Wall Street is watching where you’re going as it makes some big bets

Trader Talk

(Bloomberg) — While dread gathers around the potential impact of a resurgent virus on the economy, stock bulls are clinging to their favorite rebuttal: U.S. mobility data.

Information on the movement of people — in airports, on subways, at restaurants — is giving cover to equity longs who are poised to send the S&P 500 Index up for the fifth week in seven. Even as other COVID-19 trends have worsened, this data has largely hung tough and even foreshadowed the gangbuster jobs report Friday. Mobility data has emboldened bulls searching for signs that the economic recovery is durable.

Americans persist in getting out and about, said Art Hogan, chief strategist at National Securities. Mobility data is “holding up very well,” he said by phone. “This is some of the most important data we can track and I think that’s going to continue to be the case.”

Tracking consumers' movements is big business for market watchers looking for signs of economic recovery.

Tracking consumers’ movements is big business for market watchers looking for signs of economic recovery.

Bloomberg News

High-frequency readings of the economy have mostly been firm, among them the daily count of passengers through airport security checkpoints. They broke above the 2 million mark in recent days, meaning Americans aren’t yet deterred from traveling.

“Rising COVID-19 cases will only hurt the market if they result in a change in people’s behavior (either forced lockdowns or self-imposed lockdowns),” Tom Essaye, a former Merrill Lynch trader who pens the “Sevens Report” newsletter, wrote in a note. “So far, that is not happening (at least not according to TSA Throughput), which means that COVID is not yet a threat to stock prices.”

Lori Calvasina, head of U.S. equity strategy at RBC, monitors public transit trends, OpenTable bookings for restaurants and consumer sentiment data as well as airport data. Though the pace of the uptrend has softened, no major reversals are happening, she wrote in a note.

Meanwhile, the July jobs report showed U.S. employers added the most jobs in nearly a year and the unemployment rate declined, suggesting that the labor market is making progress toward a full recovery. That squares with data from Kastle Systems, which tracks electronic access to office buildings. The data shows that commercial property occupancy rates in the U.S. are hovering near their highest levels of the pandemic, though the level is slightly below the highs reached in mid-July.

Data tracked by Aneta Markowska, the chief U.S. financial economist at Jefferies, paints a similar picture. A proprietary model that uses inputs including restaurant bookings and domestic and international flights has been improving in recent weeks. Markowska says gains continue to be concentrated in consumption, movement and employment data, and that even hard-hit states like Florida last week saw no pullback in restaurant bookings or consumer foot traffic.

“We continue to see no evidence of the delta variant impacting consumer behavior,” she wrote in a note.

To be sure, not every piece of mobility data is breaking positively right now. Readings on credit card spending — which have decelerated in recent days — might give bulls some pause. And with evidence of new restrictions and behavioral changes, as well as the risk of new coronavirus mutations, there could be “new economic challenges down the road,” wrote Chris Low, chief economist at FHN Financial. “The economy has been booming for a year, but that’s because federal aid was massive. At some point, COVID-19 will be a drag on economic activity again, meaning growth is likely to slow to below trend eventually, despite vaccinations.”

On the virus front, vaccination rates in the U.S. are higher, but hospitalization and death rates have been rising too. The spread of the delta variant has pushed the threshold for herd immunity to over 80%, potentially approaching 90%, Bloomberg News reported.

But, “we know a way to mitigate it, so I think the market’s like, ‘OK, there’s a mitigation plan’ — you’ve seen the vaccination rate across the country pick up pretty significantly,” JJ Kinahan, chief market strategist at TD Ameritrade, said in an interview. “That’s what the market is taking into account.”

Matthew Weller, global head of research for Forex.com and City Index, agrees. “Traders are recognizing that the growth is continuing unabated despite the prevalence of the delta variant and I think that’s what lends a positive risk-on tone,” he said. “We have seen on each subsequent wave of infections, whether that is driven by delta or previously just by actions of people, that they’ve had smaller and smaller economic hits.”

Still, RBC’s Calvasina points out the rise in cases coincides with a change in market leadership that’s seen growth stocks outperforming once again. An index of growth companies in July outperformed one of value firms by more than 3 percentage points for the second full month in a row, while large-cap tech has also reasserted its leadership in recent days.

Though other factors are also at play — things like the move lower in 10-year yields and a potentially less-accommodative Federal Reserve — “it’s still worth noting that the latest change in leadership within the U.S. equity market has coincided with the negative shift in COVID-19 case trends,” Calvasina wrote. “So far, we have not seen defensive sectors start to lead, suggesting that markets are not baking in an overly bearish outlook, just a less robust one.”

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