Shutdowns Are Back As Cases Rise In France and American Midwest

Vaccine Seems So Far Away

Later in this article, we will discuss the latest COVID-19 numbers. In this section, let's discuss the lockdowns. Lockdowns appear to be spreading like March. Except for the fact that we don’t have a fiscal stimulus coming. And we know the impact COVID-19 has in the short term on people’s health, treatment is better, and a vaccine is coming. 

Another difference is the hotspots are in new places. In the spring, the worst areas were Italy and the tristate area (New York, New Jersey, Connecticut). Now the worst areas are France and the Midwest.

In terms of the fiscal stimulus, in March we didn’t know if Congress would act quick enough and if a stimulus would save the economy. Now we know Congress won’t act and we know a stimulus would save parts of the economy. To be clear, if the stock market were to crash 5% in the next few days, that would change the dynamic. 

Suddenly, Congress would be motivated to do something. Obviously, the election is important, but at a certain point saving the economy becomes more important than an election.

If you’re looking at the stock market in the short term, headline risk is huge. We will have many headlines of record case counts. It’s possible Wisconsin peaks, but the media will focus on the next hottest states which are the Dakotas. The lockdowns are increasing which causes a double whammy for stocks. 

Suddenly, the Pfizer vaccine announcement in 3-4 weeks seems like years away. When stocks weren’t falling, traders considered going long on hopes of a vaccine, but now they are gun shy. They want to wait a few more days before buying.

Shutdowns Are Here

The governor of Illinois stated there won’t be any indoor dining or bar service in Chicago starting on Friday. Only good news is the governor is using the positive rate to determine policy. That means we can more easily predict when other states and cities will close if they do the same. 

New York City seems the most trigger happy because it doesn’t want a repeat of the deaths in March and April. It wouldn’t be surprising if the slightest increase causes restaurants to lockdown

France is the headliner of this wave in cases. There is currently a curfew in major cities in France from 9PM to 6AM. Policymakers are wondering if they should keep people home on the weekend and close non-essential businesses again. The fact that they still haven’t done so shows how strongly they are against lockdowns because cases have gone parabolic. 

Current measures could lead to a peak in cases. If they don’t within a week, we might see tougher lockdowns. Germany is shutting down all restaurants, bars, and clubs until the end of November.

Redbook Growth Weakens

In the week of October 24^th, Redbook same store sales growth fell from 2.5% to 1.2% which either shows consumer spending growth is bouncing along the bottom or that COVID-19 and the lack of a stimulus has finally been enough of a catalyst to cause a new downtrend. 

It's unlikely that the consumer is in dire shape as a whole, but the people in the leisure and hospitality industry are in deep trouble. We might see renewed layoffs from restaurants as the weather gets worse and COVID-19 cases ramp.

As you can see from the chart above, yearly sales growth in non-recurring items is strengthening in purchases where the card isn’t present. Sales growth where the card is present hasn’t increased since September. With this third wave likely in place for a few more weeks, there is little doubt shopping at stores in person is going to take a major hit this holiday season. 

Any of the stores that usually get overcrowded because of in-person deals will be much quieter. There probably won’t be as many deals. On the other hand, online shopping should be very strong. It will be interesting to see which category pushes the needle further. This is an unusual year where we don’t know what to expect. It’s possible good vaccine news makes people more confident. There will be vaccine news right before holiday shopping starts on November 27^th.

Consumer Confidence

Unlike the Redbook report, consumer confidence in October was strong. This index fell slightly from 101.3 to 100.9 which missed estimates for 102. As you can see from the chart below, the present conditions index rose from 98.9 to 104.6, but the future expectations index fell from 102.9 to 98.4. It’s good to see the economy is ok for most people now. And it’s a natural reaction to be worried about the future with COVID-19 cases exploding.

Net percentage of consumers who think jobs are plentiful (plentiful minus hard to get) rose from 3.3% to 6.6%. Unemployment rate probably fell slightly again in October. We can expect a slowdown in job creation, but positive job creation nonetheless. Percentage expecting fewer jobs in the next 6 months rose from 16.1% to 20.2%.

COVID-19 Is Completely Out Of Control In The Midwest

COVID-19 situation is getting much worse at a very quick clip. It's surprising how bad things have gotten compared to 2 weeks ago. There are now 44,212 people in the hospital which is up from 42,917 the day before. If the increase of over 1,200 new hospitalizations per day continues, there will be a new record high in about 2 weeks.

A problem is the number of new cases in Wisconsin is exploding. There were 5,262 new cases on Tuesday which was a new record high. It was the 2^nd highest total even though Wisconsin is the 20^th biggest state by population. 

France is similarly in deep trouble as the 7 day average of cases is nearly 4 times the peak in the spring. On the other hand, deaths are about 1/5^th of the peak. Deaths will rise, but it’s highly unlikely that they reach a new peak this fall. Treatment has improved. It’s still not where it needs to be for the economy to fully reopen.