08 June 2020





THE NUMBER OF COVID-19 CASES IS ACCELERATING IN MUCH OF THE COUNTRY




By Raul Elizalde

This article also appeared on forbes.com


The economic reopening is afoot. This is undoubtedly positive for economic growth, and the stock market is responding accordingly. Add to this a huge stimulus package and the stage is set for what it can be a strong equity market rally even from current levels.


But there is much that can go wrong, and perhaps nothing would be worse than a second wave of Covid-19 cases sharper than the first. The economy would have to be shut down again to prevent a resurgence in the number of deaths.


Nationwide the number of new daily cases is falling, which seems to be good news. However, stripping out NY, NJ, PA and CT the number is creeping upwards. Some states have fared particularly badly. Florida, for example, just posted four days in a row in which new cases were higher than at any point since April 17. While the number of new cases correlates with more testing, dismissing the increase in Covid-19 cases as simply the result of more people being tested is wrong.

source: Path Financial LLC, USAfacts.org


The increasing numbers are worrisome. Better testing capacity is discovering cases that were off the radar before, which is not a comforting fact. And in some states like Arizona, Florida, North Carolina and Texas, even the percentage of new tests coming out positive for infection has been going up.


The four states that account for most of the decrease in Covid-19 cases (NY, NJ, CT, PA) amount to less than 16% of total U.S. GDP. That means that 84% of U.S. GDP comes from states that have shown no meaningful improvement. Meanwhile, states showing the steepest increases in Covid-19 cases (AZ, CA, FL, NC, TX, UT) represent more than 34% of total U.S. GDP.

source: Path Financial LLC, USAfacts.org


A second wave of Covid-19 cases is one of the biggest risks the economy faces in the short term. Shutting it down again to prevent a new round of deaths would be devastating both for the economy and the stock market, since it would be impossible to cobble together a new stimulus package to counteract the effects of a second shutdown.


Large portions of the population have voluntarily adopted safety protocols such as wearing masks, avoiding groups, and maintaining social distancing. This could go a long way to prevent an out-of-control resurgence. But there is much to lose if people start acting as if the pandemic is behind them. Authorities should insist in the use of maximum caution while the country is trying to get back to business.


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