Click HERE to access the FSInsight COVID-19 Daily Chartbook.
STRATEGY: Futures setting up for a strong week …again
Over the weekend, several media outlets declared Biden the winner of the 2020 Presidential election. The incumbent President Trump has not formally conceded. Instead, it appears that the plurality of the media and the public has declared a winner for the election. And from a financial market’s perspective, this is a further reduction in “uncertainty.”
– as we all know, less “uncertainty” is incremental certainty = risk-on
Thus, as shown below, S&P 500 equity futures are strong Sunday evening, showing a ~1.5% gain, building upon an already impressive rally for the past week and a half. As we noted previously, we believe a 10% rally past 3,600 is likely given a Biden win (plus Blue Wave). And Republicans holding the Senate is probably an incremental positive.
Source: investing.com
COVID-19 going true parabolic in the US, 48 of 50 states R0 >1.0 now…
Wave 3 is gaining strength, as COVID-19 cases surged dramatically over the past few days. Daily cases are now rising >40,000 (vs 7D) and at the moment, there are no signs yet of an apex in cases. A measure of this accelerating spread is to look at the estimated R0 value (R0<1.0 = slowing) and based on data from RTlive, 48 of 50 US states have an R0 >1.0.
– 18 of these states have an R0 >1.2 (even faster spread)
– FL, NH, DE, MD, AZ, MO, KS, CO, MN, OR, VT, MI, NE, IL, RI, CT, IA and ME
In other words, COVID-19 is strengthening throughout the US. This surge in cases has been widely anticipated, and in fact, warned by policy experts including CDC, Dr. Fauci, Dr. Gottlieb, and even IHME. So the fact that cases are surging is hardly a surprise development.
Source: RTlive.com
Potential reasons equities not under pressure despite this massive surge in COVID-19 cases… rising chance of an eventual “market freakout”?…maybe
Unlike prior waves of COVID-19, the surge in daily cases is not triggering a market risk-off, nor a massacre in epicenter stocks. In fact, epicenter stocks staged quite a strong performance in the past 10 days or so.
So the obvious question is, are markets overlooking COVID-19 surge? Or is it just a “matter of time”? There are multiple potential explanations, but we think the 5 below capture the bulk of the issues:
1. 2020 elections have dominated market focus, but eventually will focus on COVID-19
2. Hospitalizations and deaths > cases and at the moment, both muted versus wave 1 and wave 2
3. Markets see a ‘light at the end of the Wave 3 tunnel’ as Europe taking steps plus US citizens acting responsibly
4. Just a matter of time –> Markets will react when risks of renewed shutdown elevated
5. Wake up Tom! COVID-19 doesn’t matter
Which one do I think is explaining this?
I personally (just my opinion, and the stock market doesn’t care about my opinion) believe it is #2. Take a look at North Dakota and South Dakota where COVID-19 is spreading faster than any place in the US. There has not been any panic by policymakers and by citizens and the level of mortality is not challenging the levels we saw in NY tristate in March 2020. So, until we see panic in SD and ND, perhaps the rest of the US is in a waiting game?
Additionally, the path of cases in ND and SD could be quite important. If those two states see a sustained slowdown in cases, this could be heralded as signs of some type of community infection break point.
Bottom line, we still favor risk-on. We think the upside for stocks remains substantial, given the potential positive tailwinds of:
– improving US national mood, post-election
– chances for a fiscal stimulus plan before YE
– $4.5T of cash on sidelines
– Santa Claus rally
– investors under-invested
– US economy showing surprising resilience
– 2021 shaping up to be a good year
POINT 1: Wow. Daily cases 95,850, +22,660 vs 7D ago
The latest COVID-19 daily cases came in at 95,850, up +22,660 vs 7D ago. Wave 3 is gaining momentum, so we are not really near a peak in daily cases
– 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 42,766 on Saturday (11/7)…
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
You can really appreciate how much COVID-19 is spreading, by noting only 3 states reported a decline in cases vs 7D ago. That is a very small number.
Source: COVID-19 Tracking and Fundstrat
And among the WIINSU states, IL now is reporting the most cases daily, with >10,000 cases for 3 consecutive days.
Source: COVID-19 Tracking and Fundstrat
POINT 2: Wave 3: IL of the WIINSU now topping USA for most cases.
Wave 3 for COVID-19 differs from Wave 1 and wave 2 for several reasons:
– it is spreading across states previously unscathed in wave 1 and wave 2
– it is more geographically disperse but mostly in the Mountains region
– 6 states are seeing the fastest spread, WI, IL, ID, ND, SD, UT, or WIINSU
– Unlike Wave 1 and wave 2, states caught up in wave 3 are largely laissez-faire, without any policy intervention
The two states with the fastest growth in cases are North Dakota and South Dakota (see below). Both states are absolutely exploding in daily cases with 4X the amplitude seen in wave 1 and wave 2 states. These are shown in daily cases per 1mm, to common-size the cases.
– It is interesting to see ND and SD cases seeming to plateau here.
– Is this a maxing out of testing capacity in ND and SD?
– Even as IL has the most cases of any state in the US, its daily cases per capita (per 1mm) is lower than ND, SD, and WI
Source: COVID-19 Tracking and Fundstrat
Daily deaths in ND and SD surpass Italy during its worst days…
But daily cases can be misleading, to the extent that COVID-19 cases are not necessarily leading to mortality. The chart below shows daily deaths per 1mm residents. ND and SD have surpassed F-CAT for mortality, but are not near the peaks seen in NYC.
– But ND and SD daily deaths surpassed Italy in its darkest days.
Source: COVID-19 Tracking and Fundstrat
Total hospitalizations nearing all-time highs…or ATH
Total hospitalizations are surging in the US. The level is just 5% off the all-time highs. This is essentially making new ATH.
Source: COVID-19 Tracking and Fundstrat
But as this chart below highlights, the hospitalizations are spread throughout the US. Unlike Wave 1 and wave 2, where some states saw extremely high hospitalizations, this is less the case in wave 3.
– the exception is Texas, where this state has more individuals hospitalized than anywhere else.
– despite high daily cases for IL, it has fewer hospitalized than TX
Source: COVID-19 Tracking and Fundstrat
Daily deaths are creeping up…
Daily deaths are rising as well. This is a reminder that COVID-19 remains the same virus. The lower mortality shown in this wave is due to the fact that COVID-19 has not reached the same vulnerable cohorts. And to a lesser extent, there are better treatment options today.
Source: COVID-19 Tracking and Fundstrat
POINT 3: New “tail risks” both positive and negative emerge from Mink (+relatives)
A couple of articles caught my eye this weekend and they are actually connected. Both involved in the animal family called “mustelidae” which includes ferrets and mink:
– Denmark warns a new mink variant of COVID-19 could cause an entirely new pandemic
– Scientists at Columbia University developed a nasal spray, which tested on ferrets, provides 100% protection from COVID-19 for ~24 hours
In other words, both of these stories, which came out this weekend, are actually connected to the same animal family.
Source: Google
Danish government plans to euthanize 15 million mink to prevent COVID-19 variant from spreading…
I was surprised to see this headline below. The Danish government, based on recommendations by its health institute, plans to cull 15 million mink from its nation. This represents nearly the entire population of the nation’s mink, which is estimated to be 17 million. In other words, Denmark is preparing to wipe out an entire species of animal to protect against COVID-19.
The Statens Serum Institut (SSI), is the institution charged by the Danish government to monitor infectious diseases. The SSI found a variant of the COVID-19 virus in mink is very different from that seen in humans. In addition, it appears that they have already found 12 cases of this variant infecting Danish citizens.
Source: https://www.theguardian.com/environment/2020/nov/05/danish-covid-19-mink-variant-could-spark-new-pandemic-scientists-warn
The problem with this mutation is that it is so different from other versions of COVID-19, that it would set back a lot of work on vaccines and therapeutics, if it were to spread. So the government is taking the drastic step of wiping out nearly the entire population mink. To me, this is astounding. But as they state below, this variant, they could, could be vaccine resistant.
Source: https://www.theguardian.com/environment/2020/nov/05/danish-covid-19-mink-variant-could-spark-new-pandemic-scientists-warn
Denmark is the largest producer of mink, so I think this will undoubtedly lead to a large imbalance of mink supply throughout the world. Mink is the largest fur farming animal in the world, and according to Wikipedia, 50 million minks are killed each year.
Nasal Spray prevents COVID-19 infection in 100% of ferrets tested…
The following study, reported by the New York Times, is strangely related to the above article, because this study was based on tests on ferrets. Scientists at Columbia University have found a nasal spray has provided complete protection for 24 hours — on tested ferrets. This is quite interesting, because the idea is individuals can provide protection from COVID-19 by taking a simple nasal spray.
https://www.nytimes.com/2020/11/05/health/coronavirus-ferrets-vaccine-spray.html
The mechanism behind this is a lipopeptide and it matches one of those found on the spike protein in COVID-19. The presence of this amino acid prevents the spike in COVID-19 from latching onto a person’s airway or lung cells.
– in other words, this spray essentially neutralizes the key feature of COVID-19
– if this works, the benefits would be enormous, as this would allow many people to find an additional measure of self-protection against COVID-19
.
https://www.nytimes.com/2020/11/05/health/coronavirus-ferrets-vaccine-spray.html
