White House Unveils “Hammer” 6 Step Plan, Escalating Steps To Contain COVID-19

6 step plan… logical escalation of protocols needed, without over-reachThursday evening, the White House unveiled a comprehensive 6 step plan to escalate efforts to combat the COVID-19 surge in the US. Elements of the plan are clearly controversial, as it touches upon two “flash points” of vaccination mandates and mask usage.

The 6 step plan, in summary form:

1. Vaccination mandate for multiple employers:
– private cos with > 100 employees require vaccination or weekly testing.
– all federal workers and contractors and
– required vaccination > 17 million healthcare workers that participate in Medicare and Medicaid.
– calling on large entertainment venues to require proof of vaccination or negative tests for entry.

2. Further protecting the vaccinated:
– Booster shots will be free and offered at 80,000 locations.
– vaccines.gov will show vaccine sites

3. Keeping schools safely open:
– Mandatory vax for staff in Head Start Programs, Department of Defense Schools, and Bureau of Indian Education-operated schools
– Calling on states to require vaccination for all school employees.
– Additional funding for schools to reopen safely and backfill funding withheld by states for implementing COVID safety measures.
– Helping students and staff get regularly tested.
– Providing resources for FDA to review vaccines in individuals under the age of 12.

4. Increasing testing and requiring masking:
– Mobilizing easy-to-use testing.
– Sending free rapid, at-home tests to food banks and community health centers.
– Expanding free pharmacy testing.
– Doubling fines for not wearing masks while traveling.
– Continuing to require masks on federal property.

5. Protecting our economic recovery:
– New support for small businesses impacted by the pandemic
– Streamlining the PPP loan forgiveness process
– Launching the Community Navigator Program, which will help connect small business to the help they need.

6. Improving care for those infected:
– Increased support for COVID-burdened hospitals.
– Monoclonal Antibody Treatment to those who need it. Target 150,000 per week.
– Growing the number of healthcare professionals providing Monoclonal Antibody Treatment.

To me, these steps, while an escalation, are logical. COVID-19 remains an elusive virus. While organically, it appears the Delta variant was peaking, there remains the constant vulnerability of a renewed outbreak. Thus, these steps, in our view, are a necessary escalation and one that does not broach too many freedoms.

– At the same time, I completely sympathize with those who do not want to be vaccinated because of concerns of safety
– I am vaccinated, but that does not mean I don’t respect the opinion of those hesitant.
– Similarly, while I am compliant with mask mandates, I can empathize with those resistant to mask mandates

True trends in COVID-19 distorted due to Labor Day and other holidays
Incoming COVID-19 data is distorted this week due to holidays. The reason holidays distort data is closures, delays in testing and delays in processing make daily comparisons and tallies unreliable. Among the holidays impact the data this week:

– Labor Day (long weekend, closures Monday)
– Rosh Hashanah 9/6 to 9/8
– Yom Kippur 9/15-9/16 (holiest day of the year)

Data quality this week, as a result, is just not great. And it is not just impacting US data. Israel COVID-19 data will now have a two-day lapse due to Rosh Hashanah. And that means COVID-19 trends in Israel post-booster shots will not be clear. And an important holiday is coming, Yom Kippur, which is the holiest day of the year for Judaism.

…USA COVID-19 case trends past two days are good, but we are just not sure if distortions are reflectedThe daily case figures for the last two days have been promising, as cases are lower vs 7D ago and this comes after a period of flattening. But as we said above, there is the potential for distortion due to the holidays. At a minimum, this is better than seeing cases surge. That would have been a bad outcome.

– but we just don’t know how much of this improvement is actually non-reporting

And this makes looking at state level data also tricky. These are just a few examples highlighted by our team and as you can see the jagged moves in the 7D avg due to the holiday impacts.

And this is very apparent in Israel, where cases were not reported for two days due to the Rosh Hashana holiday. Thus, these distortion impacts are likely affecting US reported cases as well.

…Positivity rate is falling and potentially slipping below 9%, good sign, but distortion concern is still there
But on a more positive note, positivity rate is improving. Positivity rate is less subject to distortion, generally, since it is a ratio. If closures and holidays impacts activity, this ratio shows the proportion of positive cases.

– this is showing what seems to be sustained improvements
– a good sign!!!

EXTRA CREDIT: This says something about public opinion has turned when talk show hosts/comedians deride anti-vaxxers
In surest sign that Americans have lost patience with those unvaxxed, talk show host Jimmy Kimmel roasts unvaccinated Americans. He is not the only one, Howard Stern, famous radio host, also excoriated anti-vaxxers.

STRATEGY: “Sell rosh hashana, buy Yom Kippur” — in COVID world, markets rely on daily cadence, this rule really matters
I have been in stock research since 1993 (29 years!) and one of the trading desk’s time honored adage is “sell Rosh Hashana, buy Yom Kippur” — this ties into a Sept/Oct market seasonality. Here is a Business Insider article from 2014 quoting the well-known UBS floor trader Art Cashin.

– Cashin supposes that some of this impact is due to the nature of the holiday itself (contemplation)
– market participation also drops, leading to lower market volumes = choppiness

…COVID-19 still key macro driver, thus distortions from holidays impact markets disproportionately
Hopefully, it is obvious that this seasonal impact is merely temporary — that is, this does not change the trajectory for year-end. But in 2021, we think the impacts could be amplified:

– financial markets are focused on cadence of COVID-19 data
– this is updated daily and holiday’s distort daily figures

– two key inflections are being watched in 2021
– Delta variant spread in USA with back to school season and rollovers in many states
– Israel is administering booster shots and markets waiting for COVID-19 rollover

Thus, the incoming data will be distorted, making it difficult to discern key trends in USA and Israel — thus, adding, in our view, to the choppiness stemming from this holiday.

– take a look below
– S&P 500 has been weak since the start of Rosh Hashana
– Yom Kippur holiday ends 9/16

Does this mean we might have another 5 days of this? Possibly.
But this does not change our view that markets will rally in September. This is a short-term distortion and made even more apparent in 2021 due to the market’s reliance on daily cadence of COVID-19 data. And that data is now being distorted.

We think stocks rally strongly into end of September, regardless of the “sell Rosh Hashana…”
Ultimately, we see stocks finishing September strongly. Here are the simple factors:

– Delta variant organically looks to be slowing
– Back to school season does not seem to be causing surge in cases
– We have barely heard of universities seeing outbreaks… seriously

– White House plan really brings hammer to containing COVID-19

– Underlying pent-up demand remains strong
– so despite soft patch of data, we see resilience resuming once COVID-19 trends improve

– Trends in COVID-19 could improve as early as next week

But the leadership of sectors is path dependent on the direction of equity markets. Our base case is that we see a rally in the S&P 500 for the next few weeks (at least). And as such, we see a risk-on rally led by Epicenter stocks. Our top 3 favorite sectors into YE are:

– Energy XLE 0.01%  OIH 0.90%  –> catch-up to oil
– FAANG FNGS 1.83%  –> catch-up trade to S&P 500 +25%
– Basic Materials XLB 1.02%  –> reflation beneficiaries

…Airlines cut guidance while presenting at Cowen Airline Conference
The latest example is airlines, which cut their forecasts due to Delta-variant driven cancellations and caution by passengers. The guidance cuts were for the remaining months of 2021. And intuitively, it is not a surprise.

– recovery in TSA traffic has slowed as the Delta-variant has made consumers cautious
– the key is whether these are temporary or permanent

– in our view, these are simply temporary delays
– in fact, if COVID-19 statistics improve, either via boosters or via seasonality, we expect demand to rebound sharply

…Airline equities actually rallied Thursday
In another illustration of the need to avoid “reactionary” behavior, airline equities actually rallied Thursday. The guidance changes were released by airlines before the market open. The CNBC story below is time-stamped at 9:18am ET.

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