Click HERE to access the FSInsight COVID-19 Daily Chartbook.
Daily new COVID-19 cases came in at 22,734, down an astonishing -15,514 vs 7D ago. On the surface, this is great organic progress and shows the disease is retreating. In fact, even AZ only reported a mere 81 cases on Tuesday, the lowest since March 2020. However, keep in mind:
– Labor Day was Monday, so the holiday effect going to impact yesterday’s case number
– Daily tests were ~520,000 on Tuesday vs 800,000 last week
– But positivity rates still fall to 4.3%, good thing
So I am inclined to say the trend remains positive but the 22,734 figure is artificially good.
Tom Block, our Policy Strategist, notes that Washington is still at a standstill regarding another relief package. And from his perspective, a scenario that could move this forward is pressure from Democratic House members when they return next week. And this could result in a bill before members break for the election. See his comments below.
STRATEGY: Epicenter vs FANG did not get “faded” in afternoon like the past 4 days…
The megacap Tech stocks are no longer invincible. The bludgeoning seen in the last few days resulted in sharp pullbacks for these stocks. Below is the magnitude of the pullback in these megacap names. As you can see, 4 of these names have been particularly hard hit: TSLA, ZM, AAPL and MSFT.
NASDAQ -11% from its highs and S&P 500 -7%, both severe levels of decline suggesting a lot of froth is gone…
The NASDAQ 100 (QQQ) is in “correction” territory falling 11% from highs in just 3 days, while the S&P 500 is off 7%. That is a pretty intense level of selling and in a very short period of time. Do we think a deeper selloff is underway? Maybe, because just like recessions, one can never tell the severity once it begins. But keep these facts in mind:
– stocks soared in August, so a bit payback is not entirely surprising
– market was overbought based on many technical indicators, RSI, etc.
– Megacap tech took on the air of invincibility, so this crushing decline is a clear rebuke of that view.
Multiple drivers still in place that favor stocks into YE…
The major drivers of stocks remain largely constructive, with the exception of rising election uncertainty. Here is a list, not in any order, of the positive tailwinds for stocks into YE:
– US economy is gaining momentum (ISM, jobs, etc.)
– COVID-19 organically retreating (per our ongoing comments)
– Vaccine/cure development remains positive with good momentum
– Bonds are giving strong relative value argument –> TINA
– Americans are becoming less fearful and thus, helping the economy recover
– Stocks seasonally strong into YE
– $4.5 trillion of cash on sidelines
– The majority of retail investors still bearish as AAII survey shows negative sentiment
– Fed remains dovish
So the list is pretty comprehensive for staying constructive. And if you did not agree with this take, remember, “don’t fight the Fed” and a dovish Fed is positive for markets.
Epicenter trade seems to be strengthening as COVID-19 retreats, suggesting rotation could have traction this time…
The organic news on COVID-19 continues to be promising. Granted, as noted above, Tuesday’s case number could be suppressed somewhat by the long weekend, but it is still directionally very positive. But as we all know, this epicenter rotation seems to last for a shorter and shorter amount of time. Thus, we understand why investors might be skeptical.
But if we look at the intraday price gains over the last 4 days, yesterday’s price move (Tuesday) showed a positive break in the pattern. We are using the S&P 500 High-beta ETF (SPHB) as the proxy for the epicenter and comparing its price performance to FANG.
– Epicenter stocks gained continuously throughout the day, strengthening into the close
– this differs from the rally of the prior 3 days, where the epicenter opened strong but faded into the close
Thus, it looks like this rotation is actually gaining strength, not weakening.
We realize the epicenter stocks are just tougher to own, because one is implicitly making a bet that a virtuous cycle is underway. This virtuous cycle would be driven by:
– COVID-19 disease retreating
– Americans less fearful
– Vaccine/cure progress
– Economy gains momentum
– $4.5 trillion cash comes off sidelines
An example of this is Six Flags (SIX) which was up ~3% on Tuesday. Theme parks are a big beneficiary of an improving pandemic outlook. Granted, someone might say this is simply an unwind of a pair trade — long Tech/ short epicenter. Could be.
Yup. Hard to believe.
POINT 1: Daily cases collapse to 22,734 (-15,514 vs 7D ago), but the long weekend might be a factor…
Daily cases continue to show a dramatic organic improvement. Daily cases came in at 22,734 on Tuesday, which is down 15,514 vs 7D ago. Tuesday cases usually rise vs Monday, but instead fell sequentially.
– this is a positive break in pattern
– but it could be due the long weekend
We do not want to read too much into this daily figure, since this is coming off Labor Day weekend and the Monday holiday could be distorting this figure.
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. After seeing daily cases essentially flat for nearly 10 days, the last three days were good gains but yesterday’s drop of 15,514 was particularly notable. In any case, the next few weeks are a big test. The drop in cases is a good sign. But the Labor Day weekend is also coinciding with many social gatherings and back to school. So, the potential for cases to re-ignite is quite high. On the other hand, if daily cases do not surge, this is a major positive.
Source: COVID-19 Tracking and Fundstrat
There is some credence to the idea that the holiday effect is causing artificially low reported cases. As shown below, daily tests were quite low in the last few days.
– if tests are down, then another key metric to review is the positivity rate
– that was actually down again (see below), so the trends are still good
Source: COVID-19 Tracking and Fundstrat
Positivity trends were also encouraging as the daily positivity rate was 4.3%, which improved upon the figure from Monday (4.6%). Again, a sub-5% level is considered a level of infection that is under good control (assuming testing prevalence is high).
Source: COVID-19 Tracking and Fundstrat
Source: COVID-19 Tracking and Fundstrat
POINT 2: Arizona reported a mere 81 cases on Tuesday and all 4 epicenter states following NY tristate now…
Did Arizona reach some type of herd immunity? Look at daily case trends for the past few days. The state reported a mere 81 cases on Tuesday. This is the lowest since March 2020.
Source: COVID-19 Tracking and Fundstrat
In fact, looking at the rest of the 4 states at the heart of the June/July surge, FL, CA, AZ, TX, or F-CAT, we can see their daily case trends are mirroring the experience of NY tristate closely.
– this raises the question of why do all these states have the same curve?
– each state took different mitigation measures and timing
– yet the declines look nearly identical
Source: COVID-19 Tracking and Fundstrat
Part of me thinks this suggests that disease follows a natural course, once an outbreak happens, and this results in a similar spread until a level of community prevalence is reached. Otherwise, how does one dismiss that F-CAT prevalence looks a lot like NY tristate?
POINT 3: Researchers suggest mask-wearing might reduce the severity of COVID-19 — could become a form of “variolation” to generate herd immunity…
The topic of mask-wearing is a controversial one and has morphed into a political debate. The most recent Pew Research survey shows that there is still a material difference in mask compliance between Republican-leaning vs Democratic-leaning candidates.
NEJM article suggests that those using masks contract milder form of COVID-19…
But something published in the New England Journal of Medicine, NEJM, suggests that mask wearing might bestow an additional benefit to the wearer.
– this study suggests that higher mask usage compliance is leading to significantly reduced COVID-19 severity.
https://www.nejm.org/doi/full/10.1056/NEJMp2026913
This is a very interesting suggestion. The study suggests that masks reduce viral load to the mask wearer. And disease severity is known to be proportionate to viral load. They point to several examples of how mask usage is leading to higher rates of asymptomatic cases.
Now, I know many will scoff at this suggesting that “see! masks are supposed to prevent the disease, but you still catch it” — but the point of this article is to suggest that masks reduce viral load = good.
Authors suggest that universal mask wearing is a form of “variolation”
The authors suggest that universal masking could become a form of “variolation” and with continued practice, could result in “variolation” and in turn generate herd immunity. That is, until a vaccine is found.
https://www.nejm.org/doi/full/10.1056/NEJMp2026913
I had to turn to Wikipedia to figure out what “variolation” means…
Wikipedia describes variolation interchangeably with inoculation. And it says a patient getting this virus (variola) would hopefully develop a mild form of the disease.
The authors refer to the long agreed upon science that intake of viral load is proportionate to the severity of the disease. Thus, masks, if it reduces viral load, results in milder disease.
https://www.nejm.org/doi/full/10.1056/NEJMp2026913
Multiple instances cited, but the two highlighted below show “mild”/asymptomatic is 80%-95% of cases with mask usage…
Perhaps the most intriguing instances cited are two instances where mask compliance was nearly universal:
– Argentinian ship and with universal mask usage, the asymptomatic infection rate was 81% but was only 20% before mask usage
– Food processing plan with universal mask usage showed 95% of cases were asymptomatic
https://www.nejm.org/doi/full/10.1056/NEJMp2026913
With so many concerns about the difficulty in maintaining social distance with back to school, the notion of universal mask usage, and the resulting mitigation of severity, is quite encouraging.
