Omicron is now the primary focus of the market

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TODAY: Fundstrat Thomas Lee’s 2022 Outlook – TODAY (12/21) at 3pm ET…

While the S&P 500 managed to produce an impressive > 20% gain in 2021, the carnage and damage created by COVID-19 remains in place. Thus, as we look into 2022, the picture for markets remains very challenging. Please join us TODAY at 3:00 PM ET for our 2022 outlook webinar and Q&A with Tom Lee, Co-Founder & Head of Research at Fundstrat. In our 2022 Outlook, we will discuss:

– Primary drivers for financial markets in 2022
– Impacts from policy normalization
– Impacts from midterm elections
– Investment themes to Overweight and Avoid
– Structural tailwinds and headwinds beyond 2022

Details and Specifics
Date: TODAY, December 21, 2021
Time: 3:00pm – 4:00pm ET

Link –> Click here to register

Should you have any questions, please do not hesitate to email inquiry@fundstrat.com.

STRATEGY: Omicron is the now the primary focus of the market

Omicron is now 73% of all cases
The CDC reported that Omicron is now 73% of all cases in the US, up from 3% a week ago.

– think about that
– a week ago it was 3%
– today it is 73%

In one week, Omicron is now the dominant COVID-19 variant. This affirms that Omicron is highly transmissible. And by many estimates, is 5-6X more likely to create breakthrough infections. In fact, just in the past 24 hours, both Elizabeth Warren and Corey Booker tested positive for COVID-19.

150 NFL players on the COVID-19 list
To see the massive spread of Omicron, take a look at the NFL COVID-19 list. There are 150 players on the list as of last Thursday. This list was 25 just a week ago.

…Former President Trump announces receiving COVID-19 Booster, resulting in some audience boos
Former President Trump announced he received the COVID-19 booster shot at an onstage speaking tour with Bill O’Reilly, former Fox News Anchor. Both announced receiving the COVID-19 booster.

– while some of the audience booed
– this is a positive sign, in my view
– it alters the perception that vaccine resistance is a political issue
– Trump is viewed as one of the leaders of the Republican party

…Not all the news is bad, Carnival sees profit in 2H2022
But not all the news is negative. Carnival Corp announced that it expects to be profitable in 2H2022. This is a bit of good news against the backdrop of Omicron gloom and a weak 4Q for Carnival.

STRATEGY: Omicron is the primary driver of markets
Equities fell sharply on Monday on the heels of Omicron developments over the weekend. And as the comments above make clear, Omicron is the single most important driver of markets at the moment.

– but just as Omicron has surged dramatically
– we expect it to exit as swiftly

Thus, investors need to be mindful that we are in the midst of the darkest part of the Omicron wave. Sure cases will rise further, but we expect stocks to bottom before cases peak. Our Head of Technical Strategy, Mark Newton believes this could happen within the next few days.

– please tune into our 2022 Outlook Webinar to get our latest thoughts for 2022

SECTORS: Leadership still Cyclicals/Early-cycle aka Epicenter
Relative sector performance is shown below and as we can see, 5 sectors are showing positive relative trend:- Energy
– Basic Materials
– Technology
– Transports
– Discretionary

– sort of Financials/Banks

These are all cyclical groups. And also have general positive exposure to reflationary trends. Inflation, incidentally, in isolation is not a bad word. The real risk to markets is:

– too much inflation hurting consumer confidence
– or unanchored inflation expectations, fear of uncontained inflation

This is not necessarily what markets seem to be pricing. If markets were worried about either of the above, Defensive stocks or Growth stocks would be leading. Instead, we are seeing Cyclicals lead.

Into YE, our recommended strategies are:

– Energy
– Homebuilders (Golden 6 months) XHB
– Small-caps IWM 0.05%
– Epicenter XLI 0.11%  XLF 0.60%  XLB 0.85%  RCD
– Crypto equities BITO 2.64%  GBTC 2.72%  BITW 3.20%

Into 2022…
– Industrials

30 Granny Shot Ideas: We performed our quarterly rebalance on 10/25. Full stock list here –> Click here

POINT 1: Daily COVID-19 cases 289,975, up +74,287 vs 7D ago…

Current Trends — COVID-19 cases:

• Daily cases 289,975 vs 215,688 7D ago, up +74,287
• 7D positivity rate 9.9% vs 8.1% 7D ago
• Hospitalized patients 64,913, up +7.2% vs 7D ago
• Daily deaths 1,298, up +2.9% vs 7D ago

The latest COVID daily cases came in at 289,975, up +74,287 vs 7D ago. This is the largest 7D increase since summer 2021. As we expected over the past few weeks, the parabolic surge in daily cases is not a surprise as the statistics start to reflect the recent spread of the Omicron variant. The daily cases could even soar to 500,000, and will not be likely to peak until mid-January. That said, given the reduced lethality of the Omicron variant (according to what we observed in South Africa), the case figure is less relevant compared to prior waves, and “severity” would be a more important metric to track. Currently, hospitalization did climb up since the recent low, but at a much lower amplitude compared to case surge, while Daily deaths essentially remain flat. We will continue tracking the COVID development closely.

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7D delta in daily cases starts to accelerate to the upside (due to the Omicron variant)…
7D delta in daily cases is currently accelerating. It reflects the more transmissible Omicron variant. Latest 7D delta in daily cases came in at 74,287, the highest level since July 2021. We expect this level of surge could last 1-2 weeks. However, given the reduced severity of the variant, we expect the daily hospitalization and daily deaths to increase at a much lower pace.

33 states are seeing a rise in cases while cases continue to decline in the remaining states…
*** We’ve split the “Parabolic Case Tracker” into 2 tables: one where cases are falling, and the other where cases are rising

In these tables, we’ve included the vaccine penetration, case peak information, and the current case trend for 50 US states + DC. The table for states where cases are declining is sorted by case % off of their recent peak, while the table for states where cases are rising is sorted by the current daily cases to pre-surge daily cases multiple.

• The states with higher ranks are the states that have seen a more significant decline / rise in daily cases
• We also calculated the number of days during the recent case surge
• The US as a whole, UK, and Israel are also shown at the top as a reference

Hospitalizations, deaths, and positivity rates are rising…
Below we show the aggregate number of patients hospitalized due to COVID, daily mortality associated with COVID, and the daily positivity rate for COVID.

– Both net hospitalizations and daily death have turned upwards.
– After falling for a few days, positivity rate started to climb again. But good news is the positivity rate remains below 10%. It means 1) the spread of the virus is still “manageable”; 2) enough tests are performed each day – testing is the key to detect and gauge the situation of virus spread.

POINT 2: VACCINE: vaccination pace accelerates as boosters become more widely available…

Current Trends — Vaccinations:

• avg 1.5 million this past week vs 1.9 million last week
• overall, 18.1% received booster doses, 61.0% fully vaccinated, 72.2% 1-dose+ received

Vaccination frontier update –> all states now near or above 80% combined penetration (vaccines + infections)
*** We’ve updated the total detected infections multiplier from 4.0x to 2.5x. The CDC changed the estimate multiplier because testing has become much better and more prevalent.

Below we sorted the states by the combined penetration (vaccinations + infections). The assumption is that a state with higher combined penetration is likely to be closer to herd immunity, and therefore, less likely to see a parabolic surge in daily cases and deaths. Please note that this “combined penetration” metric can be over 100%, as infected people could also be vaccinated (actually recommended by CDC).

– Currently, all states are near or above 90% combined penetration
– Given the 2.5x multiplier, all states besides AR, HI, LA, MS, IN, WA, WV, OR, TX, OH, ID, MI, MO, and GA are now above 100% combined penetration (vaccines + infections). Again, this metric can be over 100%, as infected people could also be vaccinated. But 100% combined penetration does not mean that the entire population within each state is either infected or vaccinated

There were a total of 1,120,816 doses administered reported on Monday. With the introduction of the Omicron variant, we’ve been seeing the vaccination pace accelerate compared to this Fall. Also, the same catalysts remain in place:

• Proof of vaccination required by many US cities and venues
• Booster shots
• Israel study shows efficacy of vaccines against Omicron variant (although reduced)

The daily number of vaccines administered remains the most important metric to track this progress and we will be closely watching the relevant data.

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

In total, 442 million vaccine doses have been administered across the country. Specifically, 239 million Americans (72% of US population) have received at least 1 dose of the vaccine. And 202 million Americans (61% of US population) are fully vaccinated.

POINT 3: Tracking the seasonality of COVID-19

In July, we noted that many states experienced similar case surges in 2021 to the ones they experienced in 2020. As such, along with the introduction of the more transmissible Delta variant, seasonality also appears to play an important role in the recent surge in daily cases, hospitalization, and deaths. Therefore, we think there might be a strong argument that COVID-19 is poised to become a seasonal virus.
The possible explanations for the seasonality we observed are:

– Outdoor Temperature: increasing indoor activities in the South vs increasing outdoor activities in the northeast during the Summer
– “Air Conditioning” Season: similar to “outdoor temperature”, more “AC” usage might facilitate the spread of the virus indoors

If this holds true, seasonal analysis suggests that the Delta spike could roll over by following a similar pattern to 2020.

We created this section within our COVID update which tracks and compare the case, hospitalization, and death trends in both 2020 and 2021 at the state level. We grouped states geographically as they tend to trend similarly.

CASES
It seems as if the main factor contributing to current case trends right now is outdoor temperature. During the Summer, outdoor activities are generally increased in the northern states as the weather becomes nicer. In southern states, on the other hand, it becomes too hot and indoor activities are increased. As such, northern state cases didn’t spike much during Summer 2020 while southern state cases did. Currently, northern state cases are showing a slight spike, especially when compared to Summer 2020. This could be attributed to the introduction of the more transmissible Delta variant and the lifting of restrictions combined with pent up demand for indoor activities.

HOSPITALIZATION
Current hospitalizations appear to be similar or less than Summer 2020 rates in most states. This is likely due to increased vaccination rates and the vaccine’s ability to reduce the severity of the virus.

DEATHS
Current death rates appear to be scattered compared to 2020 rates. This is likely due to varying vaccination rates in each state. States with higher vaccination rates seem to have lower death rates given the vaccine’s ability to reduce the severity of the virus; states with lower vaccination rates seem to have higher death rates.