COVID-19 UPDATE: Yikes. US daily cases fall to 22,751 (29,780 7D ago) on Sunday. Last week's "breakout" a reminder US stocks have a capacity to positively surprise

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: Last week’s “breakout” a reminder US stocks still have capacity to a positively surprise
The news continues to be very positive on US COVID-19 trends. The latest COVID-19 daily cases came in at 22,751, down -7,029 vs 7D ago and could be sub-20,000 before month end.

– vaccine penetration growing = cumulative benefit
– seasonally weather improving = helps

The collapse in US COVID-19 cases is evident in the 7D delta chart below and you can see the sustained fall in US cases since early April. This is around the time US vaccine penetration hit 40%, which proved to be a key threshold in Israel. In Israel, that nation saw a leg down in cases following 40%.

Vaccination efforts are stabilizing at 2 million per day, or 14 million Americans per week.

– This is 4% incrementally per week
– 34% of Americans have 2 doses, 45% 1 dose
– By June, this should be 54% 2 doses and 65% 1 dose
– The is about “par” with Israel, and Israel has like almost non-existent cases at this point.

Broader issues –> Colonial Pipeline + Elon Musk
This is subjective, but the two notable events over the weekend, were:

– the cyberattack on the Colonial Pipeline and
– and secondarily Billionaire and businessman Elon Musk on SNL

The cyberattack shutdown the largest US pipeline, with >5,500 miles and supplying nearly half of the fuel for the East Coast. So it is a sizable portion of infrastructure. There are mostly short term impacts, but we believe there is one longer term implication:

– short term, gasoline/oil prices might spike/volatile, but this impact is transitory
– could create short term distortions as gasoline surges would impact consumer wallets

– longer term, this raises the question whether US policy of wanting to financially “starve” oil and energy infrastructure is misguided.
– supply and stability of US oil supply is weakening given the White House anti-fossil stance and financial markets are hostile to Energy
– last week, we highlighted the Rystad report that showed US production is set to fall >3mbpd in 2022 and beyond

So this cyberattack could be a “call to action” to beef up US infrastructure.

Source: https://www.cnbc.com/2021/05/09/pipeline-hack-all-hands-on-deck-to-avert-disruptions-commerce-secretary-says.html

Elon Musk’s appearance is unique because he is one of only a handful of “business owners” who hosted — Donald Trump, George Steinbrenner and Steve Forbes — but Musk’s appearance speak to the mainstream interest in many of things associated with Elon Musk:

– “stonks”
– “Dogecoin” + bitcoin
– convergence of investment + entertainment

In fact, I believe this is the first time ever that SNL actually broadcast this simultaneously on the internet for the global audience.

…India –> only 1 region of 10 largest, Tamil Nadu, is seeing cases rise
India continues to face a healthcare and economic catastrophe due to the surge in COVID-19 cases. Based on the latest data, as pulled together by our data science team (led by tireless Ken), it looks like 9 of the 10 largest regions in India are seeing COVID-19 flat/rolling over:

– 9 of 10 biggest regions seeing COVID-19 flat/rolling
– only Tamil Nadu still rising, and driving higher overall cases
– if most regions are seeing case levels plateau/fall, the “tail risks” to the healthcare and economy declining

The impact and risk of India to US financial risk is probably also diminishing as well. While we do not want to minimize the healthcare tragedy, we think the US financial markets are less wary of those risks. In other words, this is one less major risk. And similar to the “CDC call for 5th wave in May 2021” fear surge, India’s downside risk to US markets is likely diminishing. Again, I want to reiterate that India remains a healthcare catastrophe and we hope the situation improves.

As marked below by tireless Ken, there is now only 1 (of the 10 largest regions) with rising cases.

– Karnataka was seeing “surging cases” last week, but now is flattening

STRATEGY: Last week’s “breakout” is a reminder that US stocks still have quite a capacity to a positively surprise
Last week, in my view, is a reminder how US equities still have the capacity to a positively surprise. Early last week, equities suffered a “hammer blow” and many viewed this as a sign of a “top,” but this was actually a pullback to “touch” support.

I think the belief to return to normal is still not as widely held as it should be. So many people seem convinced that this economic recovery/equity gains will falter as:

– we hit a wall due to inflation forcing Fed to panic
– many pandemic-holdouts think world changed with COVID-19 and there is no “normal”

And everyone was talking markets topping (until Friday surge). In fact, we did some zooms recently with technology investors and many were strongly of the view the “stay at home” trade would come roaring back. And many seemed sort of “hopeful” that new CDC forecast of a Summer surge would happen. It was a reminder to me that many of our clients are “uncomfortably” to long technology/hypergrowth/Growth stocks.

Market leadership continues to be “Epicenter” and weakening in Growth, especially Technology…
YTD, the outperformance of Epicenter (aka Cyclicals) vs Growth is stark and becoming even more bifurcated. Take a look below:

– Epicenter stocks re-ignited this week, led by Energy
– Energy is outperforming the S&P 500 already by 2,600bp
– Our clients know we see far greater upside in Energy as well

– Growth is weakening, Technology got hit hard last week
– Technology is underperforming by 500bp YTD

Our top 3 sectors for 2H2021 reflect “first order” Epicenter winners
In case you missed our webinar last week, we made some Sector changes as highlighted below:

– Top 3 now: Energy, Materials and Financials
– Top 3 in Dec 2020 was: Industrials, Discretionary and Energy

The change is to reflect our view that “shortages” are now appearing in first order companies:
– move supply chains to America
– commodities
– all this requires “capital” = Financials

We also downgraded Technology to Neutral, and FANG to Underweight. We think some of the “growth” money will rotate into Consumer Staples, hence, our upgrade from Underweight to Neutral.

This is a summary of our webinar, so please tune into the replay for a more detailed rationale and explanation.

Our 5 themes for 2021 are the same and described below. These are the basis for our thematic overlays (Granny Shots) and the general framework when we look at incoming economic data and financial market movements:

– supply chain moving back to USA –> the semiconductor shortage is best example of this urgency
– de-urbanization –> look at homebuilders…wow!
– work from home –> this favors home furnishings, etc
– buy USA –> small-caps, etc
– violence in America –> anti-Asian crime surge is latest. Helps Bitcoin and defensive tools

…we see S&P 500 4,400 by mid-year and then a possible drawdown (~50% chance)
In our webinar, we also believe the S&P 500 has a reasonable chance of revisiting the 200D moving average, or ~3,700. A rough roadmap is below, but this is only potential roadmap. We think the S&P 500 could avoid a 200D touch:

– Drawdown would likely be “Growth led” as this is the crowded trade
– Growth is 66% of market weight

– But YTD, already 3 “drawdowns”
– Reddit Massacre/GME drove record HF degrossing
– Small-caps/Nasdaq crumbled on interest rate panic in Feb
– Massive unwind by 6 prime brokers drove de-risking and VIX surge

So in many ways, equities have already seen sizable shocks. So, I would give the risk of a move to the 200D in 2021 at ~50%. But we first see a move to 4,400.

TECHNOLOGY: Supply-chain related Technology companies are outperforming
While we are Neutral on Technology, parts of Technology are linked to two key themes:

– global re-opening –> cyclical technology
– supply chain moves to USA –> look at semicap equipment and EMS (contract manufacturing)

As shown below, these groups have been outperforming Technology YTD and are above their 200D. But Technology itself is crowded and many parts of simply crowded trades (see the “negative icons” marked below).

ENERGY: Oilfield Services is the most attractive, in our view
So far this year, we have commented on Energy in 60 of our daily notes, or 40% of our comments (thanks tireless Ken), so this is the sector we see having the most urgent upside. For much of the year, institutions largely ignored the group, for several reasons:

– sector too small at 3% –> more important to get AAPL right (bigger weight)
– not ESG friendly –> but Energy cos are pivoting big time to ESG
– “nobody cares” –> Energy was so bad for last 12 years, nobody cares

But in the past week, we are seeing the first signs of institutional interest in these stocks. And this would be a very good sign, because inflows could be a sizable tailwind. And we have highlighted how Energy stocks have trailed the move in oil, so there is already sizable upside.

Energy is broadly outperforming the S&P 500 YTD. And as shown on the leftmost chart, the outperformance is reaching a key level:

– a few weeks ago, we commented that Energy/S&P 500 relative triggered a ’13’ combo “buy signal” on DeMark
– now it looks like Energy is potentially completing a ‘inverted head and shoulders’ — if so, we could see a further surge in XLE-0.30%

– within Energy, the most attractive groups are:
– E&Ps
– Equipment & Services
– Refiners –> the cyber attack might cause near-term volatility but not structural

The best proxy for the “most attractive” groups it the Oilfield Services ETF, OIH (by VanEck). That chart is highlighted in the bottom right.

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

Trifecta Epicenter (*):
Full stock list here –> Click here

Power Epicenter Trifecta 35 (*):
Full stock list here –> Click here

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

(*) 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.

POINT 1: Daily COVID-19 cases 22,751, -29,780 vs 7D ago… 7D delta start to accelerate to the downside again…

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Current Trends — COVID-19 cases:
– Daily cases 22,751 vs 29,780 7D ago, down -7,029
– 7D positivity rate 3.4% vs 3.9% 7D ago
– Hospitalized patients 32,011 down -9.5% vs 7D ago
– Daily deaths 650, down 3.6% vs 7D ago
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– The latest COVID-19 daily cases came in at 22,751, down -7,029 vs 7D ago. Based on current speed of case decline, we could see daily cases to fall below 20k next week.

– The US continues to see a steady decline in daily cases. The 7D delta has been negative in the past 3 weeks. In the past few days, the 7D delta has been accelerating to the downside again. If this speed of decline persists, we could see the daily cases drop sub-20k by mid-May.

– As we wrote before, at this stage of pandemic, as long as vaccinations work, eventually the rollout of the vaccines will lead to a decline in the pervasiveness of the COVID pandemic. And according to the recent data, this decline seems to finally arrive.

7D delta in daily cases has turned negative in the past 3 weeks...
The US continues to see a steady decline in daily cases. The 7D delta has been negative in the past 3 weeks. In the past few days, the 7D delta has been accelerating to the downside again. If this speed of decline persists, we could see the daily cases drop sub-20k by mid-May.

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. After a mini-surge in March, the number of patients currently hospitalized starts to roll over again. Compared to the wave 3 peak, it has fallen significantly.

POINT 2: VACCINE: all states reached ~60% infected + vaccinated… Over one-third of Americans have been fully vaccinated…
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Current Trends — Vaccinations:
Vaccinations ramping steadily
– avg 2.0 million this past week vs 2.4 million last week
– overall, 34.2% fully vaccinated, 45.5% 1-dose+ received
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Vaccination frontier update –> all 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, all states are at this level
– RI, SD, MA, ND, CT, NJ, DE, NY, IL and NM are now above 90% combined penetration (vaccines + infections)
– So gradually, the US is getting to that threshold of presumable herd immunity

All states have reached 60% combined vaccination + infection. Besides, 92.7% of US states (based on state population) have seen combined infection and vaccination >70% and 65.2% of US states have seen combined infection and vaccination >80%. As the chart below highlights, the US is seeing steady forward progress and this figure continues to rise steadily.

There were a total of 2,352,831 doses administered on Sunday, up 12% from 7D ago. The 7D moving average has been trending downward since mid-April. It could be caused by the pause of JNJ vaccines or/and the vaccine hesitancy resulted from the JNJ vaccines. As both CDC and FDA lifted the recommended pause of JNJ vaccines, the vaccination pace could re-accelerate again in the near future.

96.0% of the US has seen 1-dose penetration >35%…
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 30%/35%/40% of its residents fully vaccinated, displayed as the orange line on the chart. Currently, 87.4% of US states have seen 30% of their residents fully vaccinated. However, when looking at the percentage of the US with at least 35% of its residents fully vaccinated, this figure is 39.6%. And only 7.8% of US (by state population) have seen 40% of its residents fully vaccinated.

– While 96.0% of US states have seen vaccine penetration >35%, 73.4% of them have seen 1 dose penetration >40% and 48.6% of them have seen 1 dose penetration > 45%.
– 87.4% of the US has at least 30% of its residents fully vaccinated, However, only 39.6% of US has fully vaccinated >35% and 7.8% of US has fully vaccinated >40%.
– This is still a small figure but this figure is rising sharply now.

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

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

In total, about 151 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 mid-May.

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 have eased all 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 are still easing 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