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: Moving into 2Q2021, leadership intact = Small-caps + Energy + Epicenter
The daily confirmed case figures for COVID-19 have stalled in the past few weeks, stabilizing ~50k-60k per day. Taking a step back, today, vaccinations might matter more than daily case trends. Why? Take a look below:
– Daily vaccinations are 45X daily confirmed cases
– Hence, for every confirmed case, there are now 45 Americans vaccinated
– As long as vaccinations work (which evidence suggest this), trends in vaccinations > daily case trends
In other words, vaccinations are a leading indicator.
– vaccinations create cumulative benefit (penetration)
– vaccinations take 30 days to be fully effective (takes time)
Thus, as long as the US has this prodigious ratio of vaccinations to cases, this is pointing to a future decline in the pervasiveness of the COVID-19 pandemic. In addition, we continue to believe the combined ratio of vaccinations + recovered infected is informative in understanding a community’s potential herd immunity.
– Daily cases came in at ~37,000 but 7 states did not report (Easter Sunday). So I would not give it much weight.
Source: Fundstrat, CDC and state healthcare websites
In fact, the best evidence that US COVID-19 progress is improving is recent actions taken by policy makers. Take a look at the news over the weekend:
– CA is easing restrictions on outdoor concerts, sports and theme parts starting April 1st.
– CDC says fully vaccinated people can resume travel at ‘low risk’
The California announcement is particularly salient. After all, this state is among the most restrictive and conservative regarding resident mobility. And to open these venues is a major step.
Source: https://www.gov.ca.gov/2021/04/01/as-california-expands-covid-19-vaccine-eligibility-to-all-californians-50-governor-newsom-receives-vaccine-in-los-angeles/
And the CDC on Friday said that fully vaccinated Americans can travel at low risk. Again, this is an impressive incremental step forward. More than 30% of US adults have received at least one dose and within 30 days, this will likely be >40%. Thus, as we move forward, the percentage of Americans that this CDC guideline applies to will continue to rise in the next few months. Again, incremental progress.
https://www.cnbc.com/2021/04/02/fully-vaccinated-people-can-resume-travel-at-low-risk-cdc-says.html?__source=iosappshare%7Ccom.slack.slackmdm.share
STRATEGY: Conditions in place for a significant rally to continue into April
Last week, we posited that a significant rally would start Wednesday morning (last week) and if such a rally happened, this would continue into April. With the strong March jobs report (which came out Friday, when markets were closed), we believe conditions are in place for this to continue. We realize 1Q2021 was a choppy quarter for markets (except for Epicenter stocks which rallied nicely).
And I thought it would make sense to do a status check of key factors now compared to the start of 2021:
1. Economic outlook is stronger vs start of year. March jobs report 916k latest example
2. The vaccine rollout ahead of consensus and White House targets with nearly 3.0 million per day now
3. Equity markets endured 3 “market extinction” events, but these only proved to be rolling corrections, no lasting damage.
4. Institutional investors are even more cautious now. Institutional cash balances now $3.0T vs $2.764T at start of year, or 9% higher (+$241 billon).
On that last point. Wow. That is a dramatic increase.
Pretty shocking rise in institutional money market cash balances = investors not bullish…
The weekly increase in institutional money market cash is shown below (past 6M) and you can see the parabolic rise in the last two weeks. In other words, in the second half of March 2021, institutions got quite cautious.
– total institutional money market cash is $3.0T now, the highest since June 2020
– retail money market cash is $1.5T
Total cash on sidelines is $4.5T = tons and tons of firepower on the sidelines. This bodes well for April equity gains.
Leadership intact, led by Small-caps and Energy and Epicenter
As we look into 2Q2021 leadership, we believe the leadership of 1Q2021 will continue. In this case, this means leadership of:
– small-caps (Russell 2000) which is the best performing major index
– Energy, up 31% in 1Q2021
– Epicenter stocks aka Cyclicals
…only 7 prior times a major sector rose 30% in 1Q of a calendar year…
Energy stands out because the sector rose a meteoric 31% in 1Q2021. In speaking with our clients, many are viewing the move in Energy as a “dead cat bounce” or a fluke. And thus, do not see the potential for follow through the rest of the year. History actually says otherwise.
Since 1928, there have only been 7 instances of a major sector rising 30% in a quarter (we exclude REITs which did not exist prior to 2000 and was a volatile real estate sector).
– 7 of 7 times, the sector continued to outperform April 1 to YE
– average further gain was 12%
– most of the time, the sector continues to be top quartile of sectors
In other words, history says a 30% move is extremely unusual. And such a move tends to signal further gains into the rest of the year.
2Q2021 set-up seems to favor economic re-opening = small-caps + Energy + Epicenter stocks
But more broadly, we think the fundamental backdrop remains supportive of overweighting cyclical stocks. Recall that Cyclicals are only 33% of the S&P 500 overall weight and more than 60% of the Russell 2000 index. So if Cyclicals aka Epicenter work, small-cap stocks will outperform. But here are the conditions to consider:
– Economic momentum is strengthening
– Pent-up consumer demand + liquid consumer bank accounts
– 1Q2021 earnings season starts soon and we expect a lot of positive visibility commentary
– Cyclicals have proven to be prodigious cost cutters during downturns and this cycle could be amplified operating leverage
– Our work shows that EBIT for Cyclicals could be 117% above 2019 levels by 2022
– Wow (reaction to above)
– Cyclicals are least consensus among the buyside
So you can see, that the case for Cyclicals is fundamentally attractive and has the most capacity to positively surprise.
…DeMark charts are showing uptrends underway in Small-caps and Energy…
Additionally, the technical picture, as evidenced by DeMark charts, has turned positive for small-caps and for Energy.
If S&P 500 Energy sector (ETF proxy is XLE) clears $50.50 (currently $50.31), a move to $53.24 could happen within a few weeks. This is a 6% rise and a strong continuation of the 31% gains seen in 1Q2021.
Source: Bloomberg and Fundstrat and DeMark Analytics
The oilfield services sector (ETF proxy OIH) is also in a new uptrend as well. And the DeMark implied target (combo count v1b) is $216, or +10%. In other words, if one is looking for the greatest upside within the Energy sector over the next few weeks, OIH, is where the strongest upside seems to exist.
Source: Bloomberg and Fundstrat and DeMark Analytics
And IWM, the ETF for the Russell 2000, has commenced a new uptrend. And the near-term target is the prior all-time highs of $237.40. This is 6% upside.
Source: Bloomberg and Fundstrat and DeMark Analytics
Keep in mind, these are simply illustrations of the technicals and not a guarantee. But as those charts show, these ETFs seem to have positive risk/reward to revisit substantial upside and soon all-time new highs.
STRATEGY: 25 “Power Epicenter Trifecta” stock ideas (*)
We are introducing a “Power Epicenter Trifecta” stock list. This is designed to identify the strongest stocks within our “Trifecta” epicenter stock list. We essentially added a “power” rating to the stocks in the trifecta list to find stocks with the strongest price appreciation potential. Thus, the criteria for the “Power Epicenter Trifecta” is:
Positive views (i) Quant (tireless Ken),
(ii) Global Portfolio Strategy (Brian Rauscher, aka Rocky) and
(iii) Technicals.
Plus strong “power” rating:
(i) trailing 1M return > 12M return
(ii) outperformed S&P 500 past 6M
(iii) price > 20D MAVG
(iv) price > 50D MAVG
Consumer Discretionary:
RL, NCLH, RCL
Financials:
PBCT, NYCB
Industrials:
NVT, DAL, KEX
Energy:
XOM, HP, NOV, SLB, COP, EOG, MRO, MUR, HFC, PSX
Real Estate:
BXP, HIW, UDR, KIM, WRI, VNO, JBGS
Source: Fundstrat, Bloomberg
(*) the 25 “Power Epicenter Trifecta” stock ideas are the subset of the original 121 “Epicenter Trifecta” stock list. For the full list of our original “Epicenter Trifecta” stock list, please click the link below. Please note that the stocks rated OW on this list meet the requirements of our investment theme as of the publication date. We do not monitor this list day by day. A stock taken off this list means it no longer meets our investment criteria, but not necessarily that it is neutral rated or should be sold. Please consult your financial advisor to discuss your risk tolerance and other factors that characterize your unique investment profile.
For the full list of the 121 “Epicenter Trifecta” stock ideas, please Click Here.
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 37,238, -6,790 vs 7D ago…
_____________________________
Current Trends — COVID-19 cases:
– Daily cases 37,238 vs 44,028 7D ago, down -6,790
– 7D positivity rate 4.8% vs 4.8% 7D ago
– Hospitalized patients 36,362 up +3.5% vs 7D ago
– Daily deaths 643, down -34.7% vs 7D ago
_____________________________
– The latest COVID-19 daily cases came in at 37,238, down -6,790 vs 7D ago.
– 7D delta in daily cases turned negative last Friday and yesterday. However, it was primarily because in observance of the holidays, several states were not reporting/updating their COVID dashboard.
– On Sunday, 7 states were not reporting: MN, LA, KY, OH, SC, SD, MA
Source: Fundstrat and state health departments
7D delta in daily cases is distorted by the holidays…
7D delta in daily cases turned negative last Friday and yesterday. However, it was primarily because in observance of the holidays, several states were not reporting/updating their COVID dashboard. On Sunday, 7 states were not reporting: MN, LA, KY, OH, SC, SD, MA
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 (+4 from Thursday) near ~60% infected + vaccinated…
_____________________________
Current Trends — Vaccinations:
Vaccinations ramping steadily
– avg 3.1 million this past week vs 2.7 million last week
– overall, 18.4% fully vaccinated, 31.8% 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 3,350,925 doses administered on Sunday, up 2.5% from 7D ago. The pace overall is steadily rising, as evidenced by the 7D moving average (see blue line).
Source: CDC and Fundstrat
~72.3% 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 10%/15%/20% 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 23.9%. And only New Mexico has seen 25% of its residents fully vaccinated – 0.6% of US population.
– While almost all US states have seen vaccine penetration >25%, 72.3% of them have seen 1 dose penetration >30% and only 8.3% of them have seen 1 dose penetration > 35%.
– Almost all of the US has at least 15% of its residents fully vaccinated, However, only 23.9% 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 105 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 changed 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
