Click HERE to access the FSInsight COVID-19 Daily Chartbook.
STRATEGY: Herd Immunity “frontier” = 60% combined vaccines + infections
Vaccine <–> Social Distance “trade-off” improves throughout 2021 = Vaccine wins
In 2021, we believe one of the key milestones is reaching the “herd immunity” frontier. This is when the combined value of vaccinations + infections = 60%, or a level where infection rates would slow dramatically. This is a “race against time” of vaccine deployment versus case spread.
– initially, infections naturally spread faster given Winter season + holiday + COVID-19 fatigue
– and initial vaccine deployments sluggish
– but vaccine logistics will improve and thus, COVID-19 presumably reaches its end point
Our data science team has created a model to track vaccine doses administered, using data provided by the CDC (see discussion point #2). Ultimately, the key is seeing which states reach this “herd immunity” frontier (see chart below), where the combined value = 60%. So far, none of the states are close, although perhaps ND/SD are the closest.
Source: CDC and Fundstrat
The pace of rolling out the vaccinations is well behind the initial targets of Operation Warp Speed, which targeted delivering 40 million doses before YE 2020 (20 million individuals). Below is the time series showing vaccine doses administered by date and cumulatively, this figure is 4.3 million.
– CDC updates this data on M, W, F, or 3X per week
– Pace has not accelerated, but actually slowed (holidays, etc)
Source: CDC and Fundstrat
Sluggish deployment is “growing pains” and should be accelerating in the coming weeks…
The sluggish speed of deployment is not only due to holidays, but is also hampered by other factors:
– strict guidelines regarding which individuals qualify (Phase 1A, etc).
– chaotic and inconsistent system for signing up for doses
https://www.washingtonpost.com/health/2021/01/02/coronavirus-vaccine-has-arrived-frustrated-americans-are-struggling-sign-up/
But I think of these as growing pains. And no doubt, much of this initial confusion will be cleared in the coming weeks. In the meantime, it is really a lot to ask of citizens to maintain stringent COVID-19 protocols of social distance, masking, and hand sanitizing, particularly for a period now nearly reaching a full year. It is understandable that people will eventually reach the breaking point of fatigue. And over the holidays, this is a time we likely think more citizens decide to suspend some of these protocols. Hence, daily cases likely ramp up over the next few weeks.
Equity markets stumble on the first trading day…
2021 started with a thud as US equities fell ~2% on the first trading day. There are many possible reasons to explain this, including uncertainty around the Georgia Senate run-off on 1/6/2021 and leaked audio recordings of Trump and State of Georgia official. It is not entirely clear to me why, but perhaps the best explanation is that 2021 is simply starting off with a hangover from 2020.
Source: Hangover by Legendary Pictures
The decline yesterday is among the 10 worst first day of trading in the past 100 years. As Ryan Detrick of LPL Financial points out, of the precedent 9 instances, equities managed full year gains in 5 of the 9 instances.
– 5 of the 9 instances, the US economy was still “contracting” – 1932, 1980, 1991, 2001 and 2008
Of these, markets finished down 3 of 5 times
– 4 of the 9 instances, the US economy was in “expansion” – 1937, 1949, 1983, 2016
Of these markets finished up 3 of 4 times
My takeaway is that a down first day does not forebode a down 2021 total return, particularly if we are in “expansion.”
Source: twitter.com
Our 2021 baseline roadmap is stocks will see a strong early start in 2021. Perhaps, the Georgia Senate run-off might be one of the catalysts. And similar to 1982-1999 and 2009-2019 bull markets, we see a pause starting between Feb and April 2021.
Source: Fundstrat
Energy is the only sector up on the first day of 2021 trading…
The price return of the 11 S&P 500 GICS Level 1 sectors is shown below, sorted best to worst. Notably, check out the top 3 sectors:
– Energy is the only sector with a positive return
– 2 of 3 sectors are “Epicenter”/Cyclical
– If markets were “worried” about the economy/business cycle, we would expect Defensives to lead on Day 1
So the sector relative performance seems to suggest a pro-cyclical tilt.
Source: Bloomberg
And you might recall from our 2021 Strategy Outlook (in early December) that we believe 3 sectors have the highest probability of outperforming the S&P 500 in 2021. Generally, we believe “epicenter” aka Cyclicals will lead, but we highlight 3 sectors:
– Energy
– Discretionary
– Industrials
And one of the reasons is the dramatic underperformance of these 3 groups in the past decade (see below). Energy is so bad, we need to go back to Whale oil “Moby Dick” days (pre-1920s to find a worse stretch).
Source: Fundstrat and FAMA and Bloomberg
Our data science team, led by tireless Ken, plotted the precedent Energy bear markets (vs S&P 500) since 1920. These are all plotted below. And the dramatic nature of the current decline becomes even more apparent:
– Since 2015, Energy has underperformed the S&P 500 by ~8,000bp
– This is the worst ever 5-year stretch of underperformance
– The next worst was 1957-1960, and Energy underperformed by ~5,500bp
As we discussed in our 2021 Outlook, Energy seems to be a sector where the supply and demand dynamics become structurally a lot more favorable in 2021:
– US future supply will be constrained by a Democratic White House
– Financial capital will be constrained as private equity will not bail out the sector ala 2016
– Demand will recover given the US economy is starting a new expansion
So you can see how this supply/demand alignment might be one of the most favorable for several decades.
Source: Fundstrat and FAMA and Bloomberg
STRATEGY: 67 stocks (*) in the ‘Top 3’ sectors…
Our data science team, led by tireless Ken, has put together the trifecta list of stocks, coming from the ‘top 3’ sectors: Discretionary, Industrials and Energy. These are stocks that there is consensus between myself, Rauscher and Sluymer.
Consumer Discretionary (30 stocks)
AN, GM, F, HOG, GRMN, LEG, TPX, PHM, TOL, NWL, HAS, MAT, PII, MGM, HLT, MAR, NCLH, RCL, WH, WYND, SIX, DRI, SBUX, FL, GPS, LB, CRI, VFC, GPC, BBY
Industrials (28 stocks)
AGCO, OC, ACM, WAB, EMR, GNRC, NVT, CSL, GE, MMM, IEX, PNR, CFX, DOV, MIDD, SNA, XYL, FLS, DAL, JBLU, LUV, MIC, KEX, UNP, JBHT, R, UBER, UHAL
Energy (9 stocks)
HP, NOV, SLB, EOG, PXD, HFC, MPC, PSX, XEC
Source: Fundstrat
(*) The 67 stock ideas are the subset of the “Epicenter” Trifecta stock list we published on December 11th, 2020. To view the full list of stock idea, click here. 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.
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), Sluymer (Technicals)
– Biden vs Trump –> based on correlation to either candidate odds
Granny Shots:
Full stock list here –> Click here
Tickers: AAPL, AMZN, AXP, BF.B, CSCO, EBAY, GOOG, GRMN, GWW, INTC, KLAC, LEN, LOW, MNST, MSFT, MXIM, NVDA, OMC, PM, PYPL, QCOM, TSLA, XLNX
Trifecta Epicenter (*):
Full stock list here –> Click here
Tickers: AN, GM, F, HOG, GRMN, LEG, TPX, PHM, TOL, NWL, HAS, MAT, PII, MGM, HLT, MAR, NCLH, RCL, WH, WYND, SIX, DRI, SBUX, FL, GPS, LB, CRI, VFC, GPC, BBY, FITB, WTFC, ASB, BOH, FHN, FNB, PB, PBCT, RF, STL, TFC, WBS, PNFP, SBNY, NYCB, MTG, AGNC, EVR, IBKR, VIRT, BK, STT, SYF, BHF, AGCO, OC, ACM, WAB, EMR, GNRC, NVT, CSL, GE, MMM, IEX, PNR, CFX, DOV, MIDD, SNA, XYL, FLS, DAL, JBLU, LUV, MIC, KEX, UNP, JBHT, R, UBER, UHAL, HP, NOV, SLB, EOG, PXD, HFC, MPC, PSX, XEC, LYB, EXP, MLM, CF, MOS, ESI, NEU, NUE, RS, SON, STOR, HIW, CPT, UDR, KIM, NNN, VNO, JBGS, RYN
Biden White House vs. Trump White House:
Full stock list here –> Click here
(*) 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.
POINT 1: Daily cases 167,144, +6,010 vs 7D ago –> still holiday distortions
The latest COVID-19 daily cases came in at 167,144, up +6,010 vs 7D ago.
– the holiday effect is going to cause distortions for several weeks
– over Thanksgiving, it was not until a full two weeks after Thanksgiving that underlying trends were visible
– this will be the case with current data, meaning mid-Jan is when we can start to get a better handle on trends
Source: COVID-19 Tracking Project and Fundstrat
The 7D delta turned positive, but this 7D delta is improved versus the last few days
– because of holiday scheduled closures/etc, distortions in the data will be prevalent until mid-Jan
– so I would look at trends with a grain of salt
Source: COVID-19 Tracking and Fundstrat
Source: COVID-19 Tracking and Fundstrat
Source: COVID-19 Tracking and Fundstrat
POINT 2: Vaccine Tracker: US is behind, notable lags in CA, FL, NJ
In 2021, we believe one of the key milestones is reaching the “herd immunity” frontier. This is when the combined value of vaccinations + infections = 60%, or a level where infection rates would slow dramatically. This is a “race against time” of vaccine deployment versus case spread.
– initially, infections naturally spread faster given Winter season + holiday + COVID-19 fatigue
– and initial vaccine deployments sluggish
– but vaccine logistics will improve and thus, COVID-19 presumably reaches its end point
Our data science team has created a model to track vaccine doses administered, using data provided by the CDC. Ultimately, the key is seeing which states reach this “herd immunity” frontier (see chart below), where the combined value = 60%. So far, none of the states are close, although perhaps ND/SD are the closest.
Source: CDC and Fundstrat
Many of you requested we begin tracking vaccine doses administered, to provide some context to the rollout. Our data science team, led by tireless Ken, has created a tracking model, using data from the CDC. The CDC only provides updates 3 days a week –> M, W, F. Our initial focus is on 3 frameworks. We will add more as context changes:
– total vaccines administered by date and against Operation Warp Speed targets
– total vaccines administered by states, showing comparative deployment
– total vaccines administered compared to case prevalence, showing relative urgency
future
– total vaccines administered compared against demographics (not clear if CDC will provide this)
Below is the time series showing vaccine doses administered by date and cumulatively, this figure is 4.3 million. This is short of the 20 million targeted by YE 2020. But:
– the pace of doses administered is linear, and not accelerating
– this is not good, but could be due to holiday seasonals
– the scientific head of Operation Warp Speed targeted 40 million doses shipped to states by YE 2020 (20 million initial doses)
– the 4.3 million is well short of that target
Source: CDC and Fundstrat
But as we discussed above, the pace of vaccinations is sluggish but this is understandable. This is a massive undertaking and clear guidelines on:
– who qualifies
– how to reach these cohorts
– etc
These logistics were not defined early enough and thus, there are differences in how each state, how each system administers and qualifies its vaccination recipients. I also think these logistical challenges will be fixed in the coming weeks. So what looks like stumbles now, should turn into a much smoother running operation.
Source: twitter
Looking at state level deployment of vaccines…
CA has administered about 10% of total doses as shown below, followed by Texas and New York. And while these figures are impressive, CA also happens to be the largest state in the US. We think it may be more useful to look at this based upon doses per 1mm residents.
Source: CDC and Fundstrat
The ideal figure is ~20% of residents, or 200,000 per 1mm residents.
And on this metric, you can see CA is among the worst states, with TX and NY faring a bit better:
– CA 11,432 doses per 1mm residents
– NY 14,121 and TX 12,907
But states like SD and WV are considerably higher at ~30,000 or ~3% of residents.
– the bogey is reaching 200,000 per 1mm, or about 20% of residents
Source: CDC and Fundstrat
So from a comparative perspective, we can look at states on this matrix below.
– x-axis is “cumulative cases” per 1mm resident
– y-axis is “vaccine doses administered” per 1mm
The ideal figure is for the combined figures to reach 60%, or 600,000 per 1mm resident. If this combination is reached, that state has theoretically reached herd immunity.
Source: Fundstrat and CDC
POINT 3: Post-holiday cases likely spike, as people “socialize”
Yikes. NY now has its first case of the UK variant of COVID-19, presumably more contagious. This is the 4th confirmed state to see this variant. As the Gothamist reports, this man works at a jewelry store in Saratoga county, so it is a community transmission. Saratoga county is somewhat of a tourist destination, so it attracts visitors from multiple places.
– this again highlights the race seen in 2021
– vaccines vs infections
Source: https://gothamist.com/news/first-case-uk-covid-19-variant-found-new-york-state
It is really a lot to ask of citizens to maintain stringent COVID-19 protocols of social distance, masking, hand sanitizing, particularly for a period now nearly reaching a full year. It is understandable that people will eventually reach the breaking point of fatigue. And over the holidays, this is a time we likely think more citizens decide to suspend some of these protocols. Hence, daily cases likely ramp up over the next few weeks.
And we are already seeing instances where there is a bit of “binge socializing” taking place. For instance, look at this story of a 2,500 person rave in Rennes, France. It was so large, that the French national leaders actually had a meeting about it.
https://nypost.com/2021/01/02/police-in-france-shut-down-illegal-rave-that-drew-over-2500/?utm_campaign=iphone_nyp&utm_source=Slack
And for the US, Florida attracted many Americans over the holidays. And as the NY Post article below notes, many vacationers chose to be relatively more lax in compliance. Ultimately, these are factors contributing to a renewed COVID-19 spread in early 2021.
https://nypost.com/2021/01/04/florida-parties-on-despite-alarming-surge-in-covid-19-cases/
Source: twitter.com
