Delta variant apex + USA COVID-19 seasonality + Bitcoin "signal" argues August could be "risk-on" Array ( [cookie] => 88f86a-bc2148-6126f9-f188f7-b09cf2 [current_usage] => 2 [max_usage] => 2 [current_usage_crypto] => 2 [max_usage_crypto] => 2 [lock] => 1 [message] => [error] => [active_member] => 1 [subscriber] => 0 [role] => fsi_macro [visitor_id] => 556868 [reason] => [method] => ) 1
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STRATEGY: Delta variant apex + USA COVID-19 seasonality + Bitcoin "signal" argues August could be "risk-on"
For the past 45 days, we think the singular factor impacting financial markets, in my opinion, has been the course of the Delta COVID-19 variant. The transmissibility and potential ability to evade existing vaccinations has added considerable uncertainty for investors.
From a sector perspective, the last 45 days have been very challenging. This where the market "chop" has been most evident:
- Since June 3 (UK delta surge)
- See how Epicenter sectors collapsed ($SPHB)
- Energy hit the hardest -15% vs S&P 500 ($OIH $XLE)
- FAANG/Technology led ($FNGS $XLK)
- FYI, we upgraded FAANG to OW on 6/11/2021 given our view on interest rates
- Epicenter sectors have seen relatively stability/ slight outperformance since July 19th (see below)
...historically, July/August are not months to "be a hero"
Thus, the chop was most evident in this violent sector rotation. In our opinion (mostly our opinion), we have "never made money" in July/August and thus, we view this two-month period as one where investors should not try to be a "hero" -- this is in part due to reduced market liquidity:
- many investors take vacation in July/August
- this equates to a "buyers strike" and thus, tape bombs can roil markets
- Since 1900, during the 12 periods when 1H gains >13%, you can see July/August "chop" is the baseline
- "don't be a hero" means generally avoiding leverage and short-term options
- term premia gets eaten up during "chop"
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