In pandemic recovery news Monday, California and Florida saw hospitalizations spike, while talks toward a Senate stimulus bill remained in a standstill.
Markets nevertheless managed to spend the first six hours of the session in the green.
Traders again pointed to morsels of positive data lurking within the troves of facts released each day by states. Arizona data released Monday showed the lowest number of new cases reported in two weeks. Though numbers released at the start of a week can sometimes lag due to the weekend effect, many took comfort that a state at the center of the latest outbreak was showing progress.
While aspects of this enterprise — ascribing market moves to one set of Covid-19 factoids while ignoring others — will strike some as data snooping, or looking for evidence after deciding on your thesis, investors have regularly shown themselves to be sensitive to virus data that the rest of the world isn’t as focused on.
“There are a lot of different headlines,” Shawn Cruz, senior manager of trader strategy at TD Ameritrade, said by phone. “Where you look is going to give you a little bit of a different sense of what the actual impact is of these rising cases.”
Right now, daily case counts are still surging in most of the troubled large states, but at least some evidence exists the rate of increase is slowing, according to Ian Shepherdson, chief economist at Pantheon Macroeconomics, who looked at the seven-day moving average of new cases for states like Arizona, Florida and Texas. Reopenings have been paused or backtracked in many states and, barring a spike in the Northeast, “the seven-day average number of new cases in the U.S. as a whole will peak within two weeks, and then begin to decline,” he wrote.
Shepherdson says cases have likely peaked in Arizona, with other hard-hit states soon to follow suit. To Evercore ISI’s Dennis DeBusschere, that was reassuring.
“We will see, but for now, the social distancing seems to be working in Arizona,” said DeBusschere. Social-distancing restrictions might translate to slower economic growth, but fiscal and monetary policies will continue to attempt to offset the related economic weakness. “Even if a vaccine doesn’t turn on like a light switch as vaccines are rolled out, the market will likely look past short-term distribution bottlenecks and other factors related to the roll-out,” he said.
DeBusschere also points out that risk-on areas of the market, including value and small-cap plays, have suffered as new cases spiked. But on Monday, Arizona reported average virus cases growth of 1.1% over the past week, below the prior seven-day average of 3.2%. That spurred a rally in the cohort of cheaper — and riskier — plays. Industrial, financial and raw-material shares were among were among the S&P 500’s biggest gainers, while the Russell 2000 index of smaller stocks gained as much as 2.1%.
“It seems like case growth is one of the main factors influencing the value vs. growth dynamic,” he said.
To TD Ameritrade’s Cruz, it’s developments on the vaccine front that markets care most about — and what’s allowed stocks to look past negative data. More than 140 vaccines are under development and close to as many drugs are being examined, with companies in China, Europe and the U.S. reporting positive developments in trials of their shots, according to a Bloomberg analysis. Already, there’s some good news: on Monday, Pfizer Inc. and BioNTech SE received permission from the U.S. Food and Drug Administration to fast-track two vaccine candidates.
“It looks like we are getting closer and closer to not just having a treatment coming out from one pharmaceutical company or another,” Cruz said. “But there’s actually a handful of the health care companies that seem to have vaccinations or treatments that seem like they’re getting closer and closer to being a viable option for people out there.”
Source: Bloomberg
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