India and U.K. COVID-19 Data Suggests Delta Variant Fears Will Peak Late August
COVID-19 Case Counts Are Driving Markets
Markets are concerned the highly transmissible delta variant will delay the economic recovery. July's market action was noticeably risk-off, with the 10Y Treasury yield plunging from 1.46% to 1.23% and defensive sectors outperforming. The key question is when U.S. case will counts peak.
Basing US’s trajectory on India and the U.K. Recent Surges
India & U.K. Delta Variant Case Trajectories
The chart shows India's and U.K. new COVID-19 cases per million. Each country's start date is set as the trough before the delta variant surge. India's cases troughed on 2/8/21 and peaked 86 days later, on 5/11/21. (Note: India's early slope is gradual, so you could move the start date back to 2/28/21 and shorten the peak to 72 days.) The U.K.'s cases troughed on 5/19/21 and peaked 63 days later on 7/21/21. Taken together, the India and U.K. delta variant surges point to a trough to peak timeline in the 60-80 day range.
US State Delta Variant Case Trajectories
The U.S. delta variant surge started in June 2021. The second chart shows new COVID-19 cases per 100,000 across five states: Alabama, Florida, Louisiana, Missouri, and Texas. Like Figure 1, the start date is set as the trough before the recent surge but could be pushed back by 15 days across the board. MO troughed first on 6/2/21 and is the furthest along at 67 days, while AL, FL, LA, and TX troughed around mid-June and sit near 50 days. Using the India and U.K. timelines to model the states' forward path implies case counts could start peaking over the next 1.5 to 4 weeks (i.e., late August or early September). The data shows LA and MO may have already peaked, and the remaining states may not be far behind.
Positioning Your Portfolio for Peak Delta Variant Cases
The August monthly reports highlighted our expectation for delta variant fears to peak in the near term. In general, risk sentiment should improve as cases peak. We would expect interest rates to increase, a trend that may already occur after employers added 943,000 jobs during July. Long-duration bonds would underperform short-duration bonds, which means corp IG would underperform corp HY. We would also expect small caps to outperform large caps, cyclical sectors to outperform defensive sectors, and value to outperform growth. We continue to believe tactical-minded investors should capture recent outperformance across large caps, growth, and long-duration bonds and rotate into reflation assets. While we still expect the reflation 2.0 narrative to be short-lived, long-term investors could also rebalance portfolios and capture current large cap, growth, and long-duration bond gains to realign portfolios with current ratings.
Our Insights
