Consumer overreact to COVID + Inflation blurring = Strategy to Barbell Energy + FANG
Click HERE to access the FSInsight COVID-19 Daily Chartbook.
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SKIP — Federal Holiday
Tuesday
Wednesday
SKIP THURSDAY
Friday
STRATEGY: Consumer overreact to COVID + Inflation blurring = Barbell Energy + FANG
Two key issues into YE –> COVID-19 path + inflation risks
As we look into the final three months of 2021, the two most important market pivots/knife edge are:
– direction of COVID-19 = consumer behavior
– path of inflation = high, demand destruction risk and lower, relief
So, this is what we expect the financial markets to focus on. And there are many ways to frame the risks around each. At the moment, COVID-19 trends look very promising, so this is a good thing.
If COVID-19 recedes into YE 2021, Consumer confidence might surge = positive
On the consumer side, the path of the virus is a pretty straightforward issue:
– Seasonal risks rise as we enter flu season = bad
– Delta variant still burning through some states = somewhat bad (expiration date)
– New variant = bad, but none identified
– Merck anti-virals soon to get approval = good
– Boosters likely to get approved for J&J and Moderna = good
– College/ back-to-school no impacts = good
So, on balance, this looks to be tracking towards a “half-full” view into YE. In other words, I think COVID-19 trends are promising, so far. I really liked this chart from Renaissance Macro (Jeff DeGraaf shop) which shows the comparative relationship between:
– Consumer concerns about COVID-19 (civiqs) (gold line)
– Kayak flight trends (brown line)
These are countermeasures –> whenever concerns rise, Kayak searches fall. This means that consumers will continue to “overreact” to perceptions about COVID-19.
– creates swings in consumer confidence
– creates swings in algo/systematic models (which track consumer sentiment)
– markets might keep ping-ponging for awhile
…6 states in Northeast might be key to watch into YE –> CT, MA, NY, NJ, RI and PA
Last year, the Fall season saw a mild surge in cases associated with colleges. But in 2021, this has not yet been the case — at least, not visibly, to the extent that this has not been widely reported in the media.
– Of the 9 Northeast states, only 3 are seeing surges –> ME, NH and VT
– these are the “coldest” states
– so is this just a matter of time?
– interestingly, cases are hooking down in others, when they surged in 2020
– CT, MA, NY, NJ, RI PA
So, stating the obvious. These 6 states are the key into YE. After all, if they are:
– falling into YE, counter-seasonal to 2020 = good
– “pause before surge” = bad
We don’t have a view, but at the moment, we would say the counter-seasonal view is ahead at the moment. Hopefully, this continues into YE.
STRATEGY: Consumer overreact to COVID + Inflation blurring = Barbell Energy + FANG
The other “fly in the ointment” is the risk of inflation pressures tipping into anchored higher expectations for inflation. In fact, JPMorgan Economics team in their latest commentary (Global Data Watch), notes that “high inflation is a threat to global growth”
– key is “threat”
– their base case is global growth is not impacted
– risk is higher prices = demand destruction
– higher wages = lower hiring demand
So, this is what the market is also watching as a “knife edge” as the risks could tilt to the downside. But at the same time, risks could mitigate as well.
In fact, the S&P 500 is sitting at the knife’s edge again. The 100D is key:
– S&P 500 close 10/11 = 4,361.19
– 100D moving avg = 4,360.54
– Knife’s edge
In other words, we are sitting at a key level, in the near term. I think this generally is a more tactical matter. After all, our base case remains that S&P 500 rallies into YE. But this chart below, shows that the dual issues of inflation and COVID-19 are putting the market at a key level.
…Mark Newton, Head of Technical Strategy, sees S&P 500 downside consolidation before YE rally
Mark Newton’s latest comments are below. And as shown, he highlights that there remains substantial near-term resistance and the S&P 500 has not yet broken the downtrend. While markets are fluid, he sees this process playing out over the next two weeks or so. In other words, the Technical support for an “everything rally” is a few weeks away.
BARBELL: Energy + FANG
To me, this suggest our Sector Strategy into YE continues to make sense:
– Overweight Energy (#1) = oil up = upside for Energy stocks
– Overweight FAANG = hedge against perceived risk of “stagflation”
After all, if markets worry about excessive inflation, that means Central Banks need to over-react = buy FAANG. So, for now, we think a barbell of OW Energy + FANG is a good strategy for current market environment.
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26 Granny Shot Ideas: We performed our quarterly rebalance on 07/30. Full stock list here –> Click here
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POINT 1: Daily COVID-19 cases 112,071, down -58,046 vs 7D ago…
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Current Trends — COVID-19 cases:
– Daily cases 112,051 vs 170,477 7D ago, down -58,406
– Daily cases ex-FL&NE 110,172 vs 167,357 7D ago, down -57,185
– 7D positivity rate 5.8% vs 6.1% 7D ago
– Hospitalized patients 59,006, down -9.7% vs 7D ago
– Daily deaths 1,567, down -16.7% vs 7D ago
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*** Florida and Nebraska stopped publishing daily COVID stats updates on 6/4 and 6/30, respectively. We switched to use CDC surveillance data as the substitute. However, since CDC surveillance data is subject to a one-to-two day lag, we added a “US ex-FL&NE” in our daily cases and 7D delta sections in order to demonstrate a more comparable COVID development.
The latest COVID daily cases came in at 112,071, down -58,046 vs 7D ago. Several states didn’t provide updated data Monday due to Columbus Day, and as a result, the 7D delta is increasingly large.
As indicated by the consistently negative 7D deltas, cases are currently rolling over. At the individual state level, we’ve recently been at the critical stage of case rollover as more states begin to turn. We will continue to monitor all relevant data closely, but as long as 7D deltas remain negative, case rollover will continue.
Rolling 7D delta in daily cases remains negative…
As shown in the chart below, the rolling 7D delta in daily cases remains negative. The negative rolling 7D delta further emphasizes the case roll over.
Low vaccinated states seem to have a larger increase in daily cases compared to their recent low…
The “Parabolic Case Surge Tracker” monitors the possible parabolic surge in daily case figures. In the table, we included both the vaccine penetration and the recent case trend for 50 US states + DC. The table is sorted by the multiple of their recent peak daily cases divided by the daily cases when their case surges started.
– The states with higher ranks are the states that have seen a more significant rise in daily cases
– We also calculated the number of days during the recent case surge; a state with a high multiple but low number of days since its low means the state is facing a relatively rapid surge in daily cases
– The US as a whole, UK, and Israel are also shown at the top as a reference
Hospitalizations, deaths, and positivity rates are rolling over amidst case rollover…
Below we show the aggregate number of patients hospitalized due to COVID, daily mortality associated with COVID, and the daily positivity rate for COVID.
– Net hospitalizations peaked below the Wave 3 peak and are currently rolling over
– Daily death peaked slightly above the Wave 2 peak and are currently rolling over
– As per the decline in daily cases, the positivity rate is currently rolling over
POINT 2: VACCINE: vaccination pace trending up once again…
*** The CDC didn’t update vaccine data over the weekend due to Columbus Day, so data is as of Thursday.
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Current Trends — Vaccinations:
– avg 0.9 million this past week vs 0.7 million last week
– overall, 55.8% fully vaccinated, 64.6% 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 80% combined penetration
– Given the new multiplier. only RI, FL, MA, CT, NM, NY, NJ, IL, CA, PA, DE, and SD 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.
Below is a diffusion chart that shows the % of US states (based on state population) that have reached the combined penetration >60%/70%/80%/90%/100%. As you can see, all states have reached 90% combined vaccination + infection. 90.0% of US states (based on state population) have seen combined infection & vaccination >100% (Reminder: 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 the state is either infected or vaccinated).
There were a total of 876,888 doses administered reported on Thursday, down 3% vs. 7D ago. We are once again seeing the vaccination pace pick up as booster shots are becoming more widely available. Also, the same catalysts remain in place:
– Proof of vaccination required by many US cities and venues
– Booster shots
– Full FDA approval of Pfizer COVID vaccines (hopefully it could help overcome vaccine hesitancy)
– Biden’s vaccination plan
The daily number of vaccines administered remains the most important metric to track this progress and we will be closely watching the relevant data.
69.9% of the US has seen 1-dose penetration >60%…
To better illustrate the actual footprint of the US vaccination effort, we have a time series showing the percent of the US with at least 45%/45%/50% of its residents fully vaccinated, displayed as the orange lines on the chart. Currently, 100% of US states have seen 40% of their residents fully vaccinated. However, when looking at the percentage of the US with at least 45% of its residents fully vaccinated, this figure is 96.1%. And only 81.6% of US (by state population) have seen 50% of its residents fully vaccinated.
We have done similarly for residents with at least 1-dose of the vaccination, denoted by the purple lines on the chart. While 98.7% of US states have seen 1 dose penetration >50%, 87.1% of them have seen 1 dose penetration >55% and 69.9% of them have seen 1 dose penetration > 60%.
This is the state by state data below, showing information for individuals with one dose and two doses.
The ratio of vaccinations/ daily confirmed cases has been falling significantly (red line is 7D moving avg). Both the surge in daily cases and decrease in daily vaccines administered contributed to this.
– the 7D moving average is about ~9 for the past few days
– this means 5 vaccines dosed for every 1 confirmed case
In total, 399 million vaccine doses have been administered across the country. Specifically, 214 million Americans (65% of US population) have received at least 1 dose of the vaccine. And 185 million Americans (56% of US population) are fully vaccinated.
POINT 3: Tracking the seasonality of COVID-19
In July, we noted that many states experienced similar case surges in 2021 to the ones they experienced in 2020. As such, along with the introduction of the more transmissible Delta variant, seasonality also appears to play an important role in the recent surge in daily cases, hospitalization, and deaths. 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
If this holds true, seasonal analysis suggests that the Delta spike could roll over by following a similar pattern to 2020.
We created this section within our COVID update which tracks and compare the case, hospitalization, and death trends in both 2020 and 2021 at the state level. We grouped states geographically as they tend to trend similarly.
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.
