October 1, 2020 – Capstone believes states removing restrictions on indoor gatherings, entering the fall season, will lead to a third wave of new COVID-19 cases by November, possibly coinciding with election day and hampering voter turnout. While we believe at least one vaccine candidate funded under Operation Warp Speed will ultimately be approved, we do not believe a vaccine will be available to the public at the scale necessary to limit transmission until at least 1H21—too late to stave off the economic and health consequences of a third wave.
The change in seasons presents a unique combination of risk factors that we expect will drive an increase in transmission: 1) behavioral changes leading to more indoor gatherings and higher risk of transmission; 2) disease concurrence—individuals simultaneously sick with cold or flu and COVID-19—increasing transmission from asymptomatic cases due to the spread of COVID-19 viral particles as a result of cold and flu symptoms such as coughing and; 3) a colder and drier climate, potentially improving the survival of COVID-19 aerosols and increasing transmission rates.
Beyond seasonality, other factors such as continued high background transmission rates and economic reopenings, particularly bars, increase the likelihood of a third wave of coronavirus cases. The ultimate scale of a third wave may be constrained by individual behavioral choices such as wearing a mask, how quickly states reimpose gathering and economic restrictions, improved US testing rates and capacity, and reduced herd susceptibility as many Americans may have already been exposed to COVID-19. To the latter point, we do not anticipate a huge impact to fall/winter’s expected transmission rates as only about 10% of the US adult population has been infected by COVID-19 to-date, according to a study published in The Lancet.
As shown in Exhibits 1 through 6 below, the COVID-19 situation in the US has improved from the peak of the second wave in midsummer. However, with states such as Florida, Tennessee, Indiana, and Illinois announce removing bar capacity limits in full or in part in late September, we view an increase in COVID-19 cases across several states or geographic regions as likely. Additionally, we believe the peak for a third wave could reach or surpass the second US wave both in terms of the number of cases and the velocity of case growth given the aforementioned seasonal, behavioral, and virological reasons. To better monitor if these factors are driving a third wave of infections, the exhibits below now include data from Illinois. We believe this state serves as an effective proxy for tracking potential early indications of a third wave since it will experience colder weather sooner, has moderate levels of background transmission, and is loosening gathering restrictions.
A third wave of cases in the US, especially if it peaks in late October or early November, has both economic and political consequences to consider. If cases do spike between October and December, then states may be forced to reimpose economic restrictions, hindering the US economic recovery. Even absent government restrictions, individuals may choose to avoid public gatherings, reduce their spending, and forgo travel during the holiday season.
Regarding the November 3rd elections, a rapid increase in cases in late October could dissuade voter turnout, either directly if individuals view the risk-reward tradeoff as too high, or indirectly if poll workers refuse to show up, resulting in fewer polling locations and longer polling lines. This could place the full spotlight on the already politicized mail-in ballot results for several key swing states.
While we are bullish the US will approve at least one, and very likely several, of the vaccine candidates funded under Operation Warp Speed, we do not believe a vaccine will be available to the public at the scale necessary to limit transmission until at least 1H21—too late to impact the economic and health consequences of a third wave. Nevertheless, we expect President Trump will attempt to sell the public on the prospects of near-term vaccine, promising approval in short order either right before or just after the election in an attempt to boost market optimism and voter sentiment. Improving both may feel increasingly urgent to President Trump if he is down in the polls and US cases are spiking again just before election day, resulting in escalating hyperbole on the vaccines efficacy and near-term availability. Such rhetoric could undermine consumer trust in the process and lead to unrealistic consumer and market expectations that may not be realized until after the election. This in turn could drive a post-election correction as consumers and investors face disappointment if the vaccine candidate is not immediately approved, only partially effective, or not readily available.
Exhibit 1: Average Current COVID-19 Hospitalizations per Five-Day Period per 100k
Exhibit 2: New COVID-19 Cases per 100k per Five-Day Period
Exhibit 3: Total COVID-19 Tests per 100k per Five-Day Period
Exhibit 4: Positivity Rate of Total COVID-19 Tests per Five-Day Period
Exhibit 5: Average COVID-19 Hospitalizations % Total Inpatient Beds per Five-Day Period
Exhibit 6: Total COVID-19 Deaths per 100k per Five-Day Period
In Case You Missed It: A roundup of Capstone’s recently published notes on COVID-19 reopening strategies: