Click HERE to access the FSInsight COVID-19 Daily Chartbook.
STRATEGY: The new President of the United States is still…undecided
Today (Wednesday) is D+1 after the 2020 election day, and the outcome of the Presidential election is still undecided, with the key states still counting votes and even potential recounts in several states. An “undecided” and even “contested” outcome was widely anticipated, and many of our clients were positioned with this as the central case. In fact, this positioning also contributed to the fact that stocks did not panic on this outcome and the VIX actually collapsed.
The S&P 500 managed to post a strong rally, up 2.25% (gave up a much stronger rally). Was this rally justified, even with a contested election? In our view, if one believes more than one of the factors below, then the answer is yes:
– stocks fell 10% in the past month, discounting a contested election
– investors were cautiously positioned into election day (cash >$4.5T)
– tech rallied due to Republicans holding Senate (tax cuts off table)
– mutual-fund/ October YE tax loss selling over coupled with seasonal weakness ending
– Santa Claus rally still in play
– Republicans holding Senate make fiscal stimulus prior to YE more likely (vs lame duck)
– Republicans holding Senate maintain a balance of power = good
– many of our clients were bracing for a “limit down” Tuesday overnight futures session, so markets priced in a scary night
– VIX collapse is suggesting the market sees more certainty in election outcome compared to official electoral college
Stimulus before year-end + Santa Claus rally + positioning = still upside for stocks…
OK. So you can see, there are multiple reasons that stocks were relieved. In fact, this goes back to a simpler observation — less uncertainty, is incremental certainty = risk on. So we think the rally in stocks makes sense and we still see the potential for a 10% rally into YE, taking stocks to 3,600 or more. The headwind would be a protracted legal battle that morphs into a street level chaos and violence.
Turning back to COVID-19, the daily cases are now becoming parabolic. Total USA cases surged past 100,000 for the first time. For the foreseeable future, daily cases will keep rising. Here are some high level statistics to keep in mind:
– case growth (velocity) is highest in the 6 states at the heart of wave 3, WI, IL, ID, ND, SD, UT, or WIINSU and ND >1,600 cases/day
– at the county level, 9 US counties have >1,000 cases per day (per 1mm residents). El Paso tops list ~2,000 cases per 1mm residents/day and 4 of 9 are in TX with 5 of 9 in WIINSU
– hospitalizations rising but the rate is far, far below wave 2 (see scatter and coefficient in point #3)
– winter is bringing about conditions to worsen COVID-19 spread: (i) indoor time; (ii) less ventilation; (iii) less humidity and (iv) less sun, or vitamin D
We hope everyone is taking the precautions to really limit one’s risk of catching and spreading COVID-19. Therapeutics and vaccine development are making progress, so there remains a path to an end of this crisis. And as we wrote about several times recently, we see this crisis potential end date as mid-2021. So hopefully, we can avoid catching COVID-19 until then.
In point #2, we also see some signs of the speed “governor” kicking in as daily cases velocity in some WIINSU counties might actually be slowing. This is too early to call, but it is a sign that COVID-19 could be reaching some natural breakpoint among some wave 3 states. That would be a timeline way faster than suggested by the IHME models (mid-Feb).
POINT 1: Wow. Daily cases 100,973, +25,525 vs 7D ago — 7D delta still rising
The latest COVID-19 daily cases came in at 100,973, up +25,525 vs 7D ago. This is the first time daily cases exceeded 100,000 and daily cases are actually set to rise further:
– the spread of cases across the US is widening
– the fastest spread remains in the wave 3 states, in particular, WI, IL, ID, ND, SD, UT, or WIINSU.
– but other states are seeing higher cases
– we all should be cognizant that cooler weather is making spread faster, perhaps due to weaker immune systems or “indoor” time
Source: COVID-19 Tracking Project and Fundstrat
7D delta rose to 25,525 today… the highest level since wave 3
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,
– last week, it looked semi-parabolic
– the 7D rise in the most recent day is a big jump
Source: COVID-19 Tracking and Fundstrat
Source: COVID-19 Tracking and Fundstrat
Source: COVID-19 Tracking and Fundstrat
POINT 2: Wave 3: COVID-19 be peaking in WIINSU but moving to other states…
Wave 3 is gathering momentum, both measured from daily cases and from hospitalizations. This wave is also gaining strength due to the winter and the associated higher risks:
– winter is “indoor” season = more exposure to viral load and less ventilation
– winter sees lower humidity = sinus systems more vulnerable
– winter reduces radiant sun = less vitamin D
These are possible reasons for fueling an accelerated spread of COVID-19. But see the top 15 states (based on daily cases) below. As you can see, the breadth of states seeing higher cases is up.
– And 3 of the 4 wave 2 states, FL, CA, TX, (of F-CAT) are in the top 10
– Texas saw a massive jump, mainly due to El Paso (see below)
– But cases are spreading fastest in wave 3 states WI, IL, IN, ND, SD, UT, or WIINSU
Source: COVID-19 Tracking and Fundstrat
El Paso, TX is seeing a massive wave…
El Paso is seeing a massive wave of cases and accounts for 33% of total Texas cases. The city has 680,000 residents and is 2.3% of TX total of 29 million residents.
– the surge in cases is 10X the level of Texas overall
– Texas has more cases than any other state
– massive outbreak
Source: KFOX14
As shown below, this is a massive, massive surge. This surge in cases looks very similar to the parabolic rise seen in European cities like London, Paris, etc.
Source: El Paso Dept of Health
El Paso is at the intersection of the US-Mexico border and this could be contributing to the surge. Healthcare quality is generally better in the US than Mexico, so we could be seeing another wave of imported cases.
Source: Google
These are the 9 other counties in the US with a surge in daily cases looking like El Paso, TX.
– 4 of the 9 are in Texas, including Lubbock
– the rest are in WIINSU
So, WIINSU remains the hotspot, especially if we look at the top 20 counties. But when WIINSU peaks, we can use this to model what might happen elsewhere.
Source: Johns Hopkins and Fundstrat
WIINSU is where the cases are spreading the fastest…
The speed of case growth, measured as daily cases per 1mm, has been in the 6 states we have previously mentioned. This is visually apparent looking below.
– in fact, the velocity of case growth in ND and SD is well past NY tristate during its worst days
– part of this is the increase in testing (more detection)
– part of this is policymakers there have not quite panicked
Source: COVID-19 Tracking and Fundstrat
But if we squint, we might be seeing signs of slowing in WIINSU states…
But if we were to look at county-level data, it does seem that the velocity of cases is actually slowing in these WIINSU states. As highlighted below:
– Instead of making new highs, we are seeing daily cases per 1mm slowing
– This is true for WI, IL, ND, SD
So, we are reaching that point of peak velocity in WIINSU, potentially.
Source: Johns Hopkins and Fundstrat
But testing remains inadequate in the WIINSU states. As shown below, the positivity rate is >60% for ND and 50% for SD. These are pretty insane levels of positivity. And as shown below, these are rising.
Source: COVID-19 Tracking and Fundstrat
POINT 3: Hospitalizations matter more than cases. Hospitalizations rising but still lower than wave 2
As alarming as the case surge is, we do not want to be over-reacting either. COVID-19 is a terrible disease and very deadly if infecting the wrong cohort. So the key metric to watch is hospitalizations, which is a leading indicator for deaths.
– Hospitalizations are rising, particularly in wave 3 states (see below)
– but the level in any geographic area is far lower than in wave 1 and wave 2
Wave 1 and wave 2 saw total hospitalizations peak at around 30,000 in total. But the 22 states of wave 3, with a far greater number of cases, is seeing 17,000 so far.
Source: COVID-19 Tracking Project
We can also see this by looking at the ratio of cases vs hospitalizations. The rate that Americans are getting hospitalized remains much lower than in the wave 2. This is apparent by looking at the slope of the cases.
Source: COVID-19 Tracking Project
This is also more visible when looking at hospitalizations per 1mm residents. And this shows the considerably milder level of hospitalizations in wave 3.
Source: COVID-19 Tracking Project
While COVID-19 cases are soaring and hospitalizations are rising, the rate of incremental hospitalizations is still shockingly low. That is, we are at all-time high in cases, yet, only about 1% of incremental cases are being hospitalized.
– this figure has stayed flat as a pancake at 1%
– this was >3.3% in wave 2
– and was >13% in wave 1
So COVID-19, while seeing a massive rise in cases, is not creating incremental healthcare severity that we saw in the prior waves.
Source: COVID-19 Tracking and Fundstrat
