While there is no playbook for navigating a pandemic, (as we have stated several times over past few months), as states begin to ease restrictions it will be important to track activities they are “easing” and the willingness of residents to re-engage. Our data science team, led by tireless Ken, categorized state “easing” into six categories (elective surgeries, etc.) and also compiled some high-frequency analytics to track “re-engagement.” There is no playbook, so if you have suggestions we welcome them.
So far, 26 states are in some form of “open,” representing 58% of US GDP. But state governments have limited what activities are open or set dates for easing into the future. It seems like states have prioritized “business” and “healthcare” over “retail” — this is not surprising since the two formers are larger contributors to the tax base (asset owners), even as they are smaller shares of employment. (See chart below and Point 2.) Some of the early results show residents are re-engaging.
POINT #1: Total US COVID-19 cases continue to rise, but the composition of states adding to the rise is from 4 states, three of which are “chronic” case risers. Interestingly, states reporting increases are “closed” states, with chronic high case counts… NY, NJ, IL and CT accounting for much of the higher cases. So the most recent rise seems not a “re-infection” wave due to open states.
POINT #2: We expanded the details of 26 states which announced some sort of phased opening, adding six categories: manufacturing/offices (not always the same, but standardizes “wholesale” / non-retail workforce); daycare + elective surgeries (which for most states are treated in same category); dine-in restaurants (outdoor seating, curbside or dine-in); retail (broadly defined, includes malls; bars; and gyms and other services (hair salons, tattoo parlors).
Based on number of states easing, it looks like governments are prioritizing elective surgeries (19) and manufacturing (18) over dining (14) and this makes sense. The larger contributors and tax base for these states is from healthcare and offices, rather than restaurants.
Let’s look at what percent of each category is re-started/open both in number of states and percent of US GDP, what Alan Greenspan would call “blunt instruments” because we are not able to be precise in what overall share of each activity is indeed open, and it is simply estimated by the state’s GDP share. But I believe this framework will give a situational awareness to the extent lockdown restrictions are loosened.
Restaurants: 14 (including 3 that never issued stay at home) states are easing “dine-in” restrictions, or 22% of US GDP. In the next 2 weeks, another 3 states will be adding “dine-in” easing.
Manufacturing/ Offices: 18 (including 3 that never issued stay at home) have eased restrictions, or 24% of US, based on the state GDP share. In the next 2 weeks, another 4 states will be adding “manufacturing” easing.
POINT #3: Once a state is open, the next obvious question is whether demand has resumed. Most states are only in the earliest stages of re-start. So we picked 2 states (of the 26) and 3 metrics to highlight the progress of the state of consumer activity.
Georgia — open since 4/24/2020… dining since 4/27/2020. With 14-plus days of easing, we can see how patterns have changed.
As shown, since the re-open date, the percent staying at home has fallen further. These figures show less than 30% were exclusive stay at home already, but it has since fallen by another 500bp to under 25%.
Open Table says dine-in reservations rose since the easing of restrictions. From -100%, this is up less than 10%, but as you can see, it is an uptick nonetheless. For movement back to the office, we used Google analytics and we can see a more pronounced uptrend in visits to manufacturing and offices below. Thus, it looks like residents are heading to offices and leaving home.
Texas — Residents have been a lot more mobile (over 70% in the past month) and yet cases were falling. Since the restrictions were lifted, we see a very pronounced rise in dining reservations. And like “stay at home” it looks like Texas jumped right back to work. The trend has been a pronounced rise since the easing of restrictions.
STRATEGY: The April unemployment rate rose to a record 14.7% and payrolls dropped by an unprecedented 20.5 million. If stocks survive this, it will give new meaning to markets bottom on “bad news.” This is not to be taken lightly. But the fact this jobs report will be this terrible has been well telegraphed. Even though this was the worst report ever, the consensus was 22 million jobs lost.
Additionally, we noted that in March the median income of the jobs lost was $35,000 vs $63,000 US median overall. The key for the April jobs report is tracking the median income hit based on the industries impacted. I continue to believe the market is now in the hands of “buyers” as the entire universe became sellers in March. The future is uncertain, and recognizing that, our framework is as follows:
Stock recoveries are symmetric to their decline, 2.5X time to make a new high vs decline. Stocks follow bonds and HY/IG markets are essentially functioning normally. EPS recovers faster than GDP due to companies’ ability to engineer costs via operating leverage. Two largest costs for business today are employees and real estate. Work from Home is letting biz realize how to engineer costs. Policy reaction of White House and Fed providing cushion
Bottom Line: The framework above makes us buyers of the market. Our Head of Global Portfolio Strategy, Brian Rauscher, expects markets to make new highs before YE (one of his 2H20 surprises). For more on this see page 2. We continue to recommend investors barbell this market: own “secular growth” (FANG, Tech, Cloud) and “epicenter” stocks like consumer discretionary.
Figure: Comparative matrix of risk/reward drivers in 2020
Per FS Insight
Figure: FS Insight Portfolio Strategy Summary – Relative to S&P 500
** Performance is calculated since strategy introduction, 1/10/2019
