USA COVID-19 cases came in at 44,543 Thursday, which is +788 higher vs 7D ago. So, there is a clear “stall” in the pace of improvements. It seems like college students returning to campus is fueling another round of cases. The two states with the largest increase are Iowa and Alabama. This week, Iowa took an emergency measure to close bars. There have been widely reported outbreaks at several college campuses in Alabama. So, both states are aware of these surges and hopefully are taking sufficient corrective measures.
Colleges are going to struggle to contain COVID-19 cases. I am not sure if it is possible for cases to be zero on a campus. The reason is due to the existing prevalence of COVID-19. If we look at the University of Alabama and its 20,000 returning students, we estimate that 30 to 40 of the returning students were contagious when they arrived on campus.
Thus, the campus was not likely “COVID-19 free”. But this picture is not all negative. Florida and Arizona have large schools but there has not been a major new wave of cases reported. So, there may be some basis to believe that once a community reaches a sufficiently high level of case prevalence, COVID-19 spread naturally slows.
Abbott Labs’s announcement of a quick 15-minute COVID-19 PCR test is viewed by many as a game changer. The reason is that this cost-effective and very fast test allows much faster case detection, which in turn, provides better disease management. Any positive developments on healthcare, whether vaccine, cure, or testing, improves the safety of the US and the safety for Americans to leave their homes. Thus, this has a positive effect on the stocks most hurt by this pandemic.
Strategy: Abbott testing announcement again proves many epicenter stocks may have a “binary reaction” to healthcare developments. In my view, market participants have severely discounted the likelihood of a vaccine in the near term.
Below is our simplified graphic of companies that have a binary benefit from healthcare developments. It’s a reminder that many epicenter stocks have a binary reaction to healthcare developments. The group includes travel and leisure stocks, and even OTAs.
The number of US counties with cases 75% of its highs is about to reach a new high. As shown below, this last peaked in early June. And we know that when this line began to rollover, the trends in COVID-19 were worsening.
– This is based upon county-level data so it gives us a clearer picture of the actual trend
– The fact this is rising suggests more counties are seeing a BIG retracement in COVID-19 cases.
– The F-CAT daily cases have utterly collapsed. And the 18 states with high prevalence are also rolling over.
– There are now only 16 states, vs 29 on 8/18, with cases <12,500 per 1mm. This is good news, in a sense. After all, we are not seeing a surge in cases in Florida or Arizona, even as these states have many colleges and universities.
Bottom Line: Epicenter stocks including travel, leisure, and OTAs are poised to do well as the prospects for a positive “binary event” improve.
Figure Comparative matrix of risk/reward drivers in 2020
Per FSInsight
Figure: FSInsight Portfolio Strategy Summary – Relative to S&P 500
** Performance is calculated since strategy introduction, 1/10/2019