Click HERE to access the FSInsight COVID-19 Daily Chartbook.
STRATEGY: Equities on a “South Beach diet” — only two foods — elections + COVID
I realize equity markets are really on a strict diet over the next 30 days. The only two things markets seem to be willing to consume are:
– 2020 elections
– COVID-19 path
Equities have been holding the line in the sand, with the S&P 500 holding the key 3,224 (62% retrace of June to Aug rally) and holding 3,363 which, if equities hold this level, tell us we have seen the pre-election bottom. We have written extensively about the market impact of elections, so I will not repeat myself this time. In short, we see markets behaving pretty similarly post-election day, because the proposed policies of a Biden vs Trump White House will be 90%-95% similar.
But on COVID-19, we have mixed messages. And if I was to summarize some observations:
– US COVID-19 daily cases are rising = bad
– US COVID-19 daily deaths FALLING = good
– Therapeutics seem capable of obliterating COVID, worked on Pres. Trump = good
– US consumers seem to be less reactive to media headlines (see consumer survey below) = good
Based on the cases as a measure, COVID-19 is not heading in the right direction because cases are rising. Ok, they are up modestly vs 7D ago, so while rising, we are not yet seeing the exponential rise that characterized Feb/March 2020, or even Europe.
– But look at the trend in daily deaths below
– US daily deaths are marching lower, which is a good thing
– Hopefully, this continues. But the future is uncertain.
Source: COVID-19 Tracking Project
This is the same chart of cases and deaths from Jan to April 2020. Notice how quickly mortality soared with cases? So this is a good divergence we are seeing currently. US cases are up, but deaths are not soaring.
Source: COVID-19 Tracking Project
Dr. Scott Gottlieb asking the same question that we view as key, who is the superspreader at the White House event
Did you catch Dr. Scott Gottlieb on CNBC yesterday? I always enjoy seeing Dr. Gottlieb speak, because his commentary is balanced, and he is often quick to see the weaknesses and risks to the paths of COVID-19. In this interview, he asked the question that I also think is key:
– Who is the super-spreader at this White House event?
– Almost every superspreader event is caused by a symptomatic individual, basically disregarding common sense and causing the spread
– Someone at this event is highly to be this person and Gottlieb said it is important to identify this person
If the attendees were not the source, was this sabotage? I am not a conspiracy theorist, but I think this is more important than masks. Why? Anyone with symptoms should be self-quarantining. Not going to the White House. A mask is not the issue. It is poor judgment, and the same problem is happening in the US everywhere. People with symptoms should not be in public.
https://www.cnbc.com/video/2020/10/07/former-fda-chief-scott-gottlieb-on-the-current-coronavirus-outbreak-in-the-white-house.html?&qsearchterm=gottlieb
Quietly, the US economy is showing lots of vigor…As many are aware, despite the risk of choppiness for markets in the next two weeks, and the fact that the market only cares about two things in the next 30 days, we see positive risk/reward in stocks. And while not in the headlines, the US economy remains surprisingly resilient. In fact, business formation seems to be rebounding strongly.
Goldman Sachs economics team put together some fascinating charts on the number of US small businesses and new business applications. Take a look at the chart on the right. The number of new business applications is absolutely exploding. Wow. This is American resilience.
– this is an example of American exceptionalism.
– Americans lose a job or a business and turn around and start a new business
And given COVID-19 is an “exogenous shock” creating this 2020 Economic depression, we see the above chart as further proof of a vigorous economic recovery is underway.
Moreover, check out point #3, where we look at Gordon Haskett’s latest consumer survey (led by Chuck Grom). It seems consumer risk aversion is falling, even as there is wide media coverage of this recent surge in cases.
– Are the consumers getting COVID-19 fatigue?
Maybe, and if they don’t use poor judgment, by going out while symptomatic, the US could possibly see an economic revival with a controlled virus spread.
POINT 1: Daily cases rising vs 7D ago, Flat is the new “good”
Daily new COVID-19 cases came in at 46,247, which is +2,428 vs 7D ago.
– Cases are rising vs 7D ago, so the trend is higher.
– But the rate of change is not surging, but has been stable/slightly declining vs 7D ago
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.
– The next few days are key. But if daily cases rise vs 7D ago, we know the trend is now up.
– so far, we are not seeing 7D delta soar, so cases are not leading to an exponential spread
– the next few weeks are critical
Source: COVID-19 Tracking and Fundstrat
Source: COVID-19 Tracking and Fundstrat
POINT 2: NYC selective closures, while necessary (possibly), going to hit NYC just as cold weather will hurt restaurants
NYC and NY are facing a renewed surge in cases. The primary driver, as we wrote about last week, is that NYC is “dropping its guard.” While the media likes to blame Rosh Hashanah and/or back to school, these actions by itself did not create extraordinary risk. It is just the places where mitigation matters more. If we were to blame Rosh Hashanah or back to school for COVID-19, then shouldn’t we be blaming places where people congregate for COVID-19?
– like grocery stores, parks, homes?
As shown below, NYC cases are indeed rising, but the level of cases is still very low compared to earlier in the year.
Source: NYC Health Dept
The positivity rate is up. We are showing the NYC positivity rate only since June 2020. And as you can see, it is curling upwards. But 1.5% is still at a very low rate.
– NYC’s positivity rate is 66% lower than the US overall.
– So NYC implementing deeper restrictions, while the positivity rate is so low, makes me wonder if this is an over-reaction.
Source: NYC Health Dept
The question we are asking aloud is “are NYC policymakers over-reacting?”
The question we are asking ourselves about NYC is whether NYC is over-reacting to the rise in cases. NYC Mayor DeBlasio announced new closures yesterday in “red districts” which are areas seeing a rise in cases.
Source: Fox News
One thing I found favorable is the city is now levying heavy fines for violating existing COVID-19 restrictions. I like this idea because the enforcement of logical rules makes sense. If clustering and non-compliance for masks are mandated, let’s make it expensive to break the rules.
Source: Fox News
NYC economy is going to get hit hard as the weather cools…
The economics team at Goldman Sachs published a great study on the impact of cold weather on outdoor dining. It is a very well written and articulated look at how the weather will affect outdoor dining.
– US restaurants have adapted to COVID-19 by expanding dining to outdoor space
– Northern US states will have a problem as the weather cools
– NYC and other dense cities face a bigger problem as outdoor space shrinks (snow pileups, etc.) even faster
This chart below is the real issue. As the weather cools, there is a non-linear effect. As soon as temperatures fall below a certain level, demand for outdoor dining collapses.
– this looks to be at around 40-45 degrees F.
– that is pretty much NYC weather from Nov to March
– barring NYC restaurants improving with heat bubbles or flaming sidewalks, this is a big hit to demand.
So the question for me is whether NYC should be implementing stricter measures. The city and NY state had among the most restrictive measures in place since March. And while the city enjoyed relatively low cases, it seems like the city is using a cannon to defeat an ant.
– the recovery for NYC restaurants already seemed pretty fragile
– GS shows only 40% of NYC restaurants are open for outdoor dining.
And collectively, GS estimates that we will see a weather-related only 4% hit to restaurant spend in December.
In total, this is estimated to hit US GDP by 0.30% for 4Q2020. So it is a sizable hit in 4Q GDP for the US overall.
– Given the US figure is for many states without cold weather
– The NYC hit is likely 20% (colder weather, per their model) and on NYC GDP, 1.5%-2.0% hit
– That is catastrophic
Source: Goldman Sachs
POINT 3: GH Consumer survey raises issue –> consumers de-sensitized to COVID-19 mania?
The Consumer team at Gordon Haskett, led by Chuck Grom, published its 13th consumer survey. As our clients know, we find this survey relevant for our work, because it asks consumers a comprehensive set of questions about their behaviors and willingness to do things.
– Chuck commented that he saw a meaningful decrease in consumer risk aversion this week
– Notably, it is gyms, stadiums and bars
– This is interesting, as the media coverage of surging cases over the past few weeks has not altered views?
Key question: Are the consumers getting de-sensitized to COVID-19 hysteria?
Source: GH
I think it is possible that US consumers are getting COVID-19 fatigue, or at least are less responsive to the headlines about the disease. After all, US cases have been on the rise. And there are still widespread concerns about schools, gatherings, etc.
The delta in consumer preference versus week 26 is shown below. These are shocking changes:
– 40% of consumers would be willing to go to the gym, up 6.4% (pp).
– 34% willing to Bars/Clubs up 3.2% (pp).
– 23% still willing to cruise — which is about the ratio of Americans willing to cruise anyways
This speaks to a broader surprise. That is the consumer and the US economy have been impressively resilient. These are charts from Goldman Sachs Economists, led by Jan Hatzius, and these show that the level of bankruptcies is far below expectations.
