‘Days Like This’: Coronavirus News Takes Decisive Turn For The Worse

Risk appetite waned on Wednesday as the pandemic news flow deteriorated further, spooking market participants who are increasingly concerned that flare-ups in the US presage the return of lockdowns — at least at the local level.

The New York City Marathon was canceled, removing what would have been the event’s 50th anniversary from the calendar.

1 million people typically witness the race, and you don’t have to be an economist to know that nixing it comes with considerable economic consequences for local businesses. Here’s The New York Times with a bit more:

Michael Capiraso, the chief executive of New York Road Runners, said he and other organizers had held out hope that the race could happen. They decided to cancel before having to spend more money to organize it.

“There was hope but that turned to uncertainty, and given what we have seen the past months this was really the only decision,” Capiraso said.

Runners who had signed up for this year’s race will be able to choose to receive a refund or to defer their entry to the race during the next three years. They will also have the option to run the race virtually. Organizers said they would announce details of the virtual event in July.

Meanwhile, Bill de Blasio said the city may layoff as many as 22,000 people in a bid to save $1 billion after the crisis ate into revenues. One assumes some of the job losses could be avoided if the state authorizes more borrowing or if the federal government steps in with assistance.

This is more than just “incrementally” bad news — this is the “real McCoy” (as Jeremy Grantham recently described the “bubble” in stocks).

The marathon cancellation speaks to the kind of longer-term, knock-on effects that optimists generally contend won’t pan out, and the threatened layoffs are a real-world example of budget crises facing state and local governments.

As far as the virus itself goes, new hospitalizations in Florida jumped 256, the most in a month. Cases rose 5.3%, representing a sharp acceleration from the 7-day average (3.7%). The state’s department of health reported 5,506 new infections, easily a record for a single day.

The rate of new positives surged to nearly 16% from 10.8%.

I won’t mince words: That is not what market participants want to hear, especially not on the heels of Monday and Tuesday’s virus-related news which was anything but comforting (see here and here).

There’s more scope for US equities to move around (i.e., trade in a wider range) following Op-Ex last week, and stocks’ outperformance on the month and quarter could trigger rebalancing flows out of equities and into fixed income, potentially exacerbating any downside momentum. (And I emphasize “potentially”).

Coming into Wednesday, Nomura’s Charlie McElligott noted that equities were “having a difficult time escaping the ‘Gamma Neutral’ level”. The flip level today was ~3,082 on the S&P, and we pushed through that pretty decisively, although price action tends to be affected in the US around the European close.

3,082 is “almost symmetrically surrounded by large $Gamma strikes –3,000 with $1.671B; 3,050 $1.245B; 3,100 $1.516B; 3,150 $1.235B; 3,200 $1.837B”, McElligott went on to say.

While we can all debate whether it makes sense to add some exposure in small-caps, high beta, and cyclicals which are still trading lower versus pre-pandemic levels, large-caps and tech hit record highs in the US on Tuesday. For many, that is too far, too fast.

Days when the news flow feels like “death by a thousand cuts” are bad enough, but Wednesday’s headlines were downright disconcerting. The IMF’s dour prognostications didn’t help, even as they surprised exactly nobody.

Across the pond in Europe, cyclicals (specifically autos, travel, oil, and banks) paced declines, falling ~3%.

Cue The Shirelles.

Mama said there’ll be days like this 

There’ll be days like this mama said