The US economy will be stronger than many think in the 4th quarter because COVID-19 is less lethal than before, says Wall Street chief strategist

• Economists concerned that skyrocketing COVID-19 case counts in the US will curb the economic recovery are ignoring the pandemic's remarkably low lethality rate, James Paulsen, chief investment strategist at The Leuthold Group, said Friday.
• The US Economic Surprise Index, which tracks economic momentum, has been more closely correlated with virus lethality than cases throughout the pandemic.
• COVID-19 lethality soared above 7% in April, leading the surprise gauge to plummet. Yet lethality now sits at roughly 1%, and the surprise gauge points to ready and robust growth.
• If the lethality rate remains relatively low, "the pace of economic growth in Q4 (and beyond) may prove much stronger and persistent" than many expect, Paulsen said.

Experts worried that soaring COVID-19 case counts will drag on US economic growth are glossing over the pandemic's all-important lethality rate, according to James Paulsen, The Leuthold Group's chief investment strategist.

The US economy just notched its strongest quarter of gross domestic product growth in history, expanding at an annualized rate of 33.1% in the third quarter. Economic reopening and revived consumer spending fueled the leap. Yet other economic indicators suggest the pace of recovery will slow significantly in the fourth quarter, and a resurgence of coronavirus cases in the US could further curb improvement.

While the record-high case count prompted concerns about a new economic shutdown, the virus's lethality rate tells a different story, Paulsen said in a Friday note. When the US faced its first outbreaks, the lethality rate leaped to more than 7%. It's since fallen to roughly 1% and stayed there even as cases swing to new peaks.

Read more: 'We are in a depression': A 35-year market vet says more stimulus will be powerless to prevent a coronavirus-induced economic meltdown— and warns stocks 'have a lot further to fall'

The US Economic Surprise Index, which tracks economic momentum, tanked into the summer as the lethality rate spiked. The index subsequently rebounded as the economy reopened and business activity resumed, climbing to nearly 130 in August from -30. While the gauge trimmed gains and sits near 90, it still points to a healthy pace of recovery.

The surprise index is more closely correlated with the virus's lethality than its case count, Paulsen said. Unlike what was seen in the spring, the leap in coronavirus cases hasn't slammed the economy's momentum.

Should the lethality rate remain relatively low, "the pace of economic growth in Q4 (and beyond) may prove much stronger and persistent ... than many now believe possible," Paulsen said.

Read more: 'I'm basically going to be long growth': Billionaire investor Chamath Palihapitiya has hauled in a 997% return since 2011. He details the 5 sectors shaping his long-term investment playbook.