The news of President Trump testing positive for COVID-19 sent ripples through equity markets. This morning I noted that I think this is a “knee jerk” reaction that ultimately pushed the Standard and Poor’s 500 index down about 1.0% on the day. Overall, I think the President’s diagnosis is a positive development for the path of COVID-19 in the U.S. Foremost, Trump’s diagnosis should repudiate many of the skeptics who dismissed the need for masks, PP&E and social distancing. This should boost compliance with these measures and could help contain the recent surge in cases.
I think compliance with measures is even more important now as COVID-19 cases are rising again in the US. The daily change in cases vs. 7D ago, which is in our view the leading indicator and what influences the 7D moving average, has jumped over the past three days and it is a notable rise compared to other rises in the past two months (which were largely attributable to labor-day driven data distortions).
Over the past two weeks hospitalizations were also up about 8% (see chart on left), but the trend in 7D daily deaths remains muted. I think these trends bear close watching over the coming weeks.
I do not think that it is a foregone conclusion that the US is going full “second wave.” Europe has gone full on the second wave especially in France, Spain and the UK. And if US cases do not rise exponentially, it could be validation that the US can manage COVID-19.
We highlighted an interesting study out of Science magazine in our research this week. The study, in which over 575,000 individuals were contacted, provided some valuable insights about COVID-19 transmission.
The biggest takeaway is that about 8% of people infected by COVID-19 are “super-spreaders” and about 60% of all new infections are attributable to these “super-spreaders”. The research could not determine what makes someone a “super-spreader”, but found that key environmental factors such as (i) proximity to the infected, (ii) length of contact, and (iii) ambient conditions were contributing factors.
Strategy: Market finding some footing as S&P 500 closed above 3,363 on Thursday
– So far, the equity markets have held a line in the sand at 3,224.50. As we commented last week, this is a 62% retrace of the gains the market staged from June to August and represents the level where we thought stocks essentially fully priced in “worst is yet to come.”
– Over the past week, we saw equities struggle to break through the next level of 3,363, but view Thursday’s close above that key level as a positive development.
And despite the uncertainty brought on by President Trump’s positive COVID-19 test late Thursday night, the S&P 500 was only down about 1.0% on Friday and the market finished the week up 1.5%.
I still don’t see how anyone can say there should be a wildly different market outcome in 2021 between a Biden vs Trump White House. In fact, this week I did a webinar with our Washington Policy Strategist, Tom Block with the CEE group. He thinks both have similar economic initiatives, and similar on trade. But Biden would be more pro-immigration and pro-environmental. Neither of the two would really affect markets.
Bottom Line: The S&P 500 appears to be gaining some footing. It closed above 3,363 this Thursday which represents its 38% retracement level of the gains from June through August. I view Friday’s volatility as a “knee jerk” reaction to Trump’s COVID-19 diagnosis.
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
