COVID-19 UPDATE: CA set to re-open by June 15th, suggesting entire USA will be open by then. Rates > ISM for Epicenter trade. Institutions might be buying these 12 Growth stocks disguised as "Epicenter"

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

We are shifting to a 4-day a week publication schedule:

• Monday
• Tuesday
• Wednesday
• SKIP THURSDAY
• Friday

STRATEGY: Rates > ISM for Epicenter trade.  Institutional investors buying “Growth stocks disguised as Epicenter”
Case trends in COVID-19 might be stabilizing, versus the “rising trend” seen since mid-March
Daily US COVID-19 case trends might be stabilizing as shown on this chart below.  This is one of our key charts and measures daily cases vs 7D ago.  And as shown, this figure had been rising since mid-March but now seems to be stabilizing.  And even trending down:

– cases were rising recently, not entirely clear why, but maybe combo of vaccine boldness and Spring Break
– MI cases have somewhat flattened out at 5,000 per day.  But this is virtually the same as FL and NY
– MI is a lot smaller than either state, so MI is an outlier to an extent
  

Source: Fundstrat and state health departments   

…CA reopening on June 15th argues the entire USA will be fully re-opened by June 15th
In another sign yet that US is making progress against COVID-19, CA Gov Gavin Newsome today announced that the state could fully re-open on June 15th.  The mask mandate would still be in place, and an opening is subject to two criteria:

– sufficient vaccine supply for all CA adults (on track)
– hospitalization rates remain stable and low (not clear)

CA has been among the most restrictive of states.  And if they are pursuing a re-opening, one could argue that the entire US is likely fully re-opened by June 15th.

Source: https://ktla.com/news/california/newsom-set-to-make-major-announcement-at-covid-19-news-conference/


Many investors suggest since economic momentum peaking, time to rotate back into Growth
Today a few clients forwarded this story to us, published by Bloomberg’s Lu Wang.  This affirms what we have seen from our discussions with our institutional clients in both zooms and emails and phone calls (yes, we still do phone calls).  In general, there has been a general reluctance by hedge funds and institutional investors to buy Epicenter stocks aka Cyclicals.

– BofA data shows cyclical exposure (of its clients) is lowest in decades
– Morgan Stanley shows their clients are pulling back on Cyclical exposure in 2021

The BofA exposure data, as the chart below shows, is really quite striking.

https://www.bloomberg.com/news/articles/2021-04-06/hedge-funds-see-something-in-the-reflation-trade-they-don-t-like?sref=NVS0rEaE

Part of this stems from the growing consensus view that economic momentum is peaking.  The “GDP growth rate” print will peak in the next quarter or two, and as a consequence, many investors believe this peak in the data will signal a peak in Epicenter stocks relative to Growth. To use economic momentum as the sole signal, we think this is a somewhat “overly simplified” view of the drivers of Epicenter stocks.  But as the chart below shows, there is an approximate relationship between ISM and Epicenter vs Growth:

– As PMIs rise, Epicenter stocks tend to outperform (see below)
– But the relationship has weakened considerably over the last 20 years (gap widening)

Source: Bloomberg and Fundstrat


Re-opening economy plus infrastructure program creates supportive environment for cyclical stocks…
There are multiple factors at play, beyond just economic momentum, and let me list a few reasons why a peak in economic momentum is not necessarily a peak in Epicenter stocks:

– US economy just emerging from a Depression and seems early to call it “mid-cycle”
– Epicenter companies have undergone dramatic cost cutting, hence, we believe there will be a substantial operating leverage story in the coming 24 months
– Meaning EPS beats coming = re-rate higher EPS + higher P/E

– US could pass a massive infrastructure program (Tom Block sees a 75% chance by Fall)
– US infrastructure spending has lagged for nearly 15 years, hence, substantial justification

On this latter point, look at this data from Morgan Stanley which shows a near $1.25T gap in real government spending.  Thus, this essentially provides a greater argument for a massive stimulus program.

Source: https://twitter.com/TheStalwart/status/1379377011509108737


Equally important, interest rates seem to be more important to Epicenter vs Growth, moreso than PMIs…
Arguably, the more important macro driver for Epicenter stocks (vs Growth) is the trend in interest rates.  This reflects both the positive impact of higher rates (on Epicenter topline, balance sheet heavy tailwind too) and negative effects (discount rate for Growth stocks).  The chart below is the past 18 months:

– as the US 10Y has risen (red line)
– notice the near perfect tracking of Epicenter vs Nasdaq 100?

Yes, interest rates matter.

Source: Bloomberg and Fundstrat 


Even zooming out for the past 20 years, one can see this relationship has held pretty strongly.  In other words, rates matter more than ISM for the relative performance.

Source: Bloomberg and Fundstrat SPHB QQQ-2.08%


Naturally, this raises the question about whether interest rates will rise into year-end or fall into year-end.  I simply don’t know.  To me, interest rates are highly unpredictable, just as unpredictable as equity markets. But if I had to look at the factors influencing rates:

– US economic outlook strengthening = bias higher rates
– US deficit spending rising = bias higher rates
– inflationary pressures are likely higher vs lower = higher rates
– global growth is improving = bias higher rates

EXTRA CREDIT: Demographics could also argue for higher interest rates

So, in summary, there seems to be factors pushing towards higher rates.  If interest rates are set to move higher, this is a tailwind for Epicenter stocks.


…Demographics might argue for higher rates
Take a look at the growth rate of Americans age 30-50, or prime age, and notice how it has varied over time.  

– since 2016, this figure has actually turned positive and similar to the upturn 1972 onwards
– notice how US interest rates moved up sharply following this?

Multiple factors support this relationship, but simply, prime age adults are prime concerns and simultaneously prime workforce (highest skills), so this has a reflationary impact on the economy.  Thus, a rise in this cohort is reflationary and thus interest rates rise.

– If this is true, the upturn in this cohort through 2030 argues for a structural rise in rates

In fact, even the upturn in “prime age” Americans also argues for CPI or inflation to rise.  Since 1935, there seems to be a casual relationship between this growth of the cohort and CPI.

– and if true in today’s context, inflation should be rising over the next decade

STRATEGY: Institutional investors buying “Growth stocks disguised as Epicenter”
As much as the Bloomberg article resonates with us (institutions avoiding Epicenter), we wrote yesterday how it seems like institutions are actually starting to nibble at Epicenter stocks.  

– within the Epicenter sectors, about 1/4 of the stocks are also in the Russell 1000 Growth Index
– in other words, about $922 billion of the $3.2T of pure Epicenter is Russell 1000 Growth

…Growth disguised as “Epicenter” outperforming since 3/24/2021
The price performance of this “Growth disguised as Epicenter” has been particularly strong since 3/24/2021.  Take a look below:

– Epicenter rose 20% 12/31 to 3/24 and Growth fell
– Growth disguised as “Epicenter” outperformed Growth

– Since 3/24/2021, Epicenter is up another 4.5%, similar to Growth
– Growth disguised as “Epicenter” is up nearly 11% in that timeframe

One way to interpret this.  Growth investors are edging into Epicenter, by buying the “Growth” components of those indices.  

…12 Growth stocks disguised as “Epicenter”
Below are 12 stocks which are illustrative of the Growth stocks disguised as “Epicenter” and are also part of the S&P 500 High Beta ETF, which we have used as a proxy for the Epicenter trade.  Of the 12 names, half Cyclical Technology stocks (semis and semicap equipment). But notice that names like Wynn and even a REIT (SPG) and insurance company (LNC1.54% ).  But you get the picture.

Source: Fundstrat, Bloomberg AMAT-2.34% , ENPH-2.46% , EXPE0.55% , KLAC-2.67% , LNC1.54% , LRCX-2.10% , MCHP-3.00% , PAYC-0.87% , SPG, SYY, TDG-2.13% , WYNN

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), Technicals
– Violence in USA –> companies that are involved in some aspect of home or personal security. We are not “recommending” these stocks, but rather, bringing these stocks to your attention.

Granny Shots:
Full stock list here –> Click here
Tickers: AAPL, CSCO, INTC, MXIM, NVDA, EBAY, KLAC, GRMN, GOOG, MNST, MSFT, AMZN, QCOM, TSLA, PYPL, AXP, BF/B, PM, XLNX, TGT, PG, XOM, VLO, GL, RF, ATVI, BBY, GE, AMAT, LRCX, MU, HPQ

Trifecta Epicenter (*):
Full stock list here –> Click here
Tickers: AN, GM, F, GRMN, LEG, TPX, TOL, NWL, MAT, PII, RL, MGM, HLT, MAR, NCLH, RCL, WH, TNL, SIX, DRI, SBUX, FL, GPS, KSS, LB, VFC, FITB, WTFC, ASB, BOH, FHN, FNB, PB, PBCT, RF, STL, TFC, WBS, PNFP, PACW, SBNY, NYCB, MTG, EVR, GS, IBKR, VIRT, BK, STT, SYF, BHF, AGCO, OC, ACM, WAB, EMR, GNRC, NVT, CSL, GE, IEX, PNR, CFX, DOV, MIDD, SNA, XYL, FLS, EAF, TTC, ITT, ALK, DAL, JBLU, LUV, MIC, KEX, UNP, JBHT, R, UBER, UHAL, LSTR, MAN, XOM, HP, BKR, HAL, NOV, SLB, COP, EOG, FANG, HES, MRO, MUR, PXD, XEC, HFC, MPC, PSX, LYB, EXP, MLM, CF, MOS, ESI, NEU, NUE, RS, SON, IP, BXP, HIW, UDR, KIM, NNN, WRI, VNO, JBGS, RYN

Violence in USA:
Full stock list here –> Click here

POINT 1: Daily COVID-19 cases 55,870, -2,243 vs 7D ago…

_____________________________

Current Trends — COVID-19 cases: 
– Daily cases    55,870 vs 58,113 7D ago, down -2,243
– 7D positivity rate   4.7% vs 4.9% 7D ago
– Hospitalized patients   38,814  up +5.2% vs 7D ago
– Daily deaths    608,  down -36% vs 7D ago
_____________________________



– The latest COVID-19 daily cases came in at 55,870, down -2,243 vs 7D ago.  
– 7D delta in daily cases turned negative again. Unlike last Friday and Sunday, today’s negative 7D delta is not likely a result of data distortion. However, it is also too early to conclude the decline in daily cases resumes.
– The overall case trends remain stable. As the 7D average line (blue dash line in the 7D delta chart below) shows, the daily confirmed case figures have been stalled in the past three weeks.
– At this stage of pandemic, vaccinations might matter more than daily case trends. As long as vaccinations work, eventually the rollout of the vaccines will lead to a decline in the pervasiveness of the COVID pandemic.

Source: Fundstrat and state health departments


7D delta in daily cases has been flat-lined over the past 3 weeks…
7D delta in daily cases turned negative again. Unlike last Friday and Sunday, today’s negative 7D delta is not likely a result of data distortion. However, it is also too early to conclude the decline in daily cases resumes.

The overall case trends remain stable. As the 7D average line (blue dash line) shows, the daily confirmed case figures have been stalled in the past three weeks.

  

Source: Fundstrat and state health departments   

US hospitalization still rolling over … and even US deaths seem to be rolling over…
Below we show the aggregate patients who are currently hospitalized due to COVID. It has fallen significantly from the wave 3 peak.

Source: Fundstrat and state health departments

Source: Fundstrat and state health departments

Source: Fundstrat and state health departments




 

Source: Fundstrat and state health departments
POINT 2: VACCINE: 45 states near ~60% infected + vaccinated…
_____________________________

Current Trends — Vaccinations: 
Vaccinations ramping steadily
– avg 3.0 million this past week vs 2.8 million last week
– overall, 18.9% fully vaccinated, 32.4% 1-dose+ received
_____________________________



Vaccination frontier update –> 45 states now near or above 60% combined penetration (vaccines + infections)
Below we sorted the states by the combined penetration (vaccinations + infections).  As we commented in the past, the key figure is the combined value >60%, which is presumably near herd immunity.  That is, the combined value of infections + vaccinations as % population > 60%.

– Currently, 45 states (see below) are basically all at this level
– SD, ND and RI are now above or near 90% combined penetration (vaccines + infections)
– So slowly, the US is getting to that threshold of presumable herd immunity

Source: CDC and Fundstrat


Collectively, these 45 states represent about 94.1% of the US population.  As the chart below highlights, the US is seeing steady forward progress and this figure continues to rise steadily.

Source: CDC and Fundstrat



There were a total of 1,396,975 doses administered on Monday, down 21% from 7D ago. However, the pace is steadily rising, as evidenced by the 7D moving average (see blue line).

Source: CDC and Fundstrat 


~73.2% of the US has seen 1-dose penetration >30%…
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 15%/20%/25% of its residents fully vaccinated, displayed as the orange line on the chart. Currently, almost all US states have seen 15% of their residents fully vaccinated.   However, when looking at the percentage of the US with at least 20% of its residents fully vaccinated, this figure is 27.6%. And only New Mexico and South Dakota have seen 25% of its residents fully vaccinated – 0.9% of US population.


– While almost all US states have seen vaccine penetration >25%, 73.2% of them have seen 1 dose penetration >30% and only 16.5% of them have seen 1 dose penetration > 35%.
– Almost all of the US has at least 15% of its residents fully vaccinated, However, only 27.6% of US has fully vaccinated >20%
– This is still a small figure (15%/20% of residents fully vaccinated) but this figure is rising sharply now. This figure could rise even more rapidly after the JNJ’s 1-dose vaccines roll out.

Source: CDC and Fundstrat 



This is the state by state data below, showing information for states with one dose and for those with two doses.

Source: CDC and Fundstrat 


The ratio of vaccinations/ daily confirmed cases is generally trending higher (red line is 7D moving avg) and this is the most encouraging statistic. 

– the 7D moving average is about ~50 for the past few days
– this means 50 vaccines dosed for every 1 confirmed case

This figure is rising nicely and likely surges in the coming weeks

Source: CD and Fundstrat


In total, about 107 million Americans have received at least 1 dose of a vaccine.  This is a good pace and as we noted previously, implies 50% of the population by May.  

Source: CDC and Fundstrat

POINT 3:Tracking “un-restricted” and “restriction-lifted” states

We are changing Point #3 to focus primarily on tracking the lifting of restrictions, as states begin to ease various mandates.  Keep in mind, easing/lifting restrictions can take multiple forms:

– easing indoor capacity
– opening theaters, gyms, salons, saloons
– eliminating capacity restrictions
– eliminating mask mandates

So there is a spectrum of approaches.  Our team is listing 3 tiers of states and these are shown below.  

– states that eased in 2020: AK, OK, MO, FL, TN
– states that eased start 2021 to now: SD, ND, NB, ID, MT, IA, NC, MS, SC, AZ, TX, MD
– states that announced future easing dates: GA, NY, WI, AR, CA, AL, CT


GROUP 1:  States that eased restrictions in 2020…
The daily case trends in these states is impressive and it is difficult to say that lifting restrictions has actually caused a new wave of cases.  Rather, the case trends in these states look like other states.

GROUP 2: States that eased restrictions in 2021 to now…
Similar to the list of states above, the daily case trends in these states are impressive and it is difficult to say that lifting restrictions has actually caused a new wave of cases.  

– we have previously written about how ND and SD, in particular, have seen an utter obliteration of COVID-19 cases in those states
– that seems to be a function of vaccine penetration + infection penetration, leading to something akin to “herd immunity”

GROUP 3: States that announced plans ease restrictions in 2021…
These states have upcoming dates to ease restrictions.  The dates are indicated on each chart.  The cases trends in these states have been mostly positive, with perhaps the exception of NY state:

– NY state case levels seem awfully stubborn at these high levels
– weather is improving in NY area, so if weather has any effect on virus transmission, it should slow cases