White House continues to draw comfort from the growing divergence between cases and deaths in America. While new cases hit new high, average daily new deaths have declined by 65% from the peak reached in April.
The morning it was reported that the virus situation in US has turned for the worse Florida and Texas hit a record number of daily coronavirus cases on Saturday, respectively reporting 11,445 and 8,258 new cases in the last 24 hours, according to figures released by the states’ health departments.
There are plenty of risks next week as cases rise, states are now taking measures to try and control the spread of the virus. Investors may may be wise hedging against the prospect of more restrictions being imposed to slow the spread of the virus that could hamper the economic recovery.
Volatility to Spike?
Separately, there was a substantial increase in VIX options trading as well. Open interest for Aug. 19 70 calls by roughly 9,138 contracts on July 1, while open interest for Sept. 16 calls at 80 and 85 rose by 10,512 and 15,294, respectively.
There are plenty of reasons for a trader or institution to place these bearish bets or protective positions, especially given the significant advance in the S&P 500 off the March lows and that it currently trades at around 20 times 2021 earnings estimates.
Though deaths from the virus in Florida have remained on a downward trajectory, Surgeon General Dr. Jerome Adams has warned that fatalities lag new cases and a clearer picture might not emerge for two weeks or more.
What would be very concerning is if deaths now start to rise meaningfully after a lag. So far affected states has resisted locking down the economy again but if the death rate rises , the pressure to lock down will mount and the stock market which is currently building in a V - shape recovery scenario may be disappointed.
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