Click HERE to access the FSInsight COVID-19 Daily Chartbook.
We publish on a 4-day a week schedule:
Monday
Tuesday
Wednesday
SKIP THURSDAY
Friday
STRATEGY: Nasdaq held at a key level, encouraging the market is respecting technicals
Market panic is cleaning up sellers…
Equities have been under intense selling pressure since the start of the year, and the cumulative negative commentary over the weekend (Fed hikes and inflation risks and “Fed behind the curve”) created a lot of panic at the open. And at one point, all the major indices were down more than 2%. Equities managed to find footing before the end of the day, and the Nasdaq 100 (QQQ 1.28% ) even managed to close positively.
– yesterday’s reversal, in our view, is a sign that the sellers might be done selling
– or more simply, the deleveraging associated with Fed hikes might be nearing the end
In any case, this market reversal, in our view, is the most important development in the past 24 hours.
USA COVID-19 cases 7D delta in daily cases starts to roll over (maybe)…
The moving average of the 7D delta in cases is starting to roll over, another sign bolstering the notion that COVID-19 might be peaking in hte US, in aggregate.
….cases rolling over in 10 states
According to analysis by our data science team, led by tireless Ken, daily cases are rolling over in 10 states. Per the table below, the largest declines are seen in Maryland, Ohio and Maine. All of these states were hit hard by the Omicron surge.
…Texas team creates COVID-19 vaccine using protein subunit technology, at a vastly lower cost
This story came out last week, but I found it worth highlighting. A Texas research team at Baylor College of Medicine has developed a COVID-19 vaccine using protein subunit technology:
– this technology is how the Hepatitus B vaccine has been created and
– has been around for decades
– the proteins create an immune response, without creating the disease
– the cost of this vaccine is vastly lower
– $1-$1.50 per dose
– it is shown to be 90% effective against original variant and 80% vs Delta
– it is now being tested against Omicron
– the US has shown little interest
– but India is funding production
STRATEGY: Last 4 “first hikes” the S&P 500 saw a 10%ish decline –> markets likely anticipate the same in 2022
To state the obvious, equity markets have been roiled in 2022 by the dual concerns of inflation and Fed hikes. And perhaps more specifically, the uncertainty created because of:
– expectations in bond market around Fed hikes
– risks of Fed policy error
– general change in market forces as the “whatever it takes” dovish Fed is now “normalizing” Fed
As shown below, Fed Fund futures show that a March rate hike is pretty much priced in.
…Rate hikes don’t end the bull market, but the market generally pauses around the first hike
Below is the S&P 500 since 1990, or last 30 years, and Fed funds (top half). And what is apparent from this chart is that Fed raising rates does not spell the end of a bull market.
– Fed hikes start
– Equity markets still stage signficant further gains
– Recessions are still distant versus the first hike
So, the bigger picture is rate hikes don’t mark the end of the bull market. However, as indicated by the red arrows:
– first hike
– leads to a market decline
– of at about 10%
Given the substantial gains by the S&P 500 over this time frame, those 10% declines are sort of difficult to discern from this chart.
…in each of the 4 prior “first hikes” equities fell at least 10%
We zoom in on the 4 periods below. And the behavior of equity markets around the first rate hikes is more evident:
– 4 of 4 times
– S&P 500 fell 10% around the first hike
– very likely equities do this because markets are adjusting to a shift in market perception of liquidity
– and a shift in perception around Fed policy
I found this personally surprising. Because one would think the markets can look past a rate hike. But these prior episodes show equity markets still suffer damage around the first hike.
…in 2022, investors are likely to be “de-leveraging” in anticipation of a 10% decline
So we are going to make what seems like a circular observation. But here is what we think the above analysis means for 2022:
– bond market is pricing in a March rate hike
– equity investors know that a 10% decline from a “peak” is seen 4 of 4 times
– will investors wait for a 10% decline –> aka go on a “buyers’ strike”
– thus, stocks fall 10%?
Maybe, but our base case is this would be happening from higher levels. Thus, we still see the possibility of a S&P 500 rally to 5,000 before a decline. However, incoming data could change this. And an accelerating Fed timeline would be a factor.
…Nasdaq held at a key level, encouraging the market is respecting technicals
Yesterday, we highlighted the Nasdaq 100/S&P 500 ratio (QQQ 1.28% /SPY 0.55% ) and noted that this key level (“9” sequential on DeMark) has been a key turning point for much of 2021 (see below). And as a consequence, we saw this as a key juncture — if markets respected this technical, the QQQ would reverse higher.
– so it was encouraging to see the QQQ reverse yesterday
– and outperform the S&P 500
– this follows 8 consecutive sessions of declines
…Nasdaq is so bad, that it is good
The Nasdaq composite internals have been so weak since February that 37% of the stocks are down 50% from their highs. This is the composite, not the narrower Nasdaq 100.
Our data science team looked at the forward relative returns of the Nasdaq vs S&P 500, based on the decile of the above reading. That is, if this reading is bad (more stocks down 50% or more from 52-week highs), does this point to outperformance vs S&P 500.
– indeed this seems to be the case
– when this reading is between 26% to 39%, pretty high
– Nasdaq consistently outperforms S&P 500 over next 12 months
– current reading is 37%
Why does this work? It shows that a lot of selling is priced in when this ratio is above 26%. Thus, we would view this as evidence Nasdaq is closer to the end of selling. Of course, this does not mean we need to see gains today
– this is next 12 months
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 1.45% GBTC 1.14% BITW
– Energy
– FAANG FNGS 1.44% QQQ 1.28%
Combined, it can be shorted to BEEF.
– Homebuilders (Oct – Apr aka Golden 6 months) XHB -0.43%
__________________________
30 Granny Shot Ideas: We performed our quarterly rebalance on 10/25. Full stock list here –> Click here
___________________________
POINT 1: Daily COVID-19 cases 1,416,751, up + 376,019 vs 7D ago…
_____________________________
Current Trends — COVID-19 cases:
– Daily cases 1,416,751 vs 1,040,732 7D ago, up +376,019
– 7D positivity rate 28.8% vs 23.5% 7D ago
– Hospitalized patients 132,814, up +28.1% vs 7D ago
– Daily deaths 1,628, up +19.8% vs 7D ago
_____________________________
The latest COVID daily cases came in at 1,416,751, up +376,019 vs 7D ago. Admittedly, Omicron variant continues to wreak havoc across US. However, the jump in 7D delta is largely due to data distortion from California – California did not report COVID stats 7D ago (1/3), while reported over 300,000 cases yesterday (1/10). So, without the data distortion, the 7D delta in daily cases should haven fallen further. Our base case remains that Omicron surge will peak by early/mid-January and we are tracking the trends closely.
`
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 now. 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…
___________________________
Current Trends — Vaccinations:
– avg 1.3 million this past week vs 1.1 million last week
– overall, 22.8% received booster doses, 62.1% fully vaccinated, 73.7% 1-dose+ received
_____________________________
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 823,104 doses administered reported on Monday. Daily number of vaccines administered seems to start to rise again (evidenced by the 7D average line in blue). 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, 520 million vaccine doses have been administered across the country. Specifically, 245 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 76 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.
