COVID-19: U.S. Versus The World
Portfolio Strategy, Macro
Seeking Alpha Analyst Since 2009
Chief Market Strategist, Great Valley Advisor Group and Assistant Professor of Business and Economics, Ursinus College
Summary
- COVID-19 cases in the United States are spiraling in stark contrast to the rest of the world.
- A closer look at the three most populated states in the U.S.
- Implications for the economy and markets.
The rally in the U.S. stock market from its March 23 lows remains intact. While any number of reasons could derail the S&P 500 between now and the end of the year even with the ongoing steady flow of Fed asset purchases, the health care crisis that is spiraling anew in the United States is returning to the forefront as a critical threat. As a result, it is worthwhile to dive deep into the numbers to assess how the U.S. is dealing with the crisis relative to the rest of the world, as it informs asset allocation portfolio strategy going forward.
Spiraling. The headlines are well documented. The United States continues to set record new highs in daily new COVID cases with each passing day. This included a fresh new high of 54,265 cases on July 8 on a seven-day moving average basis.
Such headlines are insufficient to draw any conclusions, however. After all, we are testing far more today than we were three months ago at what was likely the peak of the pandemic so far in the United States. As a result, these new highs may be explained simply by the increase in testing. In addition, we have not seen a discernable rise in the number of deaths recently despite the sharp rise in new daily active cases over the past month.
But just as the headlines are insufficient, so too are these explanations in drawing any conclusions. Instead, we must dig deeper.
Let’s revisit the U.S. COVID data by taking a closer look. Daily new COVID cases first peaked on a seven-day moving average basis back on April 10 at 32,422. Over the subsequent two months, this daily new active cases reading steadily declined to a low of 21,287 on June 9. But in the month since this post outbreak low, it has since spiked by more than +150% to 54,265 as mentioned above on July 8. And similar to the S&P 500 Index, the uptrend in daily new COVID active cases remains firmly intact with no signs of abating.
While disconcerting, this spike may be explained not only by increased testing but also the fact that many state economies reopened in the past month. And it was expected that we would see an increase in new cases as a result. This is a possible explanation, but we must still dig deeper.
What about COVID related deaths. The fact that they have not increased despite the sharp spike in cases may be a good sign, as it would confirm the increased efficacy of treatments. Of course, it could also be that an increase in deaths may lag the increase in cases. After all, a person that contracts COVID that will eventually reach an adverse outcome does not reach this terminal result immediately upon catching the disease. And while the +13% increase in COVID related deaths on a seven-day moving average basis over the last four calendar days catches the attention, this is too short of a time period from a relatively low level to draw any initial conclusions. We must still dig even deeper.
A dubious comparison. In order to get a better sense of how we are truly doing with the virus here in the United States, it is worthwhile to consider our experience relative to our global peers. While the comparisons are certainly exclusive to this country, we will consider Spain for the purposes of this analysis. Why Spain? Because they suffered a direct hit from the pandemic just as we did here in the U.S. And they have been testing on a per capita basis just as actively if not more so than the U.S. Overall, Spain has conducted 122,652 COVID tests per million population to date versus the United States at 119,257 tests per million population. Presumably, if we are seeing an increase in daily new COVID cases in the U.S. because of increased testing, then we should expect to see the same in Spain that has testing at a marginally greater rate than we have in the U.S.
Unfortunately for the U.S., we see a very different picture out of Spain. After peaking ten calendar days earlier than the U.S. at 7,800 daily new COVID cases on a seven-day moving average basis on April 1, this reading has steadily declined ever since. As of July 8, the daily new COVID cases on a seven-day moving average basis now stands at 408. This is 95% below the April 1 peak in Spain. By contrast, the U.S. is now +67% above its April 10 peak.
As for deaths, Spain’s total for July 8 on a seven-day moving average basis came in at 5 for the entire country, or 0.11 per million population. By comparison, the same U.S. reading for July 8 was 585, or 1.77 per million population and more than 16 times that of Spain.
This is a troubling contrast for the U.S. Spain at this time is where the U.S. was projected to be back in April by the White House Coronavirus Task Force, but the U.S. itself is still nowhere close. Unfortunately, I could repeat this exercise for any number of other developed countries around the world.
This is bad. But let’s dig deeper still.
Hot spots. The following facts should also not be ignored. In addition to ranking first worldwide in total active cases and total deaths, it should also be noted that the U.S. total deaths at 134,862 would rank nineteenth on the list of countries in terms of total cases. We also rank seventh across the developed world in terms of total deaths per million population, but first by a wide margin over distant runner up U.K. in total daily deaths per million population on July 8 by a wide margin over the rest of the developed world. Bad, bad, and bad.
Next, consider that five states in the U.S. would rank on the top twenty list of countries in terms of total cases. This includes New York at #4, California at #8, Texas at #13, Florida at #14 and New Jersey at #17.
The good news is that the daily new COVID cases and daily COVID death charts for New York and New Jersey look much like those across the rest of the developed world in that they peaked in the spring and have been trending lower ever since.
But not so for California, Texas, and Florida. And given that these are the three most populated states in the U.S. at nearly 30%, it is worthwhile to give each a closer look to see how bad the situation may be.
Let’s start with California. At 126,446 tests per million, it like the U.S. is also comparable to Spain. The comparison is particularly relevant between Spain and California since their total cases are virtually the same at 299,593 and 296,075, respectively. But unlike Spain that is setting new lows in cases, California reached a new all-time high in daily COVID cases on a seven-day moving average basis at 8,060.
Moreover, it has recently seen a +27% spike in daily deaths on a seven-day moving average basis over the last four calendar days. And if its new record high daily COVID death total of 150 on July 8 and two-day record high total of 268 on July 7-8 is any indication, California may soon be seeing the sustained increase in COVID deaths associated with the recent national spike in cases that has been feared.
Let’s continue with Texas. At 229,619 cases and 87,148 tests per million, the most relevant comparison is Italy with a slightly higher but still similar 242,149 cases and 95,173 test per million. First, a look at Italy.
After peaking at 5,645 daily new COVID cases on a seven-day moving average basis on March 26, Italy now stands at 199 cases on this same measure as of July 8. As for daily deaths on a seven-day moving average basis, it has fallen in Italy from a peak of 813 on April 2 to just 18 on July 8. In short, the situation in Italy has markedly improved over the past three months just as it has in Spain.
As for Texas, it is a decidedly different look.
Since May 26, daily new COVID cases have skyrocketed by +672% through July 8 on a seven-day moving average basis. More troubling, three consecutive new record highs in the daily death total in Texas from July 6 to July 8 including a near doubling in the total from July 6 on July 8 alone has the daily death total now nearly +200% higher on a seven day moving average basis in Texas in less than a month since June 15.
Let’s finish with Florida. At 223,783 cases and 108,130 tests per million, Florida also looks a lot like Italy but also matches up well with Australia from a testing per million perspective.
For Florida, the total number of daily new COVID cases has skyrocketed by +1,175% over the past month on seven-day moving average basis from 726 on June 1 to 9,255 on July 8. By contrast, Australia has also been experiencing an increase in cases under the same amount of testing per million as of late, but it is up on a seven-day moving average basis from 12 on June 1 to 138 on July 8. And Australia has four million more people living in its country at 25 million than Florida has in its state at 21 million.
Moreover, the daily deaths from COVID in Florida have also jumped by +60% since June 18 to July 8 on a seven-day moving average basis and is now on the brink of moving above its previous high from May 8.
Bad, bad, bad . . . We are in trouble in the United States with COVID. And these are troubles that much of the rest of the developed world does not share.
This matters a lot. It matters for health reasons. It matters for social unrest reasons. It matters for economic reasons. And it matters for market reasons.
Consider the recent sending kids back to school debate. Children in our country desperately need to go back to school in the fall. But we cannot do so recklessly at the risk of their safety, particularly given that so much is still unknown about the virus. And using other countries for a basis of comparison to suggest that this should work here is highly problematic. This is because the reality of how much the virus is circulating in the surrounding community must be taken into account when making these comparisons.
For example, consider the total daily new COVID cases in the following countries on a seven-day moving average basis:
Netherlands – 59
Germany – 349
Sweden – 480
Denmark – 15
Norway – 7
United States – 54,265
Now consider the total daily deaths in these same countries on a seven-day moving average basis:
Netherlands – 3
Germany – 8
Sweden – 4
Denmark – 0
Norway – 0
United States – 585
Unfortunately, the comparisons to these other developed countries are largely mooted by the fact that the state of the virus is vastly different in the United States. And if we in the United States are not realistically able to safely send our children back to school in the fall the way that other countries are able to do already, it not only prolongs the negative impact on children while continuing to risk their safety, but it also meaningfully reduces U.S. worker productivity, results in a slower economic growth recovery, and puts us further behind the rest of the world in working our way out of this crisis. This is just one of the many potential drags on our economy and markets with which we are confronted as the virus continues in the U.S.
We must proceed carefully with this virus in the United States. We do not share the good fortune of having responded well to the virus up to this point. Thus, we cannot simply expect to follow in the same path as others in the world that have the situation much better under control. This is particularly true when it might involve putting the lives of our future generation potentially at risk.
Investment implications. We are in trouble with this virus in the U.S. The situation has the potential to get worse globally before it gets better. And since we are currently traversing through what was supposed to be the summer lull having never escaped the first wave, we must be prepared in this country to bear the full brunt if and when the forces of the second wave eventually arrive in the fall and winter.
We are in trouble from a policy perspective in the U.S.
We already have a national debt situation that is worse than Greece on steroids. Will we as a country be capable of blowing out the debt even further and running even deeper deficits to further support our population in need as the first set of programs increasingly run out?
We have a Federal Reserve that has already nearly doubled its already bloated balance sheet to over $7 trillion in its immediate response to the crisis and its impact on the markets so far. How much further will the Fed need to go in expanding its balance sheet to keep corporate and municipal bond spreads tight and stocks propped up at already historically high valuations? $10 trillion? $15 trillion? More?
And how much longer will investors tolerate these still historically tight spreads and historically rich valuations in the U.S. when its economy is increasingly struggling relative to the rest of the world due to an exponentially deeper COVID crisis hole? This dilemma is particularly pronounced for U.S. stocks, as valuations are so much less expensive for equities across virtually the entire developed and emerging market world, in some cases by a considerable discount?
The investment solution? Stay long safe haven assets in the U.S. including long-term U.S. Treasuries. At the same time, be mindful of the potentially simmering inflation risks that are brewing below the surface by owning TIPS and gold. Also, don’t overlook the deep discounts still on offer in commodities as well as the diversification opportunities across the alternatives space. As for equities, increasingly focus your research time and attention overseas and away from the U.S. With that said, maintain your U.S. allocations at least for now, as its ongoing Fed driven global stock market leadership must be respected until it is finally ceded.
After years of policy stimulus, stocks are now falling from record high valuations and bond yields are at historic lows. Reality is now returning to global capital markets. Do you have a plan to navigate what is left of today’s bull market while also positioning for the next bear market?
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Analyst's Disclosure: I am/we are long TLT, TIP, PHYS, SH, RWM.
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