Flare ups of COVID-19 cases in the U.S. have delivered a fresh gut check to bulls on Wall Street, following an unprecedented market rebound from a coronavirus-ignited downturn back in March.
Cases in the South and West of the U.S. have accelerated and threaten to reverse, or stall, plans to reopen economies nearly frozen for months to limit the spread of the deadly contagion. Over the past several days, hospitalizations and infections have been resurgent in places like California, with more than 7,000 new cases, as of Tuesday, and in Arizona where identified infections jumped nearly 50% from a week earlier, representing the largest increase by any U.S. state, The Wall Street Journal reported.
Nearly 48% of all positive cases have been among people between the ages of 22-44, the paper reported.
While the ramp-up in infections may not represent a “second wave”—experts say we are still in the first wave in the U.S.—the equity market on Wednesday suffered its biggest selloff since June 11, with the Dow Jones Industrial Average DJIA, -2.71%, the S&P 500 index SPX, -2.58% ending the session at least 2.6% lower and the Nasdaq Composite Index COMP, -2.19% snapping an eight-day win streak.
Over the course of this pandemic, market experts have morphed into armchair epidemiologist, who find themselves forced to assess the implications of the rising tide of infections here and elsewhere around the globe. Thomas Lee, head of Fundstrat Global Advisors, in a research report dated June 23, said that the biggest implications were of policy.
“This raises many questions but the most important is the policy direction. Given the surge in COVID-19 cases, states and the US need to mitigate transmission—aka, course correct,” wrote Lee.
Thirty-three states on Tuesday record a seven-day average of new cases that was higher than their average during the past two weeks, according to The Wall Street Journal’s analysis of data aggregated by Johns Hopkins University.
Ironically, elevated infections and hospitalizations in clusters across America, compelled New York—formerly an epicenter of the global pandemic—to instate a quarantine of travelers visiting from Alabama, Arkansas, Arizona, Florida, North Carolina, South Carolina, Washington, Utah and Texas. New York is rolling out the 14-day quarantine protocol in coordination Connecticut and New Jersey, states that also have seen cases stabilize in recent weeks.
Lee wrote that one of the fears for investors is that the jump in infections will force a broader reinstatement of stay-at-home orders, which are viewed as politically and economically unpalatable after three months of such procedures in much of the world.
“The last resort is likely reinstate shelter at home,” Lee wrote. He said the “best solution, probably, but also the most unpopular, is require usage of masks.”
Lee included a list of 10 measures that could be implemented to curtail a surge in the disease derived from the novel strain of coronavirus:
- Improve contact trace (”vogue” but failing in USA)
- Enforce social distance
- Isolate the vulnerable (Old and those with co-morbidity)
- Require masks (VERY UNPOPULAR)
- Require sanitization measures
- Close rogue establishments
- Monitor waste (fecal testing works, see our prior commentary)
- Close state borders
- Close international borders
- Rollback / Re-close the state (ABSOLUTELY LAST RESORT)
- A number of states, including Washington and California, are mandating the wearing of facial coverings. “Until a vaccine or cure is developed, this is going to be one of our best defenses.” Washington Gov. Jay Inslee said in a statement.
- On Tuesday, at a Congressional hearing, public-health expert Dr. Anthony Fauci described the rise in cases as a “disturbing” development and vowed to increase testing, but also expressed hope about progress toward a vaccine.
It isn’t clear why certain states are showing flare ups while others are, though experts say that the adherence to social-distancing protocols and stricter public-health policies haven’t been uniform across state borders.
In Arizona, some health professionals have linked the surge in cases in the Grand Canyon state to lifting stay-at-home orders too early. Arizona eased its orders a month ago. Gov. Doug Ducey has said that he’s not considering reinstating a shelter-in-place measure even as cases rise.
Earlier this week, California touched a new high in the number of hospitalizations related to COVID-19, surpassing the previous peak in late April. Data as of Sunday showed that the state had 3,702 hospitalized, with the rise in infections being attributed there to erosion of social distancing, particularly as we enter the heart of summer.
Fundstrat’s Lee has attributed at least some of the rise in cases to a wave of national protests that erupted in late May and earlier this month following the murder of George Floyd.
Floyd, a Black handcuffed man, died on May 25 after Derek Chauvin, a white former Minneapolis officer, was captured on video driving his knee into his neck for 8 minutes and 46 second even as Floyd said he couldn’t breathe and stopped moving. That action helped spark a wave of civil unrest over inequality in the U.S. and treatment of Black Americans in policy custody.
However, the event also was followed by a massive easing of social-distancing measures.
“Each of the protests involved tens of thousands of Americans in close proximity for hours,” Lee wrote.
“What has been happening in Houston? George Floyd is from the Third Ward in Houston and that ward was the site of the earliest protests,” Lee added, referring to rising cases in Texas’ most populous city.
Dr. Robert Quigley, senior vice president and regional medical director of International SOS, a medical security and travel-safety company, said that it’s hard to place blame on any one state for the resurgence in cases.
“Even as an immunologist, I am struggling with some of the characteristics of this novel virus and its behavior,” he said, referring to the highly contagious nature of the disease compared with other strains of so-called coronavirus.
The strain was first identified in Wuhan, China, in December and has infected more than nine million people world-wide. The World Health Organization currently estimates that 16% of people with COVID-19 are asymptomatic and can transmit the coronavirus, while other data show that 40% of coronavirus transmissions are due to carriers not displaying symptoms of the illness. As a result, public-health officials have advised people to keep a distance of six feet.
Quigley said that it’s important for states to impose restrictions and compel citizens to wear masks and to adhere to proper sanitization procedures to have any hope of limiting the spread of the virus.
“What we do know is that if we are compliant with social distancing and universal precautions, not limited to sanitizing our hands and wearing a mask at all times possible, the likelihood of transmitting the disease is remarkably lower,” he said.
Dr. Jeremy Faust in an interview with CNBC on Wednesday said that states and local governments need to be more evidence-based in their decision making around the pathogen. I think the lesson is that they need to be “data driven not date driven,” he said.
He also advocated for measures that in their totality help reduce the contagion’s spread, including wearing facial coverings.
“It helps a little…just because something isn’t perfect, it doesn’t mean it doesn’t help,” he said of health measures to contain the disease.
As for the market’s downturn, Liz Ann Sonders, chief investment strategist at Charles Schwab, told MarketWatch via email that investors may have become too complacent about the epidemic and too hopeful that a V-shaped, or quick, economic recovery would take place.
“We probably had a lull because of ‘hopium’ around stronger economic data recently, but concerns are increasing (justifiably so) about the ability for the economy to sustain a V-shaped recovery with rising cases,” she said. “Even if governments don’t shut things down again, it won’t prevent businesses from doing so, or consumers from deciding on their own to shelter in place again,” she said.
Wednesday’s selloff also comes amid growing worries about the divergence between buzzy technology stocks, which have gotten a boost from the long-term implications of the viral outbreak and cyclical stocks that are more sensitive to economic outlook.
“There is also some legitimate concern about equity valuations and how strong the rally has been over the past couple of months,” wrote Brian Price, head of investment management for Commonwealth Financial Network.
“The massive amount of monetary and fiscal stimulus that has been injected into the global economy was the primary catalyst behind the market’s advance but there seems to be ambiguity about additional support. Reluctance to extend or offer additional stimulus could bring a risk factor into the market that may not be fully appreciated at this point,” he said referring to calls for further fiscal stimulus to help mitigate damage to businesses during this public health crisis.