COVID-19 UPDATE: Washington impasse on $2,000 checks takes wind out of stocks... Small-caps likely rally this week

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

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For this week, we are going to be publishing on a shortened holiday schedule:

Week of 12/27…
Monday 12/28
Tuesday 12/29
Wednesday 12/30
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STRATEGY: Washington impasse on $2,000 checks causes profit taking
Stocks stalled today, in part, to the Senate impasse on the $2,000 stimulus checks.  The House had passed, by unanimous consent, this larger payment, but the Senate Majority Leader, McConnell, wants to take up the three issues simultaneously: (i) stimulus checks, (ii) election fraud and (iii) section 230 protecting Technology cos from liability.  And of course, Congress is running against the clock given the fast approaching year-end and recess.  

Source: Bloomberg


Trends in COVID-19 are still largely improving with the hotspots remaining along the coastlines and the Northeast (winter).  And the positivity rates are holding flat, but the true trend case numbers remain somewhat hard to discern given the holiday closures.  In fact, Texas reported a +10,000 increase in cases (see Point #2), but this is due to many counties reporting 3-4 days worth of cases on Tuesday.

Source: COVID-19 Tracking Project


UK variant (more transmissible) shows up first time in US in Colorado… 17 nations now
The UK variant of the COVID-19 also showed up for the first time in the US. The patient has no known travel history, so it seems to be again a case of community transmission.  There are now 17 nations reporting cases of this UK variant.  

– it bears watching to see if the “attack rate” or the rate of transmission of this variant is meaningfully higher
– if so, it raises the importance of the pace of vaccinations.
– but US case trends seem to be mostly positive, at the moment.

https://www.washingtonpost.com/health/coronavirus-variant-colorado-us/2020/12/29/8e6379fc-4a01-11eb-a9f4-0e668b9772ba_story.html


Small-caps are oversold –> given the Santa Claus + early 2021 rally –> expect small-caps to rebound
As equities have taken a breather, the hardest hit has been small-cap stocks.  Over the past few days, the Russell 2000 has underperformed the S&P 500 by ~500bp.  That is a sizable drop.

– we think this is mostly profit-taking because the conditions for a small-cap rally are intact
– Stimulus checks = economic positive
– COVID-19 rolling = risk-on
– Santa Claus rally = risk-on
– VIX is falling = risk-on

Moreover, the Russell 2000 is now oversold.  As shown below, the 30-minute RSI is at 30.  And the last 3 times we saw this RSI at 30, the Russell 2000 bottomed.

– thus, we see small-caps beginning to rally beginning as early as Wednesday

Have a safe and wonderful New Year!  I pray that 2021 is a year where the world can heal and that each of you have a blessed holiday.

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 185,549, +3,887 vs 7D ago but massive TX backlog behind the surge
The latest COVID-19 daily cases came in at 185,549, up +3,887 vs 7D ago.  
– Texas had a massive backlog and saw daily cases jump to 26,990 from 16,607 stemming from multiple counties backlog
– So cases are still rolling over, but the holiday effect is going to cause distortions for several weeks

Source: COVID-19 Tracking Project  and Fundstrat


The 7D delta turned positive, but ex-Texas, it would have been down ~7,000. 

Source: COVID-19 Tracking and Fundstrat  




CA remains the state with the highest daily count in cases.  

 
Source: COVID-19 Tracking and Fundstrat 

Source: COVID-19 Tracking and Fundstrat  



POINT 2: We are starting to see “backlog” caused jumps in cases…
Texas reported a record number of cases today, 26,990.  But as the Texas Health Dept. noted, this is due to a substantial backlog of cases being reported on Tuesday.  As this comment below notes, multiple counties did not report case data for the holiday weekend.

– Holiday weekend –> Fri, Sat, Sunday
– 3 days getting reported on Tuesday
– this is the reason for the surge

Source: Texas DHS


And as the daily case chart shows, Texas daily case data was steadily rising, but the surge reported today is consistent with a substantial backlog.  

Source: COVID-19 Tracking and Fundstrat  


And of course, Texas is not the only state experiencing this.  This is the reason we can expect the holiday reporting to cause some distortions, or rather, contain distortions.



POINT 3: Surprising number of COVID-19 infected develop severe psychotic symptoms…
The NY Times published an article suggesting a surprising number of COVID-19 patients subsequently develop severe psychotic symptoms.  The severity of these symptoms is what alarmed me.  Moreover, these are dark voices suggesting these recovered patients murder or harm others.  In some ways, this could be another reason why “Violence in 2021” could become more pertinent.

– the article does not address whether this is not similarly found from those receiving vaccinations

https://www.nytimes.com/2020/12/28/health/covid-psychosis-mental.html


The quotes below are from Dr. Goueli in Long Island.  And he commented that he has seen multiple cases of patients with no prior history of mental illness, suddenly developing severe psychotic symptoms. 

https://www.nytimes.com/2020/12/28/health/covid-psychosis-mental.html


In fact, a British study (same article) found that among 153 patients, 10, or ~8% had new-onset psychosis.  This is a pretty shockingly high statistic.  And just one hospital in Spain had 10 such patients.

https://www.nytimes.com/2020/12/28/health/covid-psychosis-mental.html


One of the patients described having voices tell her to murder her children.  I am really astonished and alarmed by these reports.

https://www.nytimes.com/2020/12/28/health/covid-psychosis-mental.html


The obvious question is why this is happening.  And while there is no clear explanation, scientists think this is possibly from neurotoxins being released as a result of the immune reaction.

https://www.nytimes.com/2020/12/28/health/covid-psychosis-mental.html