As states and countries begin to reopen, virus case numbers continue to move in the right direction. Continental Western Europe is following Switzerland and Austria into fully contained status. Both Switzerland and Austria are done.
Germany, Spain, France, and Italy are close on their heels with new cases collapsing in the last two weeks as all three countries are starting to reopen in phases.
The UK and the U.S. are mirroring a similar path to each other. Both were a bit late to universally respond to the virus. Both subsequently saw longer plateau periods, but eventually, they have begun their decline phase. The UK is decelerating faster than it was last week, as are case numbers here in the U.S., but we’d like to see ours meaningfully lower (sub 15,000 per day) in the next one to two weeks.
Nonetheless, our new cases are declining, and we are not seeing spikes in the states that are opening (regardless of the sensationalized reports we have seen in the press). Yes, some states are seeing slight growth in new cases (including California), but nothing in ‘spiking’ which was what some feared as some states reopened.
What remains to be seen is what effects will the gradual opening of the economy have on the deceleration of new cases here in the U.S.? Here we have a model as well. Sweden. There is a lot of misinformation in the narrative about Sweden. Though they never adopted the isolation measures that most of the developed world did, they never saw elliptical growth of new cases. Yes, by some comparisons to neighbors like Denmark and Norway their data looks worse (for now). However, the virus never exploded to envelope 70% or 80% of their population and overwhelm hospitals. In fact, when looked at empirically, the progression of the virus in Sweden was quite normal. Proportionately, it was slightly less aggressive than what we saw in the U.S. Many will argue that the U.S. has many more dense populations than Sweden. Actually, proportionately, it is even more dense than the U.S. in the number of big cities (over 500,000) and only slightly less dense in population per square mile. In fact, Sweden is very similar to the state of Pennsylvania – two major cities of similar sizes and a total population within 25% of each other.
#1: Stockholm – 1,515 million vs. Philadelphia – 1,581 million
#2 Gothenburg – 599,011 vs. Pittsburgh – 302,407
Guess what? Pennsylvania has fared no better than Sweden in total cases or deaths. Sweden peaked and plateaued at 750 per day and Pennsylvania hovered at 1,000 or more, both for the same amount of time. Death rates have been similar too. Sweden has had 4,240 deaths vs. Pennsylvania with 5,322 (proportionate given the 25% size difference). The death rate per million people is almost exact, 418 vs. 416 respectively. So as some economies in the United States open up, we may slow the descent-rate of new cases of the virus somewhat, but Sweden suggests that we are unlikely to see a rapid acceleration of new cases.
New hotspots are now popping up in the Southern Hemisphere. Brazil, Chile, and Peru are starting to see meaningful case growth. Winter is coming to the South so this is to be expected. Of course, the concern is that the virus rolls back to the North in six months.
Economically, housing data is coming in a bit better than had been imagined. New homes sales, existing home sales, housing starts, and permits are all down, but not quite as bad as had been expected. Initial unemployment claims for the week ending May 23rd decreased by 323,000 to 2.123 million, and continuing unemployment claims for the week ending May 16th decreased by 3,860,000 to 21.052 million. The seasonally adjusted insured unemployment rate fell to 14.5% from 17.1%. The drop in continuing claims indicates that several million people that were laid off already returned to work, either in their former jobs or in new ones.
The Senate is debating the $3 trillion HEROS Act (Health and Economic Recovery Omnibus Emergency Solutions Act) which will re-up on another round of sending out $1,200+ checks to citizens (and maybe even non-citizen residents). Also, the Act would extend additional unemployment benefits, payroll protection through the employee retention tax credit, $1 trillion to the states to pay salaries for first responders and other essential workers, funding for coronavirus testing and contact tracing, and additional support for the PPP. The bill is meeting a lot of GOP resistance, so it is likely to be amended or even scrapped and a new bill drafted.
For now, the economy in the U.S. is likely to continue to gradually open up. In the coming months, we will see job losses slow and some (millions of) jobs return. We expect this to continue for the next few months before further gains are challenged by economic reality. Federal Reserve and Congressional stimulus/support can add fuel to the fire, but not forever (likely just long enough to “get the patient off of life support” as Howard Marks at Oaktree put it). When the recovery numbers hint at slowing, the stock market and investor sentiment are likely to face significant challenges. For now, spring breezes are blowing from behind.
Wishing you and your loved ones all the best in health and spirit,
Jim Scheinberg CIMA
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