USA hospitalization rates are rolling over hard = sign worst of Omicron severity over? Equities have bottomed well ahead of hospitalization peaks

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STRATEGY: USA hospitalization rates are rolling over hard = sign worst of Omicron severity over? Base case remains S&P 500 4,800 by YEOmicron severity already peaked? USA hospitalization rate rolling over hard
The incremental hospitalization rate for USA is rolling over hard. This is measured as “net increase in hospitalizations” (7D avg) divided by “new cases” (7D avg). This measures the incremental utilization of hospital resources for a given level of cases.

– Delta wave hospitalization rate peaked at 2.9%
– Omicron peaked (so far) at 0.8% on 12/15
– It is now 0.3%, a surest sign the severity wave of Omicron might already have peaked

COVID-19 is unpredictable and thus, any comments we make could easily be changed by incoming facts and data. But the rollover in hospitalization rates is the surest sign, in our view, that the “hysteria” phase of this Omicron wave has peaked. After all, as many have stated, cases is not the best measure of this current wave.

…CDC to shorten the 10-day quarantine requirements to 5 days
Since the start of the pandemic, the CDC and White House official guidelines have been 10 days of quarantine for an infected person, FROM the first “positive” test result. And while this rule of thumb has been widely used, in practice, it is impractical:

– many individuals are infected with COVID-19 for 10 days, many more and many less
– 10-day infected is an arbitrary figure
– many studies have shown the period of “virus shedding” aka contagious
– is 1-4 days

Thus, the 10 day rule has been onerous but a safe buffer. Anyone planning holiday travel in winter 2021 knows this rule has been an utter catastrophe.

– Shortening the window to 5 days is a rollback of the restrictions
– quarantine still makes sense
– but glad to see the window narrowed to reflect incoming data

….Yet, Fauci suggestions of “vaccine cards for domestic travel” seem misguided
Dr. Fauci on Monday suggested that domestic travelers might soon need vaccination requirements. Vaccination requirements for federal workers and city-level requirements have already been met with mixed results. There are simply too many individuals who choose not to be vaccinated. And if they have already been infected (antibodies) or submit to testing, these vaccination requirements could even be needless.

– thus, it seems misguided to pursue domestic travel vaccination requirements
– moreover, airlines hardly seem to be the source of COVID-19 spread

Obviously, I am only sharing observations and these are opinions. I do expect many to disagree. But as many have already noted, the mental health toll of COVID-19 restrictions is not measured correctly, or not even measured by policymakers. There is an excessive focus on cases.

– and even Dr. Fauci suggestion below to cancel NYE plans
– strikes me as misguided again

China Olympics in 38 days — big test of whether “zero cases” policy works, or will Omicron pass thru China before Feb 4th?
The Beijing Olympics are in 38 days. I am stating the obvious, but the Omicron wave would need to have cleared China and the world well before February 4th. Our data science team expects the US to have largely exited the Omicron peak in early January. But this is a broader issue:

– policymakers worldwide need to feel confident Omicron is past peak within their nation
– the risk of spread is high, thus, the risk of sending athletes with incubating cases is high
– China needs to be largely past Omicron peak before Feb 4th
– any surge ahead of 2022 Olympics needs to be peaking, with a long lead time

The “official” China case data is promising, as there are few cases reported. In fact, the recent figures are sub-hundred and one has to squint to see them on this chart from Worldometer.

– based upon the official data, China itself seems ok

And China is taking strong measures to contain any outbreaks. As shown below, the New Indian Express shows there has been in outbreak in several cities, and China responded by disinfection measures in those cities.

– Omicron is so contagious
– hopefully these measures are effective

Australia is latest example of a nation capitulating on “zero cases”
A few weeks ago, we noted that Australia has largely abandoned the “zero cases” policy as the Omicron spread is resulting in rapid spread. And the higher vaccination rates are helping to mitigate the healthcare risks.

– but it is increasingly hard to imagine any nation with bilateral movements with other nations being able to achieve a zero cases.

STRATEGY: Equities have bottomed 12 days before each COVID-19 wave hospitalization peak
If hospitalizations are peaking, this is a constructive sign for equities. Why? The peak in hospitalizations might be viewed by investors as a sign of a peak in the severity of the existing wave. Thus, stocks might bottom well ahead of COVID-19 cases. We have previously explained our rationale for why stocks will bottom ahead of cases.

– so consider this view on bottoming ahead of hospitalization peak
– as further affirmation of this view

Our data science team, led by tireless Ken, has quantified this:

– there are 4 prior COVID-19 waves
– S&P 500 bottomed median 12 days ahead of hospitalization peak
– by this transitive logic, S&P 500 has already bottomed

Again, sort of stating the obvious. But the rollover of hospitalizations is a positive risk-on signal.

Bottom line, we think the base case for equities remains S&P 500 4,800 and this looks increasingly like a relief rally throughout January. Apologies for the brevity of this note, but it is a holiday week and we want to balance time frames with the fact that many of our clients are on holiday.

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%

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

POINT 1: Daily COVID-19 cases 390,659, up +100,684 vs 7D ago…
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Current Trends — COVID-19 cases:
– Daily cases 390,659 vs 289,975 7D ago, up +100,684
– 7D positivity rate 15.1% vs 9.9% 7D ago
– Hospitalized patients 69,808, up +8.3% vs 7D ago
– Daily deaths 1,114, down -14% vs 7D ago
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The latest COVID daily cases came in at 390,659, up +100,684 vs 7D ago. As we noted before, daily cases tend to be higher on Monday as many states do not report over the weekend. Besides that, Monday’s case figure is also amplified by the holiday effect that majority of states did not report during the Christmas holidays. As a result, even without the COVID stats from a few other states, Monday’s case figure of 390,659 is still the new all-time high for US. And unfortunately, as we noted in the past few notes, we expect the daily cases will continue to rise until early/mid-January. The term “record high” could appear on media headlines very often in the next 2 weeks or so.

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7D delta in daily cases continues to rise due to the Omicron variant…
The rise in 7D delta in daily cases persists as Omicron spread continues. Latest 7D delta in daily cases came in at nearly 80k (7D Avg), the highest level since the Delta wave. We expect the 7D delta will remain high for a while. 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.
– Positivity rate climbed to > 10%. This could be partially because of the data distortion due to holidays – case numbers were reported, while numbers of tests were not.

POINT 2: VACCINE: vaccination paceacceleratesas boosters become more widely available…
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Current Trends — Vaccinations:
– avg 1.0 million this past week vs 1.5 million last week
– overall, 20.0% received booster doses, 61.3% fully vaccinated, 72.3% 1-dose+ received
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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 679,149 doses administered reported on Monday. Daily number of vaccines administered has fallen recently, but we believe this is largely due to holiday closures. And with the surge of the Omicron cases, we expect the vaccination stats will start to pick up following the holidays. 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, 444 million vaccine doses have been administered across the country. Specifically, 240 million Americans (72% of US population) have received at least 1 dose of the vaccine. And 204 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/Omicron 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.