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Friday
STRATEGY: Nasdaq so oversold, might be bottoming vs S&P 500
USA cases could soon be peaking, as 7D delta is flattening = R0 is slowing
The level of general hysteria around COVID-19 is diminishing, but the surge in cases still impacts the lives of millions of Americans. And there remains a cohort of Americans quite fearful of COVID-19, thus, a retreat of cases is a welcome development. This is true, even if financial markets are trying to see through the surge in cases.
The 7D delta in COVID-19 cases is showing a slower rate of change. This is evident by looking at the gray columns below and we can see the plot over the last few days are falling in size. In a simple sense, this suggests the transmission rate of COVID-19 is slowing down, a crude approximation for looking at the R0.
– once the 7D delta flattens or turns negative
– daily cases would start falling
In the meantime, daily cases 7D average is surging, but this parabolic rise is not surprising, given the case surges seen in the UK and SA and elsewhere.
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…Omicron is still spreading in Hong Kong, possibly into China –> Winter Olympics
Hong Kong is seeing a material surge in cases (low base though) and as the Bloomberg article highlights, these are all imported cases. But the probability that the majority share of these imported cases are Omicron are quite high. Thus, it bears watching to see if HK will see a parabolic and major step up in cases:
– vaccination rates are high in HK
– so we think Omicron remains less of a healthcare risk
– but given HK desire to maintain zero cases
– this could be a headline risk
And is obvious to the world, with the Winter Olympics just days away, the possibility of a major Omicron surge in China remains high. While we view the economic consequences of this to be low, the media and sentiment impact is less known.
…NYC hospitalization data is a reminder that vaccinations mitigate the risks of severe diseaseBelow is the hospitalization data provided by NYC and showing the rate of hospitalization, based upon vaccination status. The trends are pretty obvious:
– unvaccinated NYC residents are seeing a major surge in hospitalizations (per 100k)
– vaccinated NYC residents are also seeing a rise
– but it is far more modest
STRATEGY: Nasdaq could be reaching a turning point, relative to S&P 500
The NASDAQ 100 has fallen nearly 8% from its recent highs. The relentless selling continues into the start of 2022. While a number of factors have been cited, the most prominent is:
– Fed hiking
– rates go up
– higher rates = high P/E stocks de-rate
Is this logical? To some extent, but with the Nasdaq 100 down nearly 5%, a lot of negative news is priced in.
…In fact, Nasdaq relative to S&P 500 seems like it is possibly at a key juncture
Overall, we think the Nasdaq 100 and Technology will finish 2022 strong, but in the near-term, the headwinds we envision for 1H2022 are going to be headwinds for all stocks — rising inflation, Fed tightening, China omicron, etc.
– but NASDAQ’s underperformance vs S&P 500 has been striking
– below is the DeMark count for QQQ 0.95% /SPY 0.77% (ETFs) combo count v1b
– On Friday, this was a “9” buy countdown
What this means is the underperformance of QQQ has been so sustained and sizable, that we could be nearing a turning point. One where the sellers are done selling.
– this is what we are watching this week
…S&P 500 is down the “first 5 days” of the year = the implications are nothing actually
There are many who watch the “first 5 days” — the first 5 trading days of the year, and many view it is an omen for the year. Ostensibly, this is true:
– Since 1900
– up first 5 days, FY return = 12.3%
– down first 5 days, FY return = 1.1%
– S&P 500 is down 1.9% first 5 days in 2022
This seems to be important. But as we highlight below, this is misleading
…Bull market vs “recession/bear market” far more important
We take these same statistics, since 1900. But we now divide the years into:
– economy already in recession = “bear market/recession”
– economy expansion = bull market
And as below shows, the first 5 days statistics lose their meaning:
– in a bull market
– up first 5 days –> FY +13.5%
– down first 5 days –> FY +13.5%
There is no difference. In fact, as the chart below highlights, the differential comes from “bear market/recession” periods.
– market struggles no matter what
…Since 1982, many “down 1st 5 days” ended up as great years for markets
Below are the 24 years since 1900 where:
– markets down 1st 5 days
– not in recession
And as you can see, these years are all pretty good
– 10 of last 10 times, since 1982
– market finished up
– last instance was 2016
The full stats are below. And as you can see, the “first 5 days” doesn’t mean anything.
– we still expect 2022 to be an up double-digit kind of year
– but 1H probably a real messy 1H
STRATEGY: 2022 theme –> BEEF –> Bitcoin (B) + Bitcoin equities (E) + Energy (E) + FAANG (F)
Our 2022 themes are shown below. And in not in any order:
– Bitcoin + Bitcoin Equities BITO 3.15% GBTC 3.00% BITW
– Energy
– FAANG FNGS 0.35% QQQ 0.95%
Combined, it can be shorted to BEEF.
– Homebuilders (Oct – Apr aka Golden 6 months) XHB 1.27%
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30 Granny Shot Ideas: We performed our quarterly rebalance on 10/25. Full stock list here –> Click here
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POINT 1: Daily COVID-19 cases 269,602, up + 58,672 vs 7D ago…
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Current Trends — COVID-19 cases:
– Daily cases 269,602 vs 210,930 7D ago, up +58,672
– 7D positivity rate 29.2% vs 22.0% 7D ago
– Hospitalized patients 127,464, up +34.8% vs 7D ago
– Daily deaths 1,624, up +24.1% vs 7D ago
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The latest COVID daily cases came in at 269,602, up +58,672 vs 7D ago. Daily cases are still rising, but at a slower pace. 7D delta in daily cases have been flattish over the past 7 days and seems to roll over soon – recall that when 7D delta in daily cases is rolling over, it means the speed of case rise is slowing down. And eventually, when the 7D delta turns into negative regime, daily cases “officially” peak and start to fall. Therefore, we might finally start to see the cases start to roll over in some states very soon (such as NY, see our notes last week). Our base case remains that Omicron surge will peak by early/mid-January. But future is uncertain and COVID has been mysterious and unpredictable since the start of the pandemic. We will keep tracking on the development closely.
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7D delta in daily cases starts to roll over (maybe)…
The 7D delta in daily cases have been flat over the past few days and seems to roll over soon. As long as 7D delta remains positive, the daily cases will continue to rise. But rollover in 7D delta means the speed of case rise is slowing down, which is good news..
42 states are seeing a rise in cases while 8 states + DC are seeing cases falling or about to roll over…
*** We’ve split the “Parabolic Case Tracker” into 2 tables: one where cases are falling (or about to fall), and the other where cases are rising
In these tables, we’ve included the vaccine penetration, case peak information, and the current case trend for 50 US states + DC. The table for states where cases are declining is sorted by case % off of their recent peak, while the table for states where cases are rising is sorted by the current daily cases to pre-surge daily cases multiple.
– The states with higher ranks are the states that have seen a more significant decline / rise in daily cases
– We also calculated the number of days during the recent case surge
– The US as a whole, UK, and Israel are also shown at the top as a reference
Hospitalizations, deaths, and positivity rates are rising…
Below we show the aggregate number of patients hospitalized due to COVID, daily mortality associated with COVID, and the daily positivity rate for COVID.
– Both net hospitalizations and daily death have turned upwards.
– Positivity rate climbed to > 10%. This could be partially because of the data distortion due to holidays – case numbers were reported, while numbers of tests were not. But if the positivity rate remains high, it tells us that there might not be enough tests performed.
POINT 2: VACCINE: vaccination paceacceleratesas boosters become more widely available…
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Current Trends — Vaccinations:
– avg 1.3 million this past week vs 1.0 million last week
– overall, 22.7% received booster doses, 62.1% fully vaccinated, 73.6% 1-dose+ received
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Vaccination frontier update –> all states now near or above 80% combined penetration (vaccines + infections)
*** We’ve updated the total detected infections multiplier from 4.0x to 2.5x. The CDC changed the estimate multiplier because testing has become much better and more prevalent.
Below we sorted the states by the combined penetration (vaccinations + infections). The assumption is that a state with higher combined penetration is likely to be closer to herd immunity, and therefore, less likely to see a parabolic surge in daily cases and deaths. Please note that this “combined penetration” metric can be over 100%, as infected people could also be vaccinated (actually recommended by CDC).
– Currently, all states are near or above 90% combined penetration
– Given the 2.5x multiplier, all states besides MS, WA, OR, TX, ID, MI, MO, and GA are now above 100% combined penetration (vaccines + infections). Again, this metric can be over 100%, as infected people could also be vaccinated. But 100% combined penetration does not mean that the entire population within each state is either infected or vaccinated
There were a total of 1,307,666 doses administered reported on Sunday. Daily number of vaccines administered seems to start to rise again. This is good sign. With the surge of the Omicron cases, we expect more people to receive their booster shot. Also, the same catalysts remain in place:
– Proof of vaccination required by many US cities and venues
– Booster shots
– Israel study shows efficacy of vaccines against Omicron variant (although reduced)
The daily number of vaccines administered remains the most important metric to track this progress and we will be closely watching the relevant data.
This is the state by state data below, showing information for individuals with one dose and two doses.
In total, 516 million vaccine doses have been administered across the country. Specifically, 244 million Americans (74% of US population) have received at least 1 dose of the vaccine. 206 million Americans (62% of US population) are fully vaccinated. And 75 million Americans (23% of US population) received their booster shot.
POINT 3: Tracking the seasonality of COVID-19
***We’ve updated the seasonality tracker to now include 2022 alongside 2021 and 2020.
As evident by trends in 2020 and 2021, seasonality appears to play an important role in the daily cases, hospitalization, and deaths trends. Therefore, we think there might be a strong argument that COVID-19 is poised to become a seasonal virus.
The possible explanations for the seasonality we observed are:
– Outdoor Temperature: increasing indoor activities in the South vs increasing outdoor activities in the northeast during the Summer
– “Air Conditioning” Season: similar to “outdoor temperature”, more “AC” usage might facilitate the spread of the virus indoors
– Opposite effects hold true in the winter
CASES
It seems as if the main factor contributing to current case trends right now is outdoor temperature. During the Summer, outdoor activities are generally increased in the northern states as the weather becomes nicer. In southern states, on the other hand, it becomes too hot and indoor activities are increased. As such, northern state cases didn’t spike much during Summer 2020 while southern state cases did. Currently, northern state cases are showing a slight spike, especially when compared to Summer 2020. This could be attributed to the introduction of the more transmissible Delta variant and the lifting of restrictions combined with pent up demand for indoor activities.
HOSPITALIZATION
Current hospitalizations appear to be similar or less than Summer 2020 rates in most states. This is likely due to increased vaccination rates and the vaccine’s ability to reduce the severity of the virus.
DEATHS
Current death rates appear to be scattered compared to 2020 rates. This is likely due to varying vaccination rates in each state. States with higher vaccination rates seem to have lower death rates given the vaccine’s ability to reduce the severity of the virus; states with lower vaccination rates seem to have higher death rates.
