Early on during the Covid-19 pandemic, there were hopes that if we only made it to the summer, the weather and the outdoors would take care of the virus for us.
After all, something similar happens with the flu. Transmission drops in the summer, and picks back up in the fall and winter.
Of course, Covid-19 is caused by a coronavirus, a very different kind of virus than influenza. And early signs from tropical and subtropical outbreaks of Covid-19 were mixed.
Singapore, for example, had a lot of success containing its outbreak. It was thought that the tropical weather helped the city-state’s extensive screening and contract tracing.
But by early April, an outbreak had taken hold that Singapore is still fighting.
I believe a COVID-19 vaccine is coming much sooner than you think. Who is going to win the vaccine race? (Here’s what I know)
Here in the U.S., some warmer states that were spared the first big wave of Covid-19 are now showing signs that they may have serious problems due to the virus.
Arizona, California, Florida, and Texas have made the headlines as places where Covid-19 may be surging, despite the summer weather.
If it’s true, then this volatile stock market we’ve been seeing recently will be around for much longer.
But the numbers are already in dispute. Some say Covid-19 cases are rising in these states, which means the virus is spreading.
Others say states are testing more people now, so naturally the number of cases will also rise.
There’s a lot of noise as the Big Four try to make sure you keep doing what suits them.
Unfortunately for them, there’s a way to see whether Covid-19 really is surging or not.
And the data here is concerning…
What We’ve Learned Since Lockdown
As states and cities all over the country begin reopening, more and more people are venturing outside to enjoy the summer.
In some places, restaurants can now serve food again at limited capacity or only for outdoor seating.
Hair salons, malls, coffee shops, and offices are all slowly starting to get back to life. We originally closed them all down because Covid-19 was spreading faster than we could respond, and hospitals on the East Coast were filling up to capacity.
Shutting businesses was a blunt instrument, to be sure, but it’s important to remember that we knew very little about the Covid-19 virus at the time. Never before had we encountered a coronavirus that was transmitted before people showed any symptoms.
And reports quickly started coming in that the symptoms were sometimes quite different from what the related SARS virus caused back in 2002.
People were coughing, and had trouble breathing, just like with SARS. But Covid-19 was also causing heart failure, kidney failure, and blood clots. Patients were walking into emergency departments with blood oxygen levels so low they should have been unconscious hours ago.
With little information, and the worst-case projections being truly horrific, experts advised that we do as much as possible to eliminate transmission of the virus. The hope was that the lockdown would give us time to figure out more about the virus, expand our testing capability, and increase hospital capacity.
Studies suggests more than 4 million Americans were spared from catching Covid-19 because of the lockdowns. But the economic cost has been huge, and we’re now gradually removing the lockdown.
Whether we’ve used the time well to prepare is unclear. There’s still no good data on how much hospital capacity has increased, and where. Testing rates have been basically flat since May 19.
But we do know more about the virus, at least. Most importantly, new research suggests the risk of transmission is higher indoors than outdoors, that using masks can have a huge effect on cutting down transmission, and most of the transmission happens at “super-spreader events” where people are packed together and in contact for longer periods of time. That’s when lots of people catch it at once.
You may remember examples of this from the news: choir practice, nightclubs, concerts, cramped church services, and so on. The risk increases the tighter people are together, the less ventilated the space is, and the louder people speak, sing, or yell.
That’s why wearing a mask, staying six feet apart, and being outside when spending time with people is so important. It’s also why concerns are growing that both the anti-lockdown and the anti-racism demonstrations we’ve seen recently could spread the virus more.
But even if we do all these things, reopening carries risk. And judging by the pictures online, fewer and fewer people are wearing masks and practicing social distancing. Even in New York City, which was hit so hard by Covid-19.
Here’s how we can tell whether this means another surge is coming…
Letting Our Guard Down Could Lead to New Outbreaks
Ideally, the number to look at would be how many people are being hospitalized for Covid-19 and Covid-19-like symptoms. But as I said, that data is spotty (when it’s available at all).
There is, however, another number that gives us a good view of whether a state has its Covid-19 outbreak under control or not.
As you’ve no doubt heard, and as I mentioned earlier, many who argue there’s nothing to worry about after the re-openings have started say that we’re seeing more confirmed cases of Covid-19 simply because we’re testing more people.
It makes sense, to a degree. For example, say 5% of the population has Covid-19. If you were testing 100 randomly-selected people a day, you’d expect about 5 of the tests, or 5%, to come back positive for Covid-19 infection.
If you then doubled your testing, for example, to 200 tests a day, you’d expect twice as many tests to come back positive for Covid-19 infection. 10 tests, which is still 5%, in other words.
Since only 5% of tests keep coming back positive in this example, it would be reasonable to assume that about 5% of people have Covid-19, and that the doubling in cases was simply due to the doubling in tests.
But if the percentage of your tests that come back positive starts rising faster than the amount of tests you’re giving, that’s a sign that the outbreak is growing.
Unfortunately, that’s exactly what’s happening in Arizona, California, Texas, and Florida.
In Arizona, the number of Covid-19 tests has been flat, much like for the country as a whole, since May 7 – around 10,000 per day. But Arizona’s 7-day rolling average of how many of those tests are coming back positive has gone from 9.9% to 15.4% in the same time.
That’s a very concerning sign that suggests the rise in confirmed Covid-19 cases isn’t due to increased testing. Banner Health, Arizona’s largest hospital network, just last week warned that the number of Covid-19 patients they were seeing had quadrupled and was still rising, even as they were getting close to full capacity.
In Texas, one of the first states to begin reopening back in May, the numbers are not as bad but are still concerning. The number of tests being performed fluctuates daily by quite a bit, but the 7-day average has been steadily between 25,000 and 30,000 tests a day through most of May.
During that time, the percentage of positive test results has grown from 5.7% to 7.1% on a 7-day moving average. While Texas has more spare hospital capacity than Arizona, the state is moving ahead with more re-opening, even as these numbers are growing more concerning.
In California, the state as a whole is increasing testing, even as the percentage of positive cases has remained below 5% since May 14. However, zooming in on counties shows a different picture. Los Angeles County is home to 25% of the state’s population, but accounts for 44% of new Covid-19 cases over the last two weeks.
The percentage of positive cases per county is not available right now, but that huge concentration of new cases in LA suggests there’s a growing outbreak there.
Finally, Florida was one of the last states to impose restrictions, and one of the first to begin lifting them. The amount of tests there has risen dramatically since the end of March, and the percentage of tests coming back positive continues to stay low, at 5.5%.
However, that is almost double the 2.6% Florida had at the end of May, suggesting that Covid-19 is spreading wider in the state.
All in all, there’s some reason for concern, especially in Arizona. But there is hope. Western Europe, for example, shows that democracies can fight Covid-19 and come through to the other side, without resorting to China’s totalitarian measures.
The data coming from Europe suggests countries like France and Germany, for example, have managed to severely limit transmission of the virus even as they open back up.
If we can turn this around with prudent and consistent use of tools like masks and social distancing, like Western Europe did, we’ll curb the spread of the virus too.
How to Invest Around Covid-19 Uncertainty
But until then, more and more uncertainty will be creeping back into the market. Miami has already declared that it has paused its re-opening, and New York’s Governor Cuomo has threatened to reimpose a lockdown on New York City if people don’t start wearing masks and social distance there.
So far, no state has said it’s considering closing back down again. But traders are beginning to wonder about the extent of the post-reopening surge. That’s enough to make them jittery, which is why we’re going to be seeing more big down days like Thursday and Monday, and more big up days like Friday.
This uncertainty means the economic pain is going to drag on for longer. So until it’s clear that we’re not sliding back into lockdowns, keep the stay-at-home and work-from-home stocks such as Slack (WORK), Activision Blizzard (ATVI) and Zoom (ZM) in your portfolio.
These are the Covid-19 safe-haven stocks, probably for the rest of the summer.
And despite their recent rallies, stay away from airlines and cruise lines. At the slightest hint of delayed economic recovery, these will crash back down to earth.
Great trading, stay safe out there, and God bless you,
D.R. Barton, Jr.