Click HERE to access the FSInsight COVID-19 Daily Chartbook.
There has been a notable public silence regarding the vastly improving COVID-19 case trends. We don’t hear from governors, White House and the media on these improvements. There is clearly an established downtrend in cases in the 4 epicenter states: FL, CA, AZ, TX, or F-CAT. A simple comparison of New York and Arizona highlights this. Let’s look at the headlines on the date each state saw cases 80% off their peak:
Date peak 80% off the peak
– New York 4/4/2020 5/10/2020
– Arizona 7/3/2020 8/17/2020
FYI, Arizona is currently 96% OFF ITS PEAK…96%…96%…YUP
There is little being said but Arizona reported 187 cases on Wednesday, compared to ~5,000 at its peak.
https://www.cbsnews.com/news/new-york-coronavirus-economic-reopening-new-phase-governor-cuomo/
https://www.12news.com/article/news/health/coronavirus/covid-q-and-a-a-look-at-the-latest-trends/75-8ca5a731-c515-42b1-9f7b-35b0014e5ea9
You get the idea. When NY got over the hump in May, this made headlines. Even NY Gov. Cuomo spoke about this publicly. Arizona has seen a similar crushing of the curve. But there is very little publicity on this, from the AZ governor office nor media coverage.
– In case you think AZ and NY have different COVID-19 “confirmed” case curves, see below
– Nope, identical
Source: Fundstrat and State health websites
Multiple factors could explain this silence…
There are several reasons we might be seeing this silence:
– F-CAT governors do not want to jump the gun, given the criticism on the outbreak
– Fears of a second wave as schools open
– Media is not interested –> if it doesn’t bleed, it doesn’t lead
– Data is fake
But this silence is also going to weigh on how consumers react. If the policymakers and the media are not saying trends are improving, how can any resident feel that things have changed? This is why the public remains on edge, but this fear is likely easing somewhat.
Hence, why there will be much more abrupt reaction to data if cases fall to ~25,000 next week…
This is the reason we think the public and markets will react more forcefully when COVID-19 cases reach a real breakpoint nationally. We think this level is probably based on a “round number”:
– 30,000 cases per day, while off the “highs” is still high
– 25,000 cases per day is probably BIG DEAL
– 10,000 cases per day is probably HUGE HUGE
Thus, we think the real breakpoint to watch is a sub-30,000 figure, which could happen as early as next week.
CNN apparently thinks we are purveying “misinformation”
Apparently, our commentary regarding COVID-19 case trends is apparently angering and disturbing those who have their own “narrative” to maintain. As shown below, CNN is now apparently writing a story about how our firm is sending out “misinformation.” We are an independent research firm and our agenda is to share evidence and analysis we find useful.
I guess our work must be striking a negative nerve with some people who do not agree with the analysis. In any case, our clients know that our work is independently derived and fact-based research. This often brings us at odds with the mainstream narrative.
We are now past day 2 of the Republican National Convention and it is obviously an important week for Republicans.
Our Policy Strategist, Tom Block, gave us his perspective on the RNC night 2. He gives the RNC vastly higher marks on night 2.
This is shaping up to be a close election, in part because of so many moving pieces critical to voter perceptions. I found this commentary by Nate Silver, founder of FiveThirtyEight.com to be insightful.
– with COVID and economy improving, he sees the race tightening
– if cases fall below 20,000 in a few weeks, this likely further shifts the dynamics
https://twitter.com/natesilver538/status/1298663366626598912?s=12
The RNC viewership drew 15.9 million viewers on its first night (per Nielsen) compared to 18.7 million for the DNC first night according to a story by the Hollywood Reporter. In 2016, the first night of RNC had 22.7 million viewers and the DNC 24.6 million. So both conventions saw a sharp drop in viewers.
https://www.hollywoodreporter.com/news/tv-ratings-monday-aug-24-2020
STRATEGY: Tech TINA (There Is No Alternative): Global shortage “good tech stocks” argues further US Tech + S&P 500…
US large-cap tech equity risk premia is collapsing… due to scarcity….
I know there are many people that are saying US large-cap tech stocks are in a bubble — because these stocks go up seemingly 5% every day. But there are structural factors that make these stocks still attractive and if this is true, these stocks are essentially the cornerstone for why the S&P 500 has lots of upsides:
– Technology is the one sector that has proved its resilience most strongly in this pandemic –> lower “risk premia”
– US accounts for 59% of total global technology market cap and >80% of the large caps –> scarcity –> lower “risk premia”
– Scarcity: US large-cap tech stocks have no global peer –> scarcity value –> lower “risk premia”
– Global labor shortage –> tech replaces labor –> tech going to be 50% of S&P 500 market cap –> EPS growth
Tech TINA –> literally, no TINA
Think of it this way. Name a global peer that is as strong or as dominant or as deeply talented as a US company in these categories:
– social media FB
– search GOOG
– smart phones AAPL
– cloud MSFT, etc.
– ecommerce AMZN
– autonomous + electric-only TSLA
– streaming NFLX
If the answer is there is no alternative — tech TINA
The “market-cap share” of US mega-cap is now lifting away from the “earnings share”
This is the updated chart showing US earnings share and market-cap share for the S&P 500 components. Since we visited this a few weeks ago:
– AAPL and MSFT have joined AMZN in moving north of the line
– meaning, AAPL, MSFT and AMZN now have market-cap shares that are meaningfully higher than their earnings share
Source: Fundstrat
Look at the distribution of global technology, you can see that the US and China are the largest shares of the global technology market cap.
In fact, if we look across the World, the US is really the only place to find the tech “juice” and:
– US tech weight is nearly 50% above the global tech weight
So is it a surprise to see US tech seeing surging prices? Not really.
Global labor shortage of 43 million workers by 2020, the first time since 1973 = secular rising demand for technology…
The global labor supply is falling into a deficit. This is shown below and is most acute in high-income countries (4.9% labor)
The decline in labor is widespread (except Africa and India, basically) and total shortfall over the next decade is 43 million workers.
If there is a shortage of labor, but demand remains strong (population growth is still positive), then “productivity” needs to rise. This is short-hand for automation. So, demand for capital-based labor will rise. In a world of global suppliers of automation, we have 4 nations:
– US
– China
– Japan
– Germany
And in the past 90 years, every time we saw the population grow faster than labor supply (working-age adults as proxy), the US Technology sector has gone parabolic.
Labor shortage cycles
– 1948-1967, US tech stocks parabolic
– 1991-1999, US tech stocks parabolic
– 2015-2047 –> guess what? US tech stocks likely parabolic
Tireless Ken’s list of companies that benefit from global labor shortage…
I asked tireless Ken to list the companies that benefit from global labor shortage. This is his list (*):
APTV, GNTX, SRI, GRMN, CW, MOG/A, TDY, DE, AME, EMR, RBC, ROK, ROP, LECO, PH, ADSK, SNPS, CSCO, FLIR, ZBRA, MKSI, AVGO, NVDA, QCOM, XLNX, IMMR, ISRG, VAR, GOOG, CPRI, TSLA, AAP, AAPL, KSS, GPC, DG, TGT, BSET, ETH, LOW, AMZN, DENN, TSCO, POWL, CSL, DOV, HURN, COST, MXIM
We also used this list for our AI/Automation thematic portfolio which is part of our Granny Shots portfolio.
POINT 1: Arizona cases down 96% from the highs… yup
USA COVID-19 cases came in at 43,360, which is -191 lower vs 7D ago. This drop is pretty consistent with the drops seen over the past few days. There remain a few states reporting “probable” cases and backlogs, including Alabama which had 900 probable cases in yesterday’s report, but the overall trend is still lower.
Source: COVID-19 Tracking and Fundstrat
This does not seem to be getting a lot of attention. But Arizona cases are down to 187 on Wednesday versus nearly 5,000 in early July. That is just an astonishing collapse in cases. And as we know, Arizona did not close its economy. Certainly, the state took corrective measures, such as mandating mask-wearing and closing bars. And this along with better compliance by its residents, led to this huge improvement.
Source: AZ Health Dept
We think it is just a matter of time before the rest of the 4 epicenter states, FL, CA, TX, or F-CAT together, see a sustained decline in cases that matches the improvement seen in Arizona.
Source: COVID-19 Tracking Project
Arizona case prevalence surpassed NY state, so it is not surprising to see this case growth organically slow. And we think once the rest of F-CAT slows, few states have enough population to fuel a massive new outbreak. So, it would be a re-introduction of new cases that pose a risk — ala flu season in the Northeast, etc.
Source: COVID-19 Tracking Project
Again, the daily change vs 7D ago, in our view, is the leading indicator as it is what influences the 7D moving average. And this is pointing to further declines. The good news is that there are few states reporting sizable jumps vs 7D ago.
Source: COVID-19 Tracking and Fundstrat
The Alabama surge on Wednesday reflects the surge in cases stemming from its colleges starting their Fall season. And part of it is due to the addition of 900 ‘probable’ cases. No explanation was offered.
Source: COVID-19 Tracking and Fundstrat
POINT 2: Europe: More cases, less dying — COVID-19 death almost non-existent
We have talked about how Europe is seeing a rise in cases recently, and in the case of France and Spain, it looks like the cases per 1mm (per capita) could be overtaking the US soon. In fact, Spain has already exceeded the US level of daily cases per 1mm. This is a resurgence of COVID-19 and not due to flu season. Young people and movement are behind this. But as we wrote in past commentaries, this also happened at a time when cases per 1mm in Europe is below the 12,500 per 1mm which we have seen as the case prevalence level that has led to slowdowns in the US.
Source: Johns Hopkins
But despite the higher case counts, there have been essentially ZERO increases in deaths. See the chart below which show the cases and deaths on the same chart. As you can see, none of the four countries listed below have seen a commensurate rise in deaths.
– European nations have attributed this to better care and also to a younger demographic.
– Either way, this is positive.
Source: Johns Hopkins
Yet, Europe overall leads in terms of overall mortality rates. That is, deaths as % cases is still the highest. Thus, while there are few deaths now, Europe still has had quite high mortality rates.
Source: Johns Hopkins
Deaths are still very high in the US and Brazil…
Unfortunately, in the US and in Brazil, the level of deaths per day from COVID-19 are unacceptably high. As shown below, the level of daily deaths remains quite high in the US. It has not risen past the daily deaths seen during the March/April period, but it is still a rate of ~1,000 per day. This means nearly 365,000 Americans are dying annually from COVID-19 at this rate.
– Brazil daily deaths are also quite elevated.
Source: Johns Hopkins
The 7-day delta in daily deaths is negative, which means that daily deaths are lower than they were 7D ago. So, the trend is good.
Source: Fundstrat and COVID-19 Tracking Project
POINT 3: Recent CDC guideline changes puzzling…
The CDC made a few changes to its guidelines recently and on the surface, one of them is puzzling. Here are the two we are discussing:
1. Less testing: CDC now says some people exposed to COVID-19 do not need to be tested
2. Less quarantine: CDC revised its mandatory self-quarantine guidelines for those returning to US
The first one is a head scratcher. Basically, the CDC does not recommend testing unless someone shows symptoms. The revised guidelines are shown below. There are obvious problems with this recommendation if testing capacity exists.
– less testing reduces detection
– less testing risks increased spread
I am not entirely sure of the rationale for this change.
https://www.cdc.gov/coronavirus/2019-ncov/hcp/testing-overview.html
But a CNN story suggests this decision follows a “top down” decision, which the story below suggests comes from the White House. I am not a healthcare expert, nor a scientist, so my opinion really doesn’t matter. But I think this is a terrible idea.
https://www.cnn.com/2020/08/26/health/cdc-guidelines-coronavirus-testing/index.html
NY Governor Cuomo does not plan to follow these revised guidelines and suggests other states follow.
https://www.cnbc.com/2020/08/26/coronavirus-cuomo-says-new-york-wont-follow-cdc-guidance-rips-into-agency-as-trumps-political-tool.html?__source=iosappshare%7Ccom.tinyspeck.chatlyio.share
The other guideline change is below, which is the CDC dropped its 14-day self-quarantine recommendation.
– eliminating this for out-of-state makes sense to me, since many states are quite “safe”
– but this international guideline is also a head scratcher.
I guess there is a commerce argument, particularly if reciprocal changes are expected, for easing the international travel restrictions.
https://www.washingtonpost.com/travel/2020/08/24/cdc-drops-14-day-self-quarantine-recommendation-international-out-of-state-travelers/
The CDC recommends people base self-quarantine using country-by-country risk assessments. It is on the CDC website. Basically, any country with “orange” is high risk and therefore, 14-day is recommended.
– Looking below, it looks like pretty much the entire world is orange.
https://www.cdc.gov/coronavirus/2019-ncov/travelers/map-and-travel-notices.html
(*) This AI/Automation thematic stock list is based on the 2Q2020 rebalance (effective on July 13). It is designed for a long-term investment horizon in order to capture the trends of Automation/AI. We do not monitor this list day by day. These stocks may not be suitable for all investors. Please consult your financial advisor to discuss your risk tolerance and other factors that characterize your unique investment profile. We will reconstitute and rebalance the portfolio in early October.
