we have not made a new high. Yesterday’s daily cases was 69,293, basically flat with cases on 7/15/2020, or 7D ago. So, we are continuing the pattern of flattish cases vs 7D ago.
Source: COVID-19 Tracking Project
6 states saw a sizable 1D increase
California 12,807 vs 9,231 (1D) +3,576
Louisiana 2,771 vs 1,691 +1,080
Illinois 1,598 vs 955 +643
Texas 9,879 vs 9,305 +574
Ohio 1,527 vs 1,047 +480
Florida 9,785 vs 9,440 +345
Total 6 states +6,698
6 states with a sizable 1D decrease
Arizona 1,926 vs 3,500 (1D) -1,574
Wisconsin 712 vs 1,117 -405
Pennsylvania 631 vs 1,027 -396
Maryland 627 vs 860 -233
South Carolina 1,705 vs 1,892 -187
Puerto Rico 75 vs 244 -169
Total 6 states -2,964
By the way, the trends in hospitalizations have been encouraging as the net and gross hospitalization rates did not surge to the levels seen with daily cases rise.
Source: COVID-19 Tracking Project
POINT #2: F-CAT: CA cases up, but Los Angeles down, so F-CAT seems past peak…
Unfortunately, CA saw a surge in new cases yesterday, bringing cases to a new high. But even with that CA surge, F-CAT collectively did not make a new high:
– Total F-CAT cases totaled 34,397
– Peak was 7/17 at 40,278
So despite this massive +3,600 increase in cases in CA, overall F-CAT trends look like they plateaued. In fact, we also think there are reasons to look at the CA surge as signs of the “end” not the midst of a surge:
– Daily cases are soaring primarily in southern, CA
– Los Angeles daily cases did not surge yesterday and are still 34% off their peak from 7/17
Source: COVID-19 Tracking Project
Source: COVID-19 Tracking Project
The key cities, or the “nucleus” of the outbreaks in F-CAT are shown below. This shows daily cases per 1mm residents (to make comparisons easier) and NYC is shown for reference. As these charts show:
– None of the 4 key cities has seen a new high in cases
– Phoenix and Miami are the furthest away from their peaks, making their highs more credible
Source: Johns Hopkins
Focus on California…
The surge in CA is concentrated in SoCal. This has been the case since CA saw its outbreak in June. This heatmap shows the sources of the rise in total new cases for the past 7D.
– It has been all counties in SoCal, and much smaller in Northern/Bay area.
Source: CA Open Data
More importantly, Los Angeles County is not following these other southern counties in case spread. As highlighted below, Los Angeles’s daily cases are still 34% below its peak on 7/17/2020. Think of it this way, if CA was seeing widespread and continued outbreak:
– the R0 should be similarly high in Los Angeles (25% of the state’s population)
– Los Angeles was the nucleus of the CA outbreak
– if cases are slowing in Los Angeles, the R0 is arguably falling below 0
Thus, the rise seen in neighboring counties is a lagged effect and it is a matter of time before that spread is also contained. In other words, Los Angeles is a leading indicator that CA is peaking.
Source: CA Open Data
As for Texas, below is the “net daily” admissions to Texas hospitals. The daily net admissions have been flat for the better part of the past 10 days. So despite many claims of hospitals being out of capacity in Texas, all looks OK for now.
Source: COVID-19 Tracking Project
POINT #3: Americans behavior more linked to “national view” of COVID, not local
JPMorgan’s credit spend, based on 30 million credit and debit cardholders, is showing a stalling of consumer spending. The chart below shows the differences between “card present” and “not present” (more online, etc.). The darker blue line is the “card present” spend and shows that since early June, this figure has stalled at -20% yoy.
This can be interpreted in multiple ways.
– For those negative, this stall can be viewed as a consumer who has “run out of steam”
– For those negative, this stall is a sign the virus is killing activity
But we also view this as evidence that the “renewed panic” around virus spread is causing Americans to go back indoors. We have seen this with the travel surveys and TSA data and this credit spend are showing this as well.
But the reasons for this stall, also to an extent, govern its future recovery. If this is consumers pulling back due to virus panic, this should reverse as virus recedes. The natural question is whether consumers spending is a result of local spread or national spread. This is where the Chase report was interesting.
Source: Chase
As they note, there is a breakdown in the relationship between virus spread and consumer spending and the current R-squared of 0.14 is statistically ZERO. In other words, regional virus spread is not explaining the drop in consumer spending. In other reports, Chase has commented that it seems national trends in virus spread are impacting spending. You can clearly see this below.
– Credit card spend has stalled in all cities at the same time.
– Right around the time the media has flagged renewed outbreaks in F-CAT
The bottom line, we think consumers are reacting to the national trends in the virus. If this is correct, a breakdown in virus cases will create a renewed vigor in consumer confidence.
RANDOM: NYC insiders predict ‘no more dance floors’
NYC is now in Phase 4, which means bars/nightclubs should have been opening. But both NY Gov. Cuomo and NYC Mayor DeBlasio canceled the idea, with indoor activities still off limits:
– Nightclubs
– Museums
– Malls
This is consistent with the national reaction to the F-CAT outbreak. The surges seen in the South have alarmed Americans across the US. This is the reason we believe the “full turn” in F-CAT will result in a national reaction to this improvement.
https://nypost.com/2020/07/22/nyc-nightlife-insiders-predict-no-more-dance-floors-post-covid/?utm_campaign=iphone_nyp
This will be part of how NYC has to rethink its social life. So much of it revolved around restaurants and nightclubs. But as someone below comments, it is now scary to be in tight indoor quarters.
https://nypost.com/2020/07/22/nyc-nightlife-insiders-predict-no-more-dance-floors-post-covid/?utm_campaign=iphone_nyp
But I am sure NYC and its residents will adapt. In case you have forgotten what happens on the dance floor, here is a great quote:
