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COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday

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


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For the next two weeks, we are going to be publishing on a shortened holiday schedule:

Week of 12/20…

Monday 12/21
Tuesday 12/22
Wednesday 12/23

Week of 12/27…
Monday 12/28
Tuesday 12/29
Wednesday 12/30
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STRATEGY: Mind the divergence — VIX, HY, small-caps giving risk-on vibes.  Case data also starting to look really good = risk-on…
President Trump wants to increase relief payments to $2,000 from $600 per person…
The fiscal relief package was thrown a bit of a curve ball by this message at 7:15pm ET from current President Trump.  The 4:09 message (see link below) calls for greater checks for Americans and small businesses, while being critical of the spending appropriated for foreign governments and non-COVID-19 spending.  President Trump, in other words, is implicitly threatening to veto this bill.

His words “I am asking Congress to amend this bill and increase the ridiculously low $600 to $2,000, or $4,000 for a couple”

COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday


https://twitter.com/realDonaldTrump/status/1341537886315950080?s=20

House Speaker Nancy Pelosi at 8:33pm, or ~1:15 minutes later, responded positively to this message.  She commented that Democrats are ready to bring this to the floor by ‘unanimous consent.’  So we can expect the House to quickly approve this change.

– the obvious question is how the Senate (controlled by Republicans) will respond.

COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday


https://twitter.com/SpeakerPelosi/status/1341557535732604935


Tom Block thinks it will be an interesting 24 hours…
As our Head of Policy Strategy, Tom Block, comments below, this message by President Trump is a swipe at Senate Republicans.  But Tom Block expects a bill to pass and there will be more money.  This is a good outcome.

– but as Tom Block notes, it will be an ‘interesting 24 hours’

COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday




Futures are “fire ready aim”
S&P 500 futures weakened after that tweet, swinging from +10 point gain to a -16 point loss.  So markets logically expressing concerns about the future of the COVID-19 relief package, as uncertainty is something markets do not like.

– we wonder if this weakness will be reversed by Wednesday morning
– after all, ultimately, a larger bill is good for the economy
– but naturally, the timing is awful and at a critical period for markets (looking at year-end)

COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday


Source: Investing.com



MIND THE DIVERGENCE:
VIX and High-yield giving “risk-on” vibes even as equities post 3 consecutive declines…
As many of you know, we often look at the VIX and high-yield as cross markets to inform us about equities.  Often, if we see divergences in these markets (vs equity moves), this can often be a clue as to the next direction for equity markets.  Stocks have fallen for 3 consecutive days but take a look at the VIX and high-yield moves in the past 3 days:

– VIX has fallen from ~29 to 24 since Monday’s sloppy open = risk-on
– High-yield has trended higher the past two days = risk-on

In other words, while the S&P 500 has taken a 3-day beating, volatility and high-yield have shown signs investors have increased risk-appetite.

COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday

MIND THE DIVERGENCE:
Small-caps did not the ‘memo’ to sell-off… similarly giving ‘risk-on vibes’
Similarly, look at the relative performance of the Russell 2000 (small-caps vs S&P 500) below.  As you can see, since Monday’s massive decline (at the open), small-caps have rallied above their Friday close.  On an absolute basis, small-caps rose 1% today.  

– so small-caps are giving “risk on vibes” as well

COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday

Take advantage of this sloppiness –> VIX, HY and small-caps are saying “risk-on”… and our Head of TA agrees…
Our Head of Technical Strategy, Rob Sluymer, also believes stocks have been acting surprisingly resilient.  As his comment from his latest note suggests, he sees further upside into year-end and a move towards 3,900-4,000 through January

– Rob Sluymer sees ~10% upside into January
– Let’s take these sloppy few days in stride

COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday

The next few days will be critical, regarding the path of the relief bill, but with pressure from President Trump and the House on board with this change, we think financial markets will recover strongly before year-end.


The irony to all this is US COVID-19 cases are really rolling over now… 13 days of declining cases…
The irony of the drama in Washington and even in financial markets is that COVID-19 trends are starting to show really sustainable positive trends.  We will hopefully highlight more of this in coming weeks, but the daily cases are down vs 7D ago:

– if we ex-CA (which has a massive breakout), the 7D delta is down for 13 days now
– so even as families gather, we are not seeing a massive renewed surge in cases

COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday


Source: COVID-19 Tracking Project  and Fundstrat


And CA does seem to be finally rolling over as well (see Point #2).  After posting >50,000 cases or 20% of the US total, CA is now in the 30,000 daily cases range.  And the 7D delta (ex-CA) below shows that cases have been falling outside CA for nearly two weeks.

COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday


Source: COVID-19 Tracking and Fundstrat  


Improving COVID-19 trends is another reason to “mind the divergence”
And if daily cases are falling, this is another reason to pay attention to this divergence.  Again:

– falling VIX = risk-on
– rising HY bonds = risk-on
– outperformance small-caps = risk-on
– falling COVID-19 cases = risk-on

But
– Washington turmoil = short-term uncertainty


So we see the case rising for stocks to rally into YE



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

COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday
COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday

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: Case trends really good.  Daily cases 181,380, -3,301 vs 7D ago.
The latest COVID-19 daily cases came in at 181,380, down -3,301 vs 7D ago.  
– even CA seems to have finally gotten COVID-19 under control
– ex-CA, daily cases have been falling for 13 days now


COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday


Source: COVID-19 Tracking Project  and Fundstrat


The 7D delta is again negative and ex-CA, daily cases are rolling over more noticeably.  
– ex-CA, daily cases are indeed rolling over in the US for the past 13 days

COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday
COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday


Source: COVID-19 Tracking and Fundstrat  




CA remains the state with the highest daily count in cases and also among the biggest 7D jump in cases.  

COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday
COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday


 
Source: COVID-19 Tracking and Fundstrat 




COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday


Source: COVID-19 Tracking and Fundstrat  



POINT 2: CA looks like cases finally rolling over…
It looks like CA has turned the corner on daily cases.  As shown below, the daily cases have finally started to roll-over and the most recent case figures are well off the recent highs.  This is a tremendous relief given CA was reporting the highest case figures across the US.

– while there will be some lag, we also believe this means hospitalizations and daily deaths will soon peak
– CA implemented some of the most restrictive new lockdown measures, so these measures seem to finally find their bite

COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday


Source: COVID-19 Tracking and Fundstrat  




POINT 3: Incremental hospitalizations are falling in most of the key states, even CA
The coefficient of incremental hospitalizations, or the number hospitalized per new case is falling in most areas.  In fact, it is already below 1% for the major states as outlined below:

– only CA has a coefficient >1.4%, meaning for every 100 new cases, 1.4 are hospitalized
– this is below 1% everywhere else
– for early Wave 3 states, WI, IL, ID, ND, SD, UT, or WIINSU, this figure is negative, meaning there is a net discharge out of hospitals


COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday


Source: COVID-19 Tracking and Fundstrat   


Overall, this further affirms that it is increasingly looking like Wave 3 is over for COVID-19.  And as such, this is a good sign.


And as the chart below shows, the rate of increase in US daily deaths is also slowing.  This rate of change peaked in early December.  And we think it will be a negative value within the next few weeks.

COVID-19 UPDATE: Trump curveball likely leads to larger Bill = good. Mind the divergence as VIX, High-yield and Small-caps are giving 'risk-on vibes' since Monday


Source: COVID-19 Tracking and Fundstrat    



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