Investors in search of good news in COVID-19 trends to justify a bullish bent in markets are finding it right now, particularly in secondary data such as traffic congestion and restaurant bookings.
To be sure, what looks good to traders often diverges from what looks good to the rest of the world, and far from all of the data is positive. But certain trends in some of the worst-hit states, particularly in the Sunbelt, a major area of concern for many, are flattening. All this as the S&P 500 inches toward its February high, a milestone just 3% away.
“You cannot dismiss the virus and it’s always in conjunction with the effect on the economy,” said Quincy Krosby, chief market strategist at Prudential Financial.
The following is a compilation of some of the data investors are focusing on:
Almost all indicators tracking the pandemic outbreak, from infection cases to hospitalization rates and deaths, are pointing to an improving trend. On a seven-day moving average basis, those measures are trending lower, according to Bespoke Investment Group. Difficulty in testing is flattering some of those results though testing prevalence doesn’t affect hospitalization and death numbers, wrote Paul Hickey, one of the firm’s founders.
However, one risk going forward is that Sunbelt states that are beating back their outbreaks could declare victory too early, with a return to normal behavior potentially causing new flare-ups, Hickey said.
States at the epicenter of recent outbreaks -- Florida, California, Arizona and Texas -- are doing better, according to Fundstrat Global Advisors’s Tom Lee. For that group, which Lee refers to as “F-CAT,” daily cases are roughly 40% off their peaks, a trajectory that closely resembles that of the tri-state area, Massachusetts and Rhode Island. If the F-CAT states track the tristate area, U.S. cases could be down 75% in the next two weeks and down 90% by early September, he said.
“The evidence is pretty conclusive that this June-July surge is now turning into a full-blown retreat,” Lee wrote in a note. “If cases are falling and we see overall fear abate, as the disease slows, we expect consumer confidence to strengthen. Hence, this is an important juncture,” one that could bolster arguments for a cyclical rotation.
That rings true to Keith Gangl, portfolio manager for Gradient Investments, who says the spread in those states has been a worry. “A lot of GDP comes out of those states and those were rising pretty rapidly,” he said by phone. “The last couple of days, some states are actually going down.”
Restaurant bookings and traffic congestion increased last week and flight activity -- international and domestic -- also improved. Online traffic to unemployment portals has fallen, a trend consistent with renewed declines in jobless claims, according to Aneta Markowska, chief economist at Jefferies LLC. Though other inputs, including public transportation ridership, have trended lower-- and a lapse in unemployment benefits posing a risk for early August -- an economic activity index compiled by the firm rose to the highest level since March.
“We look for momentum to improve significantly as soon at the second stimulus check hits bank accounts, presumably by late August/early September,” Markowska wrote in a note.
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