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Covid-19 : Mortality Rate

(Wed, 8 July 2020). Although coronavirus cases are rising, Wall Street is watching one metric very closely: mortality rate. The United States just set a grim record with over 60,000 new cases in a single day but a morbid chart could hold the key in understanding where markets will move.

Dow Jones Industrial Average (DJIA) futures slumped on Wednesday. Coronavirus data continues to make headlines with US cases now at 3 million. But Wall Street is looking at a different data-set: mortality rate, which remains in a sustained downtrend. Brace yourself for a second day of selling on the U.S. stock market. Dow Jones Industrial Average (DJIA) futures point to a weak open on Wednesday, down 71 points in premarket trading.

Wall Street is gripped by more unnerving data as the pandemic sweeps America. On Wednesday, the US tipped past 3 million coronavirus cases, with numbers rising in 37 states.

Despite the scary headlines, there is only one metric that will decide the Dow’s next move, according to Fundstrat analyst Tom Lee: daily deaths. What happens next? The stock market’s direction depends on whether the ‘daily deaths’ sustains the downtrend or turns upwards. Cases are rising dramatically across the country, but deaths remain in a steady downtrend. The stock market’s next move depends heavily on how this trend resolves. Lee explains:

I think the market’s watching the cases rise but the deaths fall. Half of investors think [it’s] only temporary. And then the other half thinks it’s a persistent divergence. When that’s resolved, the market is going to start to reflect that.

 

Dow Futures Fall After Volatile Asian Session

It was a choppy overnight session on the futures market. Traders pushed the index into positive territory twice, but failed to hold it. As of 6.05am ET, Dow futures were down 73 points (0.28%). It follows yesterday’s slump which was triggered by a slowdown in U.S. economic recovery. S&P 500 futures slipped 0.16% and Nasdaq Composite futures were flat.

 

Mortality Rate Is A “Sustained Downtrend”

The death rate is a lagging indicator. It takes weeks for the virus to progress so it’s no surprise to see the delay. The key question is whether the huge spike in cases from early June turns into a spike in mortality in the coming days and weeks. Lee doesn’t think it’ll happen. It’s our belief that it’s a sustained downtrend. Why? He points to better healthcare provisions and better preparedness. The newer cases are also among younger patients who are less likely to experience severe symptoms.

 

We’ve “Learned How To Manage This Better”

Dr. Deborah Birx, who serves as White House advisor, struck a similar optimistic tone. In an interview last night, she said many more deaths can be avoided because we’ve learned how to deal with it better. The clinical care has remarkably improved. It should be noted that Dr. Anthony Fauci isn’t convinced. He warned last night that mortality rate shouldn’t be the focus. He argues that doing so encourages risky behaviour that may worsen the outbreak.

 

What Next For The Dow Jones?

The rally off the March lows has been driven by FAANG and tech stocks. But Tom Lee sees a change in direction coming. If the pandemic is peaking, as he believes, then money should begin to flow back into cyclicals. Tech stocks have acted almost as a defensive play during the crisis. A return to normal should see a rotation back into other sectors.

The ever-bullish JP Morgan CIO Mike Wilson has a similar take. Speaking to CNBC, he said he would double-down on growth stocks and cyclicals. Leadership is growth stocks and, I would argue, some of these cyclicals stocks which have done quite well since late March, so we’re going to be buyers of those two areas, in particular, on whatever pullback we’re going to get this summer.

Watch out for a correction through July and August, he said, especially if Congress fails to deliver new stimulus measures.

 

 

 

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