(COVID-19 remains a global crisis and we realize that many people need to keep up with COVID-19 developments, particularly since we are moving into the more critical stage (“restart economy”), so feel free to share our commentary to anyone who has interest.)
It was a relatively quiet final 2020 week of pre-New Year’s Eve holiday trading, but the Standard & Poor’s 500 index still managed about a 1 % rise to about 3738. Still, all investor eyes are on Washington, D.C. where the Senate is holding up another round of $2,000 coronavirus relief checks. It’s unclear when this will be resolved. (For more, see page 11.)
The House had passed, by unanimous consent, this larger payment, but the Senate Majority Leader Mitch McConnell wants to take up three issues simultaneously: (i) stimulus checks, (ii) election fraud and (iii) section 230 protecting tech companies from liability. Congress is running against the clock as the year ends and a recess approaches.
Trends in COVID-19 are still largely improving with the hotspots remaining along the coastlines and the Northeast (winter). Positivity rates are holding flat, but the true trend case numbers remain hard to discern given holiday closures. In fact, Texas reported a +10,000 increase in cases (see Point #2), but this is due to many counties reporting 3-4 days case backlog on Tuesday.
Additionally, the UK COVID-19 variant showed up for the first time in the US. The patient has no known travel history, so it seems to be a case of community transmission. There are now 17 nations reporting cases of this UK variant. This bears watching to see if the “attack rate” or the rate of transmission of this variant is meaningfully higher. If yes, it raises the importance of the pace of vaccinations.
Small caps have been hard hit in the past few days. The Russell 2000 has underperformed the S&P 500 by ~500 basis points, a sizable drop. I think this is mostly profit-taking because the conditions for a small-cap rally are intact: Stimulus checks = economic positive; COVID-19 rolling = risk-on; Santa Claus rally = risk-on; and – VIX index is falling = risk-on. I see small caps beginning to rally fairly soon.
STRATEGY: 67 stocks in the ‘Top 3’ sectors. Our data science team, led by tireless Ken, has put together the trifecta list of stocks, coming from what we view as the ‘top 3 sectors: Consumer Discretionary, Industrials and Energy. These are stocks on which there is consensus among myself, Brian Rauscher, head of global portfolio strategy and Rob Sluymer, our head of technical strategy.
Consumer Discretionary (30 stocks): AN, GM, F, HOG, GRMN, LEG, TPX, PHM, TOL, NWL, HAS, MAT, PII, MGM, HLT, MAR, NCLH, RCL, WH, WYND, SIX, DRI, SBUX, FL, GPS, LB, CRI, VFC, GPC, BBY
Industrials (28 stocks): AGCO, OC, ACM, WAB, EMR, GNRC, NVT, CSL, GE, MMM, IEX, PNR, CFX, DOV, MIDD, SNA, XYL, FLS, DAL, JBLU, LUV, MIC, KEX, UNP, JBHT, R, UBER, UHAL
Energy (9 stocks): HP, NOV, SLB, EOG, PXD, HFC, MPC, PSX, XEC
POINT 1: As of Tuesday, the COVID-19 daily cases came in at 185,549, up +3,887 vs 7D days ago. Texas had a massive backlog and saw daily cases jump to 26,990 from 16,607 stemming from multiple counties backlog. (See Point 2.) So cases are still rolling over, but the holiday effect is going to cause distortions for several weeks. The 7-day delta turned positive, but ex-Texas, it would have been down ~7,000. CA remains the state with the highest daily count in cases.
POINT 2: We are starting to see “backlog” caused jumps in cases. As the Texas Health Dept. noted, this is due to a substantial backlog of cases being reported Dec. 29. Of course, Texas is not the only state experiencing this. This is the reason we can expect the holiday reporting to cause some distortions, or rather, contain distortions.
As I have noted, multiple counties did not report case data for the Christmas holiday weekend last Friday through Sunday. Those three days were reported Dec. 29 and this is the reason for the surge.
POINT 3: The New York Times published an article suggesting a surprising number of COVID-19 patients subsequently develop severe psychotic symptoms. The severity of these symptoms is what alarmed me. Moreover, there appear to be dark voices suggesting these recovered patients murder or harm others. In some ways, this could be another reason why “Violence in 2021” could become more pertinent. https://www.nytimes.com/2020/12/28/health/covid-psychosis-mental.html
However, the article does not address whether this is not similarly found from those receiving vaccinations. A British study (same article) found that among 153 patients, 10, or ~8% had new-onset psychosis. This is a shockingly high statistic. One of the patients described having voices tell her to murder her children. I am really astonished and alarmed by these reports.
The obvious question is why this is happening. And while there is no clear explanation, scientists think this is possibly from neurotoxins being released as a result of the immune reaction.
Bottom Line: Have a safe and wonderful New Year! I pray that 2021 is a year where the world can heal and that each of you have a blessed holiday.
Figure: Way forward What changes after COVID-19
Per FSInsight
Figure: FSInsight Portfolio Strategy Summary – Relative to S&P 500
** Performance is calculated since strategy introduction, 1/10/2019
