And Then There is COVID-19

CAMS Weekly View from the Corner – Week ending 10/30/2020

November 2, 2020

In recent editions we have been sharing how surprisingly constructive the stock market landscape has been as the fall season progressed.  The obvious backdrop causing such a surprise is the election of which the consensus view was the stock market would crumble late summer, at the latest, in light of the election and the expected uncertainty.

Importantly, when we offer the stock market landscape is constructive, this is not a subjective opinion.  Rather, it is a succinct labeling onto the market landscape after our week ending in-house scans have been ran and assessed. 

The scans run deep into the market by design and are many in number with several objectives.  One of those objectives is to have a large macro assessment of the general health for the overall market backdrop in order to aid in where the market may want to be heading trend wise.     

That assessment comes from what market participants leave in the wake of their market maneuverings via the chart setups of hundreds of individual companies, sub-industries and sectors.

Historically, a healthy constructive backdrop deep inside the market offers that collective market participants want to bid the market higher.  Like everything in any market, there is never a guarantee and collective participants can change their direction quickly. 

In our previous edition we shared three macro views that are directly in the crosshairs of market participants:  They were Earnings, Stimulus and the Election.

Enter COVID-19

By early Monday morning the increasing COVID-19 cases in recent weeks seemingly crossed a tipping point for market participants and with this a heavy market on Monday unfolded to the negative by Friday’s close.  With this heaviness the constructive structure took some notable hits. 

We would now label the market structure as questionable to vulnerable but importantly certainly not dead with areas that are suggesting they want to hold up and lead higher.

Our previous big three now has COVID-19 joining the list as it pertains to collective market participant concerns.  Concerns of lockdowns and the follow-on economic hits took center stage to begin last week.  With this, we thought it timely to share some data relative to COVID-19 being this began to reemerge as a market participant concern.

Two Charts below are compiled by First Trust with a full set of data points offered at this link:  https://tinyurl.com/y2t9zn8f

Our focus above is testing, positive cases and the fatality rate.   

In full the data points above offer us that testing has ramped up consistently since inception now registering nearly 1.2 million daily on a seven day moving average (orange line first chart) while positive cases began a new uptrend in latter September (blue line first chart) to approximately 75,000 daily on a seven day moving average.  That is a tremendous amount of daily tests with a large number of cases. 

With these numbers currently, via the data in the first chart, this equates to just over 6% of tests result in positive COVID-19 cases.  Anything over zero percent is too high right.  At the same time, at this stage, 6% is a low number if you run a quick thought experiment/nightmare scenario whereby positives are say 10x that result.

The second data chart reflects the very important case fatality rate which takes current weekly deaths divided by positive cases two weeks prior.  The red arrow (second chart) highlights how this fatality rate has remained flat-lined sub 2% since mid-summer. 

Like the positive test cases anything over zero percent is too high but thankfully this fatality rate has not created an uptrend similar to the testing and positive case lines in the first chart.

All told, with the above COVID-19 data coupled with our previous big 3 macro issues collective stock market participants have a full plate of issues to discern. 

The constructive market landscape has turned questionable and frankly, via our scans, it wouldn’t take much to tip the questionable landscape into a full-on route and conversely to reestablish an uptrend.  Talk about, well, a questionable structure, this would epitomize that phrase relative to the non-discernable direction of the market currently.

Be safe with your health, wealth and any societal uncertainties that may or may not arise.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.