Click HERE to access the FSInsight COVID-19 Daily Chartbook.
STRATEGY: At least 90% of portfolio strategy would be identical under either win
We did a number of Zoom calls yesterday and the two biggest topics most frequently discussed are:
– what is our strategy view post-election –> we think it is largely identical Biden vs Trump (see below)
– what does the economy look like in 2021 –> a function of when the virus is largely behind us –> Summer 2021 (see below)
We received a lot of backlashes yesterday over our comments regarding the outbreak at the White House. Many clients construed our view that the virus is more the issue than White House policy as “revealing my Trump bias” — over the past few months, we received similar comments from prior pieces suggesting my “liberal and left bias was obvious.” Suffice it to say, there are times when our views might clash with someone’s intuitive sense, or even broader common sense, but this does not mean I am a diehard supporter of one party or another.
I am a supporter of mask use, but I don’t think the White House breakout is a mask issue. Let’s think about this for a moment:
If the Rose Garden event took place with the same group, but everyone was wearing masks, do we know that there would be zero cases? I agree there would be possibly fewer, but if it was 5 people instead of 30, is it due to White House carelessness?
Even with >100 attending, the attack rate still is coming in around 10%, so maskless did not lead to 100% infection.
Similarly, some took issue with group size and especially people gathering together without masks. I have done this multiple times this Summer, granted, not with 100 people. And I have dined at multiple restaurants in the past few months, sitting around hundreds of other patrons without masks. Is the restaurant industry reckless?
Moreover, in most, if not all the case studies I have read, there has not been an asymptomatic infected who contributed to a super spreader event. Instead, patient zero has been someone symptomatic but attended the event anyways.
So this is a bigger question. Who among these hundreds of attendees was feeling “under the weather” and still went anyways? That is the person we should be pointing the finger at and accusing of being reckless. Unless, of course, this was a deliberate spread — someone putting the virus in a perfume bottle, or breath spray, etc. There are plenty of people who would like to have a massive outbreak at the White House. Who knows and I don’t want to be a conspiracy theorist.
The White House has been using a similar protocol for most of the past 6 months, and despite these thousands or even tens of thousands of interactions, there has not been a single such outbreak. The White House presumably tests all guests and perhaps because of this group size, not everyone was tested. That would arguably be the bigger failure.
As we noted yesterday, the virus “got lucky once” (ala terrorists per Rumsfeld or Margaret Thatcher (but she said it in reverse)). Or one of the attendees exercised fatally bad judgment. Or it was sabotage. We will likely never know the full details of this outbreak.
But this is why I don’t see this as a mask issue.
Would there be any substantive differences in sector views post-election?
I realize the market is in a waiting game. The game plan from today until election day (next 30 days) is very different than the post-election strategy.
Into the elections, most investors are risk-averse, fearing two things:
– a contested outcome, and the associated wait (which just pushes off finality by a few weeks)
– something bad could happen before the election day — ala, delayed election, Trump condition worsens, etc.
So I can see the jitters over the next 30 days. But neither issue should cause those trades favorable post-election to wither either.
Here is a high-level view if Trump wins plus Republican keep the Senate:
– Stimulus passes
– White House focuses on further economic stimulus
– virus is probably contained mid-2021 (see below)
– US economy is cranking
– Trump sees mandate and cuts taxes
– inflation risk rises
– investors are “risk-on”
Post-election Strategy: OW cyclicals, aka epicenter. Sell the “economy closed” winners
Here is a high-level view if Biden wins plus Dems take the Senate:
– Stimulus passes
– White House focuses on further economic stimulus
– virus is probably contained mid-2021 (see below)
– US economy is cranking
– Biden White House raises capital gains tax, leading to selling of winners = Technology stocks
– inflation risk rises
– investors are “risk-on”
Post-election Strategy: OW cyclicals, aka epicenter. Sell the “economy closed” winners
Is there any difference?
Thus, to me, the prudent strategy is to build the shopping list for post-election days, rather than optimize returns into early November.
Stocks held the two key lines in the sand… and A/D makes new high = double good
The S&P 500 has held two key levels. The first was 3,224.50 and that was the “worst is yet to come” discounted level (62% retrace). And then it recovered and held 3,363.31, which as we highlighted below, is a signal that stocks are now in a rising trend.
– this close was decisive yesterday
– would be nice to see VIX <25
I also got a message from our Head of Technical Strategy, Rob Sluymer. It was 13 words, a short message. But as we all know, important comments don’t need a lot of words. Here are his comments verbatim:
Well, this is good. Whenever stocks A/D line makes a new high, the rule of thumb is that the index all time highs soon follow. It sure feels like stocks made their pre-election bottom.
– risk-on
POINT 1: Daily cases rising vs 7D ago, the key is to not see this rises exponentially
Daily new COVID-19 cases came in at 36,652, which is +4,540 vs 7D ago. There were some distortions from reported by North Carolina making Monday’s figure very high and Tennessee had a massive surge in tests. Those 2 states top the list.
– But cases are rising vs 7D ago, so the trend is higher.
– Americans are getting too comfortable, and coupled with back to school and colder weather (weaker immune systems), we are seeing more cases.
– the key, however, is to not see daily cases rise exponentially, ala Europe
Source: COVID-19 Tracking Project
Again, the daily change vs 7D ago, in our view, is the leading indicator as it is what influences the 7D moving average.
– The next few days are key. But if daily cases rise vs 7D ago, we know the trend is now up.
Source: COVID-19 Tracking and Fundstrat
Trends in daily deaths and hospitalizations considerably better than cases…
The trend in daily cases is not good. It is rising.
But the trends in testing, daily deaths and net hospitalizations are good.
– for 4 of the past 5 days, more people have been discharged from hospitals = good
– for 7 of the past 9 days, there have been fewer daily deaths
Source: COVID-19 Tracking and Fundstrat
We can see this divergence of daily cases vs daily deaths on the chart below. The US is at a far higher level of daily cases, yet daily deaths are at far lower levels versus earlier in 2020.
– moreover, US daily deaths are trending lower.
– so, rising cases is bad, but it is not leading to a surge in fatalities, which is good
Source: Fundstrat
Source: COVID-19 Tracking and Fundstrat
POINT 2: Why are “no maskers” more aligned with Europe (as it overtakes Latam)
Anyone in the US seeing these photos would shout, these are the “no maskers” and they deserve to get COVID.
Oddly, the first 3 photos are photos from Europe, mostly UK, France and Spain taken within the past few months. The last two are the US. When we consider the need for social distance and mitigation, the US is certainly marching to a different tune than Europe.
– but Europe is paying the price.
– regionally, Europe now has more cases than anywhere else in the World except for India+Pakistan.
Source: Fundstrat and Johns Hopkins
If we look at daily cases per 1mm residents, to normalize for population size, UK, France and Spain are surpassing the US in daily cases. So while the US has been flat/down, Europe is seeing a sizable surge in cases.
Source: Fundstrat and Johns Hopkins
And if one views the case prevalence as a measure of progress towards “herd immunity” then nations with higher case prevalence are less vulnerable to an exponential outbreak.
– as you can see, the US towers over Europe
– Latam has high case prevalence as well
Source: Fundstrat and Johns Hopkins
On the other hand, I don’t know if Europeans necessarily need to panic. Mortality has been very tame. In fact, it has barely risen. Europeans have fewer risk factors vs US:
– Europe risk factor –> age
– US risk factors –> obesity, heart disease, less healthy (generally)
Source: Fundstrat and Johns Hopkins
Source: Fundstrat and Johns Hopkins
Source: Fundstrat and Johns Hopkins
POINT 3: By next summer, COVID-19 likely over because of one of 3 things
The key to the 2021 economy is ultimately a question of the status of COVID-19 in 2021. The future is uncertain but there are some reasons to expect COVID-19 to be on the deep repair by mid-2021. Three reasons for this:
– first, we believe the likelihood of widespread vaccines/therapeutics is available by mid-2021 –> good
– second, if daily infections continue at the estimated pace of 200,000 per day (per IHME), another 60 million Americans, or 20% of US will get COVID, on top of the estimated 80 million, or nearly 50% of the US will be infected
– third, the Spanish flu least from Spring 1918 to late 1919, or ~16-18 months, which if COVID-19 follows the path, would be mid-2021
While this means there is a dreadful 7-9 months more of this pandemic, there is also an end date. And most Americans have a much bleaker view, expecting this pandemic to continue indefinitely.
The race is really for a vaccine/therapeutic to be effective and widely available to beat the clock against reaching “herd immunity.” There are 42 vaccine candidates in clinical evaluation according to the WHO, so there are many multiple and simultaneous efforts underway.
– and if you don’t trust the American vaccine, wait for the European, UK, Spanish, Russian or Chinese versions.
– there will be plenty of options.
The Spanish flu, per the CDC, killed 675,000 (https://www.cdc.gov/flu/pandemic-resources/1918-pandemic-h1n1.html) Americans of a total population of 103 million, or 0.6% of the population.
If COVID-19 were similarly deadly, this would lead to 2.0 million deaths. The US has experienced 215,000 deaths so far. So, the key concern for me is the potential for 1.8 million additional tragic deaths.
