COVID-19 UPDATE: Recent study shows Tokyo seroprevalence 47% (near herd immunity) and infection fatality rate of 0.0006%. Latest trifecta epicenter list.

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

STRATEGY: Is election day the key date to clear market uncertainties?
I did a panel last night with Lars Peter Hansen, University of Chicago Professor and Nobel Prize economist.  This was an event sponsored by SparkLabs and hosted by the entertaining Jared Carney.  There was a wide range of topics discussed, but the key takeaway for me is the central role that “uncertainty” plays in financial markets.  In fact, this uncertainty and resulting spillovers is central to the work of Hansen (http://larspeterhansen.org/)

And 2020 is a textbook case of galactic-level uncertainties:
– 2020 worse than a science fiction movie
– 2020 global pandemic, so far 1 million deaths
– 2020 First ever global and coordinated economic shutdown
– 2020 US economic contraction exceeding Great Depression
– 2020 US Federal Reserve writes a new playbook within days
– 2020 US Government spends $5T in stimulus, 25% of GDP
– 2020 Investors panic and sell whatever they can In the next 40 days, financial markets are dealing with an “event risk” on election day.  Taking a step back, unless markets are convinced the economic path for the next 12 months is wildly divergent between Biden or Trump, markets are likely to follow a similar path in the period after the election.  But the obvious uncertainty into election day is:

– how long is the period of a contested election?
– are there second order risks if we do not have a clear outcome?

This is probably the reason for the “event risk” window into election day.   But Goldman Sachs economists also comment that the combination of early polling, mail-in ballots, and county data will be enough for the clear victor to be established.

– this is contrary to the central narrative we are hearing.

Source: Bloomberg

Some of the rising second order risks might also come from the notion that paying for COVID-19 will come from the wealthy.  As PM Trudeau has suggested (see below).

https://www.theguardian.com/world/2020/sep/23/trudeau-canada-coronavirus-throne-speech


And given that stocks saw such prodigious gains since March, and especially August.  Is it any wonder why we are seeing some profit taking?  At the same time, there are some certainties, which we believe have a major influence on future market performance:

– Bonds valuations imply higher equity P/E –> IG bonds trade at 53X P/coupon vs 20X equity
– Fed is dovish and supportive of asset prices
– US economy is expanding and recovering
– $4.5 trillion of cash on sidelines
– retail investors are bearish –> AAII is -21% and persistently negative

The above factors are not associated with major market tops, but rather, seem to argue stocks are in the earlier stages of recovery.  And while the incoming economic data has not been universally strong, consumers seem to be healthier than is apparent.  Take a look at the latest Chase credit card spending tracking — September is the best month (yoy) since the start of the pandemic.

Source: twitter


The bottom line, I think stocks are struggling and perhaps not surprisingly.  Like we said yesterday, we should be mindful there is a level where “the worst is yet to come is priced in” and one potential level is S&P 500 3,224, because that is a 62% retracement of the gains since June.  And just below that is the 200D moving average of 3,100.  So, we are in the zip code of these key levels.

I was chatting with Rob Sluymer, our Head of Technical Strategy, and he believes markets will resolve this sometime in the next few weeks.  So, it is possible this level of chop continues for a while.

As a last note, US companies survived a stress test that is 5 standard deviations beyond what anybody ever expected.  And most have emerged stronger and with better operating leverage.  This is the reason we see long-term equity risk premia falling, which translates into higher P/E.  And if a vaccine/cure emerges, there is a binary lift to many stocks.  

We have updated our “trifecta epicenter” list of stocks (*).  These are the names that are OW by:
– Brian Rauscher, Head of Global Portfolio Strategy;
– Rob Slumyer, Head of Technical Strategy;
– DQM ranked 1 by quant model, tireless Ken


20 additions to Trifecta
Consumer Discretionary: BWA, CRI, NWL, MGM, CHH, HLT, MAR, NCLH, RCL, DRI, SBUX, GPC
Industrials: EMR, SNA, LUV
Basic Materials: MLM, CF, NUE, RS
Real Estate: STOR

14 deletions from Trifecta
Consumer Discretionary: LVS, CCL, YUM, EXPE
Energy: HAL, EOG, PXD
Financials: PRU, AFG
Real Estate: ACC, FRT, KIM, NNN, EPR

The revised list is 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.

Source: Fundstrat



POINT 1: Daily cases less flat, 42,393 up +109 vs 7D ago but from same set of states 
Daily new COVID-19 cases in the US came in at 42,393, which is +109 higher vs 7D ago. The 7D delta turned positive again after being negative for three days (see below). This positive 7D delta might be impacted by the data quality issue of Washington and/or Puerto Rico:
WA Health Department discovered a data error and stopped reporting case data on Sunday (9/20), Monday and Tuesday. Puerto Rico reported an unusual 717 new cases yesterday, up tremendously from 40 cases on Wednesday. However, there’s no explanation we could find regarding this spike in daily new cases.

Source: COVID-19 Tracking Project


The data in the next few days could give us a clearer picture…
Again, the daily change vs 7D ago, in our view, is the leading indicator as it is what influences the 7D moving average.  After the 7D delta turned down in the past three days, it turned to positive again yesterday. It is still too early to draw the conclusion based on one-day’s data, and the daily cases in the next few days are worth watching.

Source: COVID-19 Tracking and Fundstrat 


We see US COVID through 4 tiers of US states:

– Wave 1 –> NY tristate areas (inc. RI and MA)
– Wave 2 –> F-CAT (FL, CA, AZ, TX)
– Tag along with Wave 2 –>
– “still facing outbreak” –> 22 states with relatively lower COVID prevalence

Below is the 7D delta for these 4 tiers.  And as you can see, the rise in cases vs 7D ago is essentially all in the 4th tier — states with low case prevalence.  And it is these states seeing a rise in cases.

Source: COVID-19 Tracking and Fundstrat  

Source: COVID-19 Tracking and Fundstrat




POINT 2: Tokyo “herd immunity”? A recent medRxiv study shows 47% Tokyo seropositive, primarily asymptomatic…
I was intrigued by a tweet by Daniel Levitt.  He is the CEO of Bioz Inc.  And he is citing a study looking at seroprevalence (antibodies) in Tokyo.  The figure that caught my eye:

– Tokyo seroprevalence reached 47% by summer
– Wow.

Source: Twitter


This is the study cited, published this week on 9/21/2020.  It was a volunteer-based study and each participant took an antibody test twice between May and August.

https://www.medrxiv.org/content/10.1101/2020.09.21.20198796v1


There were about 1,900 volunteers in Tokyo and the volunteers had to be healthy.  Thus, this was a look at the asymptomatic spread of COVID-19.  These were employees of companies around Tokyo.

Source: MedRvix

The results are pretty shocking.  From May to August, seroprevalence reached 47% in Tokyo, and the surge was in late-June/early-July.  Think about that, nearly 50% of the volunteers tested positive for COVID-19 antibodies.

Source: MedRvix


Tokyo has ~9.3 million residents.  So clearly, daily cases below and total cases in Tokyo is not approaching 4 million (seroprevalence implied).  Daily cases below peaked at 2,000 in Tokyo and it would take 5.5 years to get to confirmed cases of 4 million.

– so as the authors note, most cases of COVID-19 in Tokyo appear to be asymptomatic.  
– It seems less than 1% of cases have symptoms.

Source: Google


The authors also posit that the actual fatality rate of COVID-19 in Tokyo is 0.0006%, which is a shockingly low death rate.  This is 6 deaths per 1 million infections.  Of course, there are many reasons it could be this low:

– lifestyle (health)
– viral load
– mask usage
– etc.

In Tokyo, mask compliance is extremely high, so while there is case spread, it is possible the viral load is smaller.

Source: MedRvix




POINT 3: Ode to Vitamin D, Jamieson Wellness Inc direct play…
Our clients know we have written multiple times on the importance of Vitamin D to maintain a healthy immune system and its potential benefits in fighting and even preventing COVID-19.  One of our clients in Boston shared with us this report from the National Bank of Canada on a company called Jamieson Wellness Inc.  Among the many supplements and health products the company produces, one of them is Vitamin D.

Source: National Bank of Canada



This is good news.  Foremost, we recommend you take vitamin D supplements (Dr. Fauci does this).  And if you want a way to express a way to improve your portfolio health, you can buy this stock. 

– It is traded in Canada under the ticker  JWEL CN
– The stock has been very good this year

This report also shows 5 studies that show the benefits of Vitamin D.  These are shown below.

Source: National Bank of Canada