The Virus Messes With Texas

By Matthew Klein | Friday, June 26

The Virus Strikes Back. The novel coronavirus takes time to incubate. For many, it takes five days, but it can be as long as 14. That means there was always going to be a lag between the resumption of normal activities and the inevitable rise in infections. For many parts of the country that proceeded with reopening, the reckoning has arrived.

Investors have noticed. Stocks dropped across the board Friday, with the S&P 500 index losing 2.4%. Every single one of the 11 subsectors was down for the day, with the worst losses in big tech, banks, and energy. All but one of the 30 stocks in the Dow Jones Industrial Average were down for the day. (The lone exception was Cisco Systems.) Interest rates on Treasury Inflation-Protected Securities hit new record lows on Friday, with the 10-year real yield dropping to -0.7%, while gold continues its steady ascent. At $1772.50 an ounce, the price of the metal is now at its highest level since October 8, 2012 and just 6% shy of its all-time high.

In terms of the virus, New York City and its suburbs are no longer the issue. Now it’s Arizona, Florida, South Carolina, North Carolina, Texas, and southern California that are the major new major hotspots. Outside of greater NYC, the share of coronavirus tests coming back positive has jumped from 5.7% to 7.6% over the past two weeks, according to Goldman Sachs’s daily coronavirus tracker. (For the tristate area, the positivity rate has continued to fall and is now just 1.1%.)

On Friday, Texas and Florida announced they would re-close all their states’ bars and reduce restaurant occupancy rates. Hospitals are being overrun with infected patients in many major metro areas, most notably in Houston, which also imposed its own stay-at-home order. San Francisco, which is doing relatively well, but has a track record of acting quickly and aggressively to preempt the spread of the virus, also announced on Friday that it is “temporarily delaying” the next steps of its planned reopening in response to rising numbers of new cases.

The data from May showed that the economy had hit bottom. The question is how much of the gains were due to the temporary one-off hit of reopening, which is now being undone, and how much came from the trillions of dollars of government support that will soon be exhausted or expire?
Those questions will be top of mind for investors next week. 

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