A Positive for the President

Macro Perspectives: Mon 5 Oct 2020

U.S. media is in a frenzy over the President's positive COVID status - continuing to overemphasize the "cases" data point and they conflate it as a high probability of death.

Eight months in since the first U.S. case was recorded, the death-to-diagnosed case rate is now at 2.8%, and the CDC told us back in June that at least 10 times as many people have it or have had it (undiagnosed). That slashes the death rate dramatically. If we applied that factor to the current case count, the death rate falls to 0.28%.

Moreover, antibody tests from a July published study in JAMA suggest the denominator in the ratio could be as much as 24 times higher (that would be nearly half of the U.S. has had the virus).

More: The CDC just published serology tests from late April that suggest, at that time, there were at least 11 times more cases in South Florida than were diagnosed, 12 times more in New York City, 6 times more in Connecticut, 16 times more in Louisiana, 10 times more in Minnesota, 24 times more in Missouri, 9 times more in San Francisco, 11 times more in Utah, and 11 times more in Washington state.

This all suggests that death-to-real infection rate is within the range of the annual flu. Still, as the media persistently bangs the drum of "cases, cases, cases" day after day, it becomes the standard for the public perception on the virus.

Let's talk about what happened with markets, with the news of the day on Friday.

Interestingly, for the stock market, this was a day where the winners of the year were losers on the day, and the losers on the year, were winners on the day.

The Nasdaq was down 2.2%, Small cap value stocks were up over 2%.

The sectors that have been hammered this year, were UP too. Below is the daily change for major sector ETFs. Crude oil and natural gas were hammered (again), yet, the energy ETF was up big. Financials were up. Industrials were up. Materials were up.

What does this behavior in markets mean?

The democrats passed a revised version of their June stimulus plan Thursday night (now at $2.2 trillion). With plenty of money in that number for infrastructure, it appears that markets are betting that Trump's negotiators (Mnuchin and Meadows) and the republican-led Senate might cave under the additional pressure of Trump's situation.

So far, it hasn't happened.