COVID-19 UPDATE: Residents of Wave 3 states are starting to freak out and wear masks = good

Click HERE to access the FSInsight COVID-19 Daily Chartbook.

STRATEGY: The longest wait…  losing 1,000 points per day until Election day
Equity markets were utterly crushed Wednesday, falling 3% and adding to the carnage over the past 3 days.  There have been factors weighing on markets and if I was to highlight a few:

– Fiscal stimulus “clock ran out”
– Europe entering lockdown after a massive, absolutely massive surge in cases
– Vaccine delays seen as cited by Fauci today
– Biden sweep starting to scare people because of higher taxes and increased regulation
– October tax loss selling season
– Nobody taking risks prior to Election day

So this is an absolutely sickening decline.  VIX surged to above 40.  We are now reaching levels where the market is pricing in significant expected moves over the next few months.  And as the chart below shows, when VIX reaches 40, we are near turning points for both VIX to fall and thus, stocks to find some footing.  So, while this has been an absolute bludgeoning, we think this is a buying opportunity and not a time to sell.

Source: Bloomberg


Daily cases are still rising, and this is bad news.  And with Europe’s cases surging so much that both Germany and France are calling for a month-long shelter in place, the level of anxiety is naturally elevated.  

The current wave 3 surge in US cases is coming from states that previously did not see an outbreak in wave 1 and wave 2 — these 8-10 states are primarily in the Mountains region and represent 20% of the US.  We have been waiting for policymakers and citizens in these states to finally panic and take mitigation steps.

It looks like it is finally happening.  Delphi Research Group has been polling Facebook users on mask usage and our data science team compiled the county-level data.  The red line below is the mask usage in wave 3 states (20% of areas with most cases). As you can see, in the past month, residents in these states have started to mask up:

– in other words, we believe we could soon see a peak in cases in these wave 3 states as residents finally panic

Source: Delphi and COVID-19 Tracking and Fundstrat


There is a lot more interesting commentary below, including how the mask compliance seems to be positively correlated with more controlled COVID-19 spread.



POINT 1: Daily cases 75,365, +14,390 vs 7D ago — still more linear than parabolic
The latest COVID-19 daily cases came in at 75,365, up +14,390 vs 7D ago. Daily cases already hit a new all-time high a few days ago of 81,949, so we are seeing a surge in cases.  Last week, we spoke of the likelihood that daily cases would move past 70,000 and we are already past that level.

– Because the spread is primarily in 11 states, we might be nearing peak velocity in those states (daily cases per 1mm >500 trigger policy response)
– states involved in wave 1 and wave 2 are not seeing a surge in cases in this wave 3
– Hospitalizations are more important, in our view, and while hospitalizations are rising, the levels are still quite low
–

Source: COVID-19 Tracking Project  and Fundstrat


US daily cases 7D delta is up but not exponential…
Again, the daily change vs 7D ago, in our view, is the leading indicator as it is what influences the 7D moving average.
– Daily cases are rising vs 7D ago, but the rate of increase is been constant.
– It does not seem to be accelerating (becoming exponential), which is key
– there was 1 day where daily cases surged 23,000 (exponential-like) but it was a 1-day surge

Source: COVID-19 Tracking and Fundstrat  

Source: Johns Hopkins and Fundstrat  

Source: COVID-19 Tracking and Fundstrat



POINT 2: Wave 3: People in “wildfire” areas are starting to wear masks = good
Our data science team, led by tireless Ken, came across some data compiled by Delphi Research Group (Carnegie Mellon) which has been surveying Facebook users about their mask usage.  The data is compiled by county, but the dataset is only for the past 4 weeks or so.  But tireless Ken put together some interesting analytics.

As many of you know, we are advocates of mitigation, including masks, vitamin D, hand washing and avoiding sick people.  And one of the reasons cited for the wildfire spread in the Mountains region of the US has been the relatively less consistent mask usage.  For instance, Dr. Birx cited this in her recent visit to North Dakota.

https://abcnews.go.com/Health/dr-deborah-birx-calls-north-dakota-poor-mask/story?id=73855650


People in “wildfire” states (wave 3) are starting to freak out and put on masks…
Below is a chart looking at the consistency of mask usage.  There are 5 lines, each representing a quintile of US based on the level of case spread (green have fewest cases per 1mm).  

– the red line is key
– this is wave 3 states, or the 20% of the US with the fastest spread of COVID-19
– mask usage in these state surged in the past few weeks as cases rose

In other words, the spread of COVID-19 in these counties is resulting in citizens starting to mask up. This is a reason we expect US cases to actually potentially peak in the next few weeks.  As policymakers and citizens panic, cases begin to slow.  And we don’t have to shut down the economy.

Source: Delphi and COVID-19 Tracking and Fundstrat




Tireless Ken aggregated the data and compared “mask consistency” (x-axis) versus daily cases per 1mm residents (y-axis).  The chart is shown below.  At first glance, there does seem to be a pretty strong relationship.

– states with the lowest mask compliance are seeing the worst outbreaks –> ND, SD and WY
– states with the highest mask compliance are generally seeing the fewest cases

Source: Delphi and COVID-19 Tracking and Fundstrat

In fact, it also looks like states with the lowest mask compliance are seeing the biggest surge in cases as well. This is evident in looking at the stratification of the data below.  Tireless Ken sliced the data into 20 tiers.

Source: Delphi and COVID-19 Tracking and Fundstrat


In my opinion, if someone is consistently wearing a mask, they are also likely practicing other stringent mitigation measures.  That is, someone masking up is also likely to be cleaning hands, social distancing, etc. Thus, this mask consistency is a proxy for general COVID-19 prevention measures.  

In fact, masks alone are probably not enough to prevent a massive spread across the US.  Take a look at the YouGov poll below. As you can see, mask wearing is incredibly high in Europe.  Yet, this did not prevent a massive, absolutely massive second wave.

Source: YouGov



POINT 3: Wave 2 >25% of with “wildfire” growth in cases vs <19% in Wave 3, so far
For much of the past 9 months, we have focused both on the headline COVID-19 as well as focused on the diffusion (% of USA) of cases. Looking at diffusion is important, since the pandemic is essentially local.  That is, should anyone in Manhattan really feel threatened if there is a surge in cases in Boise?  But the headline numbers are what are generally reported and unfortunately, this does have an impact on national sentiment and behavior.  

But the issue we want to focus on is whether this wave 3 is encompassing a larger number of cities.  

For background, we have written multiple times highlighting this wave 3 involves essentially a new set of states that did not suffer the horrific surges seen in wave 1 (NY tristate +MA +RI) and wave 2 (FL, CA, AZ, TX, or F-CAT).

– thus, wave 3 is essentially the Mountains region of the US –> WY, WI, UT, ND, SD, and other states.
– these states were not engulfed by COVID-19 in prior waves and thus, residents were less “fearful” of COVID-19 and thus, less prepared.



19% of US is seeing “wildfire” growth (>300 daily cases per 1mm) compared to >25% in wave 2
Total US cases are surging.  And the good news, if one could deem it, is that cases are rising in a linear fashion and have not gone parabolic. We also want to know what % of the US is seeing “wildfire” growth in daily cases, which we previously defined as daily cases >300 per 1mm residents.  We believe this is the level of cases that cause policymakers and residents to panic.

– wave 1 <10% of US had “wildfire” growth –> hence, this was East Coast problem
– wave 2 >25% of US  –> US-Mexico border states –> F-CAT
– wave 3  ~19% of US –> mostly mountain states

In other words, the current surge in the US is seeing massive increases in cases concentrated in ~20% of the US.  Think of it this way.  If you live in NYC, or Northeast, daily cases have not surged to the point that reminds one of April 2020.  Cases are up, yes.  But this is hardly the chaos of April/May.

Source: Johns Hopkins and Fundstrat


Tracking the breakout in wave 3 involves much smaller cities as well…
Wave 1 and wave 2 of US COVID-19 involved a handful of cities, but wave 3 encompasses a broader swathe of small cities.  We highlight this below:

– wave 1 –> NYC, Boston, Philly, etc. –> East Coast
– wave 2 –> Los Angeles, Big 3 in TX (Houston, Austin, Dallas), Phoenix and Miami
– wave 3 –> dozens of smaller cities <1.0 million Pops

Below are the 50 counties with the highest daily cases (per 1mm residents) in the US. The 50th county has 437 daily cases (per 1mm) and the highest is El Paso with 1,501 (border state).  We made some annotations. 

– these are basically all cities with 100,000-200,000 residents
– Wisconsin dominates this list
– this sort of proves that population density is not necessarily the reason for “wildfire” spread

Source: Johns Hopkins and Fundstrat