Are We There Yet?

Are we there yet?  Stocks eked out a small gain yesterday as Senate leaders poured on the charm in an attempt to move stimulus talks forward.  The first monthly jobs report missed estimates yesterday and showed a monthly decline in new private sector hires.

 

N O T E W O R T H Y

 

The cold, cold days are fast approaching.  I am sorry folks, it’s math… just math.  When we see virology specialists from all of the various commissions, organizations, and institutions warn that a surge is coming, it should not surprise us when… a surge does, in fact, appear.  Their predictions are not based on guesswork or politics but rather, plain old math.  The transmission of diseases is very well known and fairly consistent.  Each outbreak, whether Influenza, Common Cold, Measles, or Chicken Pox all have similar characteristics of spread, though they all have different rates of reproduction.  At this stage in the COVID-19 pandemic, we have collected a significant amount of data to allow disease experts to fairly accurately predict its spread and even its death rate. Epidemiologists have a fancy expression for how a disease spreads: basic reproduction ratio. It is more commonly referred to by its mathematical nomenclature R0, pronounced “R naught”.  It refers to the number of expected additional infections caused by one infected person, the higher the number, the more infectious.  Seasonal Influenza has an R0 of 0.9 – 2.1, which means each single person that contracts the virus is likely to infect between (let’s round ) 1 and 2 other people… who themselves will likely infect another 1 to 2 people, and so on.  That brings to a total of 7 infected people from just the first patient (assuming it stops there), in a worst case scenario.  Of the most well-known infectious diseases, Measles has the highest R0, coming in at 12 – 18.  That is 12 to 18 additional infections from each single case! COVID-19 has an R0 of 2 – 6, which is higher than our typical Seasonal Influenza strain (cited above).  That 1918 Influenza Pandemic that everyone talks about these days had an R0 of 1.4 – 2.8, making the current pandemic more infectious. COVID is transmitted via respiratory droplets and aerosol, which means it travels through the air, compared to a disease like Ebola, which is transmitted through body fluids.  We have all likely had the flu in our lives and have thankfully survived to tell about it, that is because the case fatality rate (CFR) is less than 0.002%.  In contrast, Ebola has a CFR of 83% – 90%.  Doing the simple math on COVID, we can see that the case fatality rate is just under 2%.  The R0 for COVID assumes no social distancing, so it is no wonder that many states have enacted social distancing restrictions in order to lower the transmission rate.  The unfortunate side effect of those restrictions has been the economic pain discussed in my note on a daily basis.  The recent rise in cases has already taken its toll on the economy as we have been witnessing slower economic growth related to recent restrictions.  To be clear, growth continues, but at a more moderate pace.  Recent announcements of soon to be available vaccines is therefore good news.  With those vaccines along with yet to be announced others, experts expect wide availability in the second half of 2021.  Congress, meanwhile seems poised to produce some economic salve to businesses and employees being affected by the restrictions.  Yes, we can see the light in the distance, but we are not quite there yet.  Stay healthy.

 

THE MARKETS

 

Stocks notched a slight leg up yesterday on news that Senate leaders are back at the negotiating table for more stimulus and The UK approved the use of Pfizer’s vaccine.  The S&P500 rose by +0.18%, the Dow Jones Industrial Average climbed by +0.20%, the Russell 2000 Index added +0.11%, and the Nasdaq Composite Index slipped by -0.5%.  Bonds fell and 10-year treasury yields added +1 basis point to 0.93%.  The continued yield curve steepening helped the financial sector continue its ascent, adding +1.05% yesterday. The energy sector came out on top yesterday, adding +3.15% as a result of positive progress on negotiations between OPEC+ members.

 

NXT UP

 

– Initial Jobless Claims (Nov 28) is expected to come in at 775k, slightly lower than last week’s 778k.

–Continuing Jobless Claims (Nov 21) is expected to be 5.8 million, down from last week’s 6.071 million.

– ISM Services Index (Nov) may have dropped to 55.8 from 56.6.

– This morning Dollar General and Michaels beat estimates.  After the close we will get announcements from Marvell, DocuSign, PagerDuty, Cloudera, and Ulta Beauty.

 

 

daily chartbook 2020-12-03