Consumer Behavior Is Changing

By Nicholas Jasinski | Wednesday, June 24

Reconsidering. The daily Covid-19 case numbers have decidedly taken a turn for the worse in recent days, and it's getting harder for the market to ignore their accelerating rise. Nationwide daily totals have begun to climb, as new cases in hotspot states including California, Florida, and Texas grow faster than they decline in states that had large early outbreaks such as New York.
Yesterday, there were about 36,000 confirmed new cases in the U.S., up by more than 10,000 from the previous Tuesday. It's the most in a day since May 1, and the third-highest daily total since the pandemic began. Part of the rise in cases can be explained by increased testing, but the rate of positive tests has also jumped recently, to 6.7% yesterday, from the mid-4s a week or so ago.
Hospitalizations are also up, with at least 10 states reporting a 10% or more increase in hospitalized Covid-19 patients from a week ago. (Not all states report total hospitalizations, including Florida.) And, tragically, after declining steadily since May, nationwide Covid-19 deaths have also begun to show week-over- week increases.
The worry isn't that officials will respond with large-scale economic lockdowns that will sweep across all 50 states one by one as they did in March. But more targeted shutdowns and delays to reopening plans have already begun—and they will slow the economic recovery.
The governor of Texas recommended that residents stay home, Louisiana is delaying Phase 3 of its reopening plan because of a spike in cases, and New York, New Jersey, and Connecticut will require travelers from regions with large outbreaks to quarantine for 14 days—likely setting back the just-restarting travel and tourism industries in that tri-state area.
And businesses and consumers following the data are taking measures on their own. Apple has re-closed stores in several states with rising cases, and other retailers are sure to follow. Consumers are adjusting their behaviors: non-traditional indicators like OpenTable bookings in Texas, Arizona, and Florida have tumbled, reversing course after surging since May.
“States with faster case growth are now underperforming economically based on measures of small business activity, restaurant bookings and consumer spending,”  Deutsche Bank’s chief U.S. economist Matthew Luzzetti wrote today. “This new inverse relationship between economic activity and Covid cases is particularly acute for several of the states exhibiting the most troubling trends, including Arizona, Florida, South Carolina, and Texas. The lesson is that behavioral changes in response to Covid trends can hinder the economic recovery even if states do not reimpose containment measures.”
That doesn't mean the economic recovery is about to suddenly grind to a halt—far from it—or that the growing outbreaks can't be brought back under control. But it does mean that the case for a full-steam-ahead, V-shaped recovery is getting harder to support by the day. Especially as generous fiscal stimulus expires later this summer, potentially without an extension from Congress. And that's with many stocks back near where they started the year.
Shares of the most economically sensitive companies and industries—many of which had led the market higher in recent weeks—fell the hardest today, while many grocery stores, Zoom Video Communications, and other defensive stocks rose.
The S&P 500 fell 2.6%, while the Dow Jones Industrial Average lost 2.7%. The Nasdaq Composite broke an eight-day winning streak to close down 2.2%. And the small-cap Russell 2000 dropped 3.4%.
DJIA: -2.72% to 25,445.94
S&P 500: -2.59% to 3,050.33
Nasdaq: -2.19% to 9,909.17

The Hot Stock: Kroger +2.2%
The Biggest Loser: Norwegian Cruise Line Holdings -12.4%

Best Sector: Utilities -0.9%
Worst Sector: Energy -5.6%