COVID-19 UPDATE: MA shows vaccinations crushing COVID-19 cases (age>60)... Looks like institutional investors are starting to nibble on "Epicenter" stocks

Click HERE to access the FSInsight COVID-19 Daily Chartbook.

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• Monday
• Tuesday
• Wednesday
• SKIP THURSDAY
• Friday

STRATEGY: Looks like institutional investors starting to nibble on “Epicenter” stocks
The Easter weekend is going to throw off some of the COVID-19 data, as office closures created delays in reporting (7 states did not disclose Sunday but show up as 2X today).  So 7D avg are probably better insights vs daily cases vs 7D ago.  But a snapshot of the COVID-19 data is as follows:

Current Trends — COVID-19 cases: 
– Daily cases    66,183 vs 60,245 7D ago, up +5,938
– 7D positivity rate   4.7% vs 5.0% 7D ago
– Hospitalized patients   36,470  up +1.5% vs 7D ago
– Daily deaths    619,  down -34% vs 7D ago

Vaccinations ramping steadily
– avg 3.0 million this past week vs 2.7 million last week
– overall, 18.7% fully vaccinated, 32.2% 1-dose+ received

So the overall picture is of daily cases flat/rising slightly while vaccinations are ramping up sharply.  And now about 32% of Americans have received 1-dose.  If I were to list the top 3 concerns regarding COVID-19 and the economy, based our firm’s many convos over the past week, these are the 3 biggies:

– COVID-19 cases are not improving (not surging) and raising some concerns about vaccine effectiveness
– COVID-19 new mutations are being constantly identified, raising concerns about vaccine effectiveness
– Congress is passing infrastructure (good) but also wants to raise corporate taxes (concern)



MA shows that vaccinations are crushing COVID-19 cases…MA reports COVID-19 case figures by age group.  And looking at this breakdown, it is evident that vaccinations seem to be effective:

– MA eligibility is age >60
– Since Feb 1 to now, those age >60 have seen -67% to -88% decline in cases

In other words, only the “non-vaccinated” are seeing more cases in MA.  And given the population profile in MA is similar to rest of US, we can also infer that much of the case spread in the US is in the “unvaccinated” pool.  That is, those vaccinated are seeing a drop in confirmed cases.  This is a positive development.

Since nearly the beginning of this pandemic, scientists have warned that COVID-19 virus would continue to mutate and given the mysteriousness of the disease, mutations only add further to the anxiety around defeating the virus.  The SF Chronicle today reported a ‘double mutant’ virus, which has features of both the CA variant and the Brazil (P.1).  This mutation was reported in CA.

– thus, we can monitor CA case trends, which so far have been excellent, for signs that this double-mutant is evading vaccinations

https://www.sfchronicle.com/local/article/Double-mutant-coronavirus-variant-surfaces-16076361.php



Our Head of Policy Strategy, Tom Block, wrote a lengthy piece about this pending infrastructure bill.  Please check out his research note on this.  I was surprised, but this infrastructure plan is a ton of real infrastructure projects, road, water quality, bridges, etc.  As Tom Block writes.

These types of plans bring jobs to the district, so it strikes me as quite good for addressing the distress in this economy.  While GDP is recovering, millions of Americans are out of work and are facing desperate circumstances.  So a plan like this also seems to be coming at the right time.  

– as for odds of passage, Tom Block sees a 75% chance this is passed by the Fall (see below)


Per Tom Block, Policy Strategist for Fundstrat…

The offset to this is the concerns that the plan also calls for an increase in the corporate tax rates, from 21% to 28%.  While there will be offsets, on the first cut, many of our clients cite this as an unequivocal negative.  I used to be an equity analyst, covering wireless stocks from 1993 to 2007. 

– in those years, many wireless companies did move domiciles or found other tax shelters, taking effective tax rates lower
– In those 14 years, I never once changed my target price because of a change in effective tax rates

Before you protest, consider the folly of comparing “dividend yield” to “bond yield” — in a taxable world, it is a wrong comparison
– dividends are taxed differently than interest income
– 22% vs marginal income tax rate

When was the last time someone explained that difference? Or used it to explain the relative value of stocks, after tax? See what I mean?

In any case, Tom Block does think Congress has relatively more consensus on raising corporate tax rates, but the magnitude is not certain.  Axios is reporting that Sen. Joe Manchin, D-W. Va, opposes a corporate tax increase above 25% (vs 21% currently) which is below the 28% proposed.  And he said several other Democratic Senators similarly oppose.  My takeaway:

– not full consensus to raise corporate tax rate
– magnitude is unclear, and 25% sure feels like a “flesh wound”
– raising corporate tax rates may not really impact equities (see above)

In other words, I think it is too early to worry about rising corporate taxes as the driver for stock market sell-off. 

Source: https://www.axios.com/manchin-biden-infrastructure-bill-corporate-tax-699f1255-794a-41e0-a7fa-8786ddb3cf79.html



STRATEGY: Looks like institutional investors are starting to nibble on “Epicenter” stocks
Most institutional investors have not really yet tilted to Cyclical stocks yet.  I am not sure if this is a widely held view, but based upon our discussions with our clients over the past year, it is evident most of our clients prefer to Overweight Growth stocks and shy away from Epicenter aka Cyclicals.  They have many reasons for this ranging from “I only want great biz” to “my mandate is Growth.”  But for whatever reason, few institutional investors have embraced the Epicenter trade.

One of the easiest ways to see this is to look at intraday charts.  Why?  Different constituents trade at different parts of the US session:

– small traders/ retail often execute in the morning
– European traders execute their trades near the European close ~11:30am ET
– US institutional investors execute their trades at the end of the day
– gamma hedging takes place at end of day too, so it amplifies institutional trends

Thus, if a stock tends to be weak at the close, it is likely being sold by big money.  Vice versa.


Epicenter stocks have been fading at the close since April 2020 and even since the start of the year…
The tick charts for Epicenter stocks, using ETF SPHB as a proxy, as shown below for two different time periods:

– April 2020 to 3/15/2021
– Jan 1 2021 to 3/15/2021

And as these chart both show, Epicenter has tended to fade into the close.  Interestingly, during 2020, the “open” was sold in Epicenter, meaning retail investors were dumping these stocks last year.  That is hardly a surprise given the pandemic.  But it is evident, retail and institutional investors were generally sellers.  

– Was Europe the only buyer?  Hahahaha… maybe

…pattern has changed since 3/24/2021, and now Epicenter is closing stronger
The pattern since 3/24/2021 has actually changed.  Take a look below at two more recent timeframes:

– 3/15 to 3/24, which is the timeframe the Russell 2000 saw a 10% decline
– 3/24 to now, which is the past 10 days


Notice the abrupt change in how Epicenter stocks are trading throughout the session?

– During 10% correction, institutions were shorting/selling Epicenter, accelerating into close
– Since 3/24, price gains accelerate into the close.
– Institutions finally seem to be nibbling at Epicenter stocks

In other words, it looks like institutional investors are now turning more constructive on Epicenter stocks.  

We have written extensively about the fundamental arguments, ranging from:

– likely positive surprise on operating leverage of Epicenter
– likely positive surprise on revenues (demand) for Epicenter stocks
– greatest leverage to US infrastructure
– positive leverage to rising interest rates + inflation
– underowned stocks
– in short, Cyclicals become the “new Growth” stocks in a post-war period

In other words, Epicenter stocks have multiple fundamental drivers of growth and positive surprise. 


…Institutional investors raised cash balances 9%, +$241 billion, since start of year…
And as a reminder, institutional investors have put a lot of cash on the sidelines since the start of the year.  Look at the parabolic rise.  And much of this was raised in the past two weeks.

– we now have evidence this cash is nibbling at Epicenter stocks
– this suggests lots more upside to Epicenter stocks in the coming months

The future, however, is uncertain.

STRATEGY: 25 “Power Epicenter Trifecta” stock ideas (*)
We are introducing a “Power Epicenter Trifecta” stock list.  This is designed to identify the strongest stocks within our “Trifecta” epicenter stock list. We essentially added a “power” rating to the stocks in the trifecta list to find stocks with the strongest price appreciation potential. Thus, the criteria for the “Power Epicenter Trifecta” is:

Positive views  (i) Quant (tireless Ken),
                        (ii) Global Portfolio Strategy (Brian Rauscher, aka Rocky) and
                       (iii) Technicals. 

Plus strong “power” rating:
                        (i) trailing 1M return > 12M return
                        (ii) outperformed S&P 500 past 6M
(iii) price > 20D MAVG
                       (iv) price > 50D MAVG

Consumer Discretionary:
RL, NCLH, RCL

Financials:
PBCT, NYCB

Industrials:
NVT, DAL, KEX

Energy:
XOM, HP, NOV, SLB, COP, EOG, MRO, MUR, HFC, PSX

Real Estate:
BXP, HIW, UDR, KIM, WRI, VNO, JBGS

Source: Fundstrat, Bloomberg

(*) the 25 “Power Epicenter Trifecta” stock ideas are the subset of the original 121 “Epicenter Trifecta” stock list. For the full list of our original “Epicenter Trifecta” stock list, please click the link below. Please note that the stocks rated OW on this list meet the requirements of our investment theme as of the publication date. We do not monitor this list day by day. A stock taken off this list means it no longer meets our investment criteria, but not necessarily that it is neutral rated or should be sold. Please consult your financial advisor to discuss your risk tolerance and other factors that characterize your unique investment profile.

For the full list of the 121 “Epicenter Trifecta” stock ideas, please Click Here.

ADDENDUM: We are attaching the stock lists for our 3 portfolios:
We get several requests to give the updated list for our stock portfolios.  We are including the links here:

– Granny Shots  –>       core stocks, based on 6 thematic/tactical portfolios
– Trifecta epicenter  –> based on the convergence of Quant (tireless Ken), Rauscher (Global strategy), Technicals
– Violence in USA –> companies that are involved in some aspect of home or personal security. We are not “recommending” these stocks, but rather, bringing these stocks to your attention.

Granny Shots:
Full stock list here –> Click here
Tickers: AAPL, CSCO, INTC, MXIM, NVDA, EBAY, KLAC, GRMN, GOOG, MNST, MSFT, AMZN, QCOM, TSLA, PYPL, AXP, BF/B, PM, XLNX, TGT, PG, XOM, VLO, GL, RF, ATVI, BBY, GE, AMAT, LRCX, MU, HPQ

Trifecta Epicenter (*):
Full stock list here –> Click here
Tickers: AN, GM, F, GRMN, LEG, TPX, TOL, NWL, MAT, PII, RL, MGM, HLT, MAR, NCLH, RCL, WH, TNL, SIX, DRI, SBUX, FL, GPS, KSS, LB, VFC, FITB, WTFC, ASB, BOH, FHN, FNB, PB, PBCT, RF, STL, TFC, WBS, PNFP, PACW, SBNY, NYCB, MTG, EVR, GS, IBKR, VIRT, BK, STT, SYF, BHF, AGCO, OC, ACM, WAB, EMR, GNRC, NVT, CSL, GE, IEX, PNR, CFX, DOV, MIDD, SNA, XYL, FLS, EAF, TTC, ITT, ALK, DAL, JBLU, LUV, MIC, KEX, UNP, JBHT, R, UBER, UHAL, LSTR, MAN, XOM, HP, BKR, HAL, NOV, SLB, COP, EOG, FANG, HES, MRO, MUR, PXD, XEC, HFC, MPC, PSX, LYB, EXP, MLM, CF, MOS, ESI, NEU, NUE, RS, SON, IP, BXP, HIW, UDR, KIM, NNN, WRI, VNO, JBGS, RYN

Violence in USA:
Full stock list here –> Click here

POINT 1: Daily COVID-19 cases 66,183, +5,938 vs 7D ago…

_____________________________

Current Trends — COVID-19 cases: 
– Daily cases    66,183 vs 60,245 7D ago, up +5,938
– 7D positivity rate   4.7% vs 5.0% 7D ago
– Hospitalized patients   36,470  up +1.5% vs 7D ago
– Daily deaths    619,  down -34% vs 7D ago
_____________________________



– The latest COVID-19 daily cases came in at 66,183, up +5,938 vs 7D ago.  
– As we wrote yesterday, the COVID case data were distorted due to the holidays over the weekend. Not surprisingly, 7D delta in daily cases jumped back into the positive regime as the case data for many states are two-day or even three-day worth.
– The overall case trends remain stable. As the 7D average line (blue dash line in the 7D delta chart below) shows, the daily confirmed case figures have been stalled in the past three weeks.
– At this stage of pandemic, vaccinations might matter more than daily case trends. As long as vaccinations work, eventually the rollout of the vaccines will lead to a decline in the pervasiveness of the COVID pandemic.

Source: Fundstrat and state health departments


7D delta in daily cases is distorted by the holidays…
As we wrote yesterday, the COVID case data were distorted due to the holidays over the weekend. Not surprisingly, 7D delta in daily cases jumped back into the positive regime as the case data for many states are two-day or even three-day worth.

The overall case trends remain stable. As the 7D average line (blue dash line) shows, the daily confirmed case figures have been stalled in the past three weeks

  

Source: Fundstrat and state health departments   




US hospitalization still rolling over … and even US deaths seem to be rolling over…
Below we show the aggregate patients who are currently hospitalized due to COVID. It has fallen significantly from the wave 3 peak.

Source: Fundstrat and state health departments

Source: Fundstrat and state health departments

Source: Fundstrat and state health departments




 

Source: Fundstrat and state health departments

 




POINT 2: VACCINE: 45 states near ~60% infected + vaccinated…
_____________________________

Current Trends — Vaccinations: 
Vaccinations ramping steadily
– avg 3.0 million this past week vs 2.7 million last week
– overall, 18.7% fully vaccinated, 32.2% 1-dose+ received
_____________________________



Vaccination frontier update –> 45 states now near or above 60% combined penetration (vaccines + infections)
Below we sorted the states by the combined penetration (vaccinations + infections).  As we commented in the past, the key figure is the combined value >60%, which is presumably near herd immunity.  That is, the combined value of infections + vaccinations as % population > 60%.

– Currently, 45 states (see below) are basically all at this level
– SD, ND and RI are now above or near 90% combined penetration (vaccines + infections)
– So slowly, the US is getting to that threshold of presumable herd immunity

Source: CDC and Fundstrat


Collectively, these 45 states represent about 94.1% of the US population.  As the chart below highlights, the US is seeing steady forward progress and this figure continues to rise steadily.

Source: CDC and Fundstrat



There were a total of 2,125,991 doses administered on Monday, down 9.2% from 7D ago. However, the pace is steadily rising, as evidenced by the 7D moving average (see blue line).

Source: CDC and Fundstrat 


~73.2% of the US has seen 1-dose penetration >30%…
To better illustrate the actual footprint of the US vaccination effort, we have a time series showing the percent of the US with at least 15%/20%/25% of its residents fully vaccinated, displayed as the orange line on the chart. Currently, almost all US states have seen 15% of their residents fully vaccinated.   However, when looking at the percentage of the US with at least 20% of its residents fully vaccinated, this figure is 25.3%. And only New Mexico has seen 25% of its residents fully vaccinated – 0.6% of US population.


– While almost all US states have seen vaccine penetration >25%, 73.2% of them have seen 1 dose penetration >30% and only 13.9% of them have seen 1 dose penetration > 35%.
– Almost all of the US has at least 15% of its residents fully vaccinated, However, only 25.3% of US has fully vaccinated >20%
– This is still a small figure (15%/20% of residents fully vaccinated) but this figure is rising sharply now. This figure could rise even more rapidly after the JNJ’s 1-dose vaccines roll out.

Source: CDC and Fundstrat 



This is the state by state data below, showing information for states with one dose and for those with two doses.

Source: CDC and Fundstrat 


The ratio of vaccinations/ daily confirmed cases is generally trending higher (red line is 7D moving avg) and this is the most encouraging statistic. 

– the 7D moving average is about ~50 for the past few days
– this means 50 vaccines dosed for every 1 confirmed case

This figure is rising nicely and likely surges in the coming weeks

Source: CD and Fundstrat


In total, about 107 million Americans have received at least 1 dose of a vaccine.  This is a good pace and as we noted previously, implies 50% of the population by May.  

Source: CDC and Fundstrat






POINT 3:Tracking “un-restricted” and “restriction-lifted” states
We are changing Point #3 to focus primarily on tracking the lifting of restrictions, as states begin to ease various mandates.  Keep in mind, easing/lifting restrictions can take multiple forms:

– easing indoor capacity
– opening theaters, gyms, salons, saloons
– eliminating capacity restrictions
– eliminating mask mandates

So there is a spectrum of approaches.  Our team is listing 3 tiers of states and these are shown below.  

– states that eased in 2020: AK, OK, MO, FL, TN
– states that eased start 2021 to now: SD, ND, NB, ID, MT, IA, NC, MS, SC, AZ, TX, MD
– states that announced future easing dates: GA, NY, WI, AR, CA, AL, CT


GROUP 1:  States that eased restrictions in 2020…
The daily case trends in these states is impressive and it is difficult to say that lifting restrictions has actually caused a new wave of cases.  Rather, the case trends in these states look like other states.

GROUP 2: States that eased restrictions in 2021 to now…
Similar to the list of states above, the daily case trends in these states are impressive and it is difficult to say that lifting restrictions has actually caused a new wave of cases.  

– we have previously written about how ND and SD, in particular, have seen an utter obliteration of COVID-19 cases in those states
– that seems to be a function of vaccine penetration + infection penetration, leading to something akin to “herd immunity”

GROUP 3: States that announced plans ease restrictions in 2021…
These states have upcoming dates to ease restrictions.  The dates are indicated on each chart.  The cases trends in these states have been mostly positive, with perhaps the exception of NY state:

– NY state case levels seem awfully stubborn at these high levels
– weather is improving in NY area, so if weather has any effect on virus transmission, it should slow cases