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Key COVID ratios indicate that the number of COVID cases are increasing much faster than the associated rates of hospitalizations and deaths from the virus.
The S&P 500 made a minor gain of ~0.6% over last week, even with a significant ~2% drop during the beginning of the week. As we’ve been highlighting in our weekly wrap-ups, this volatility is here to stay until there’s more certainty with COVID cases, hospitalizations, and deaths. The number of U.S. COVID cases continue to climb to all-time highs, but there may be light at the end of the tunnel, with Moderna announcing positive data for their COVID vaccine. Here are the details:
📉 COVID cases continue to reach all-time highs, current hospitalizations are reaching peak levels, and deaths are trending up. The U.S. ended the week with ~71,000 new cases on Friday and current COVID-related hospitalizations have reached all-time highs of ~51,000. COVID-related deaths have continued to increase, but at a slower rate. These numbers do not bode well for the stock market as headlines will continue to broadcast the rising number of COVID cases, hospitalizations, and deaths, which will shake investor confidence and burden the market.
📉 Furthermore, the number of new COVID cases per test is increasing, indicating the rise in cases is due to spread, not just increased testing. WX Capital completed an analysis of data from The COVID Tracker and discovered that the number of cases per test has been slightly increasing in the past few weeks from 8.1% to 8.2%, as seen in the graph above. While this is not that dramatic of an increase, it indicates that the virus is spreading and the rise in cases is not simply due to increased testing. This is worrisome for the stock market as increased cases are a leading indicator of hospitalizations and deaths and ultimately, further lockdown / quarantine measures, as was seen in California with Governor Newsome introducing new rounds of shutdowns in counties with escalating rates of diagnoses.
📈 However, the number of hospitalizations and deaths per case has continued decreasing. While the absolute number of hospitalizations and deaths have been increasing, WX Capital discovered the number of hospitalizations and deaths per case has dropped steadily, as seen in the graph above. Since the beginning of July, the number of hospitalizations per case decreased from 9.1% to 7.6%. Furthermore, the number of deaths per case decreased from 4.5% to 3.6%. These decreases can likely be attributed to younger populations becoming infected with COVID. These numbers tell us that while cases are increasing quickly, hospitalizations and deaths are increasing at a slower rate. Hopefully this trend continues, which will be beneficial for the markets.
📈 Furthermore, Moderna announced positive results in its Phase 1 study of its COVID vaccine, demonstrating safety and drug activity. This week, Moderna announced that its COVID vaccine was well-tolerated and safe. Furthermore, the company pointed towards dose-dependent levels of antibodies against the COVID virus. Overall, this is great news for the U.S. and the future of the stock market, given we are one step closer to a vaccine, which will help the country (and the world) fully re-open.
📈Finally, a new stimulus package could be introduced as early as next week, which may support the unemployed and promote a return to work. Senate Majority Leader Mitch McConnell will likely present a draft stimulus legislation when Congress returns from recess this week. The stimulus will likely include second stimulus checks, state and local aid, smaller unemployment benefits, and a return-to-work bonus. If this legislation passes, we can expect to see the stock market respond positively.
WX Capital maintains our opinion that the stock market will be volatile in the near future. There have been many developments against the fight against COVID, but the all-time high cases and hospitalizations does not instill confidence in investors. However, quick progression in the fight against COVID and another stimulus package will support the American economy and result in a stock market recovery. As a result, near-term uncertainty will result in volatility while in the long-term we’ll see a continued, gradual recovery in the stock market. Please don't hesitate to reach out with questions!