COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 "wall of worries" to avoid further downside...

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STRATEGY:  Headwinds for Technology might be reaching “break point” (to downside)
The FDA approved the Pfizer vaccine for use with kids age 12 to 15.  This move, while expected and not entirely surprising, still moves the ball forward in the fight against COVID-19.  

– in late March, Pfizer/BioNTech noted their study showed vaccine 100% effective for adolescents
– there are 17 million kids age 12 to age 15, or 6% of the population
– even younger Americans could get vaccinated by the Fall

Thus, by expanding vaccinations, the US addressable market for vaccine penetration has increased substantially

COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...


Source: https://www.cnbc.com/2021/05/10/pfizer-covid-vaccine-fda-clears-use-in-kids-ages-12-to-15.html


The trends in US COVID-19 cases remains positive and we expect US cases to fall sub-20,000 next week.  In fact, next Sunday, this figure could possible be sub-10,000.  But to appreciate the dwindling risks of COVID-19 across the US, take a look at the positivity rate:

– 7D positivity rate is 3.3%
– this is an all-time low since the start of the pandemic
– yup, it’s never been lower

That is great news.  But this does mean COVID-19 is somewhat prevalent.  After all, 1 in 33 tests (roughly) is a positive PCR test.  It will be a bigger milestone when this falls to 1% or less.

COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...





STRATEGY: Technology/Growth need favorable outcomes on 5 of 5 “wall of worries” to avoid further downside…
We are only 10 days into May, and it has already proven to be violent month for stocks:

– S&P 500        flat
– Technology   -3%
– FANG           -6%
– Healthcare    -3%

But..
– Energy         +9%
– Materials      +5%
– Financials    +4%
– Industrials    +3%

So it is evidently a “violent rotation” into Epicenter stocks.  As our clients know, for the past year, we warned that a rotation out of Growth into Epicenter would be necessarily “violent” because the backdrop to support Growth is nearly the diametric opposite of Epicenter. 

– Technology stocks have been “laboring” for some time and we have repeatedly commented on how crowded Growth/Tech remains
– Hence, when the market was convinced of a full re-opening, the rotation into Epicenter would be violent

This is creating anxiety, we understand, but we still see equities still making gains overall in May.  

COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...




Essentially, Growth need favorable outcomes on 5 of 5 “wall of worries” to avoid further downside…
…Epicenter only needs a favorable outcome on 1 of 5 to “work”

Based on our conversations with investors over the past few weeks, the “wall of worry” has grown considerably.  And among this wall of worry, a few items trigger a “rotation” into Epicenter.  These toggles are what seem to be reaching the break point, and could trigger further downside.

In fact, these are almost binary events –> an outcome favors one or the other

                                            Impact on….
                                            Growth       Epicenter

–  Inflation fears                   bad             good
–  Interest rates higher         bad             good
–  White House regulates    bad             good
–  US economy re-opens    bad             good
–  Cap gains increase         bad             good


In simple terms, the outcome of these 5 events shifts the balance in favor of one group or the other.  But here is the difference,

– Because “consensus” is Growth, Tech/Growth needs almost all of the them to come out in their favor. 
– Epicenter only needs a few things to go right, because this is “underowned”

You might wonder why “capital gains” favor Epicenter — where are all the capital gains for the past 1, 2 and 3 years?  FANG, Technology, etc.  Thus, those are the groups that would likely be sold. 

– estimated LT capital gains Growth        $10T (30 months)
– estimated LT capital gains Epicenter      $3T (30 months)

Above are the estimated capital gains (30 month) as calculated by “tireless Ken” — so, there would likely be far greater selling in FANG/Growth than in Epicenter, if tax rates were to increase.



How much downside on Technology?  Possibly to the 200D, or 7% further downside
The future is uncertain, so our commentary needs to be viewed from that context.  Last week, we did downgrade Technology (to Neutral) but this is because we are more constructive on Epicenter.  But the question is how much downside do we see?

– a natural place for Technology downside is the 200D moving average
– for QQQ, this is 300, versus 326 now
– roughly 7% downside

If this does happen, there will be a panic out of Growth stocks.  And in fact, the “crash up in Cyclicals” predicted by Nomura’s quant team might come to pass.

COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...




…Technology is 39% of the S&P 500, and we recommend at 19% weight

How much do we want investors to reduce their Technology exposure?  We have done some illustrative figures below, and these are only appropriate for institutional managers with full sector discretion.  Obviously, those tracking benchmarks cannot make these extreme moves:

Of S&P 500:
– Technology + FANG      39%  
– Tom Lee recommends  19% 
– Or underweight by       -19%

– Epicenter (market)        33%
– Tom Lee recommends  52% 
– Or overweight by       +19%

In simple terms, we are saying to cut Technology holdings in half and allocate this to Epicenter sectors.  This is not the same recommendation as our Head of Global Portfolio Strategy, Brian Rauscher.  His views are much more systematically derived.  

– I am only giving you what I see as the urgency of our message

COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...




…Small-cap selloff is likely nearing key support –> watch IWM $215, if bounces, move to “all-time highs” likely 
Small-cap stocks, using the IWM ETF as a proxy, in our view, remains an important Epicenter proxy.  Russell 2000, IWM, has been a terrible performer in May.  Unlike large-cap Epicenter, IWM is down 2%, with all of that happening Monday.

We are watching $215 on IWM carefully.  Below is the 30-minute chart, with DeMark combo v1b counts indicated:

– still in a downtrend that needs either a sequential 9 (green) or combo 13 (purple)
– not there yet
– $215 is a key support level from late April
– could coincide with a ‘9’ or ’13’
– 14 period RSI is oversold and thus, if ‘9’ or ’13’ emerges, this is a great setup

So, I am not giving up on small-caps.  But recall that small-caps trade closely to emerging markets.  And the turmoil in India will disproportionately impact EM.  And small-caps are likely as seen having greater risk to employee hiring shortages and economic sensitivity.  So the questions swirling the economy hurt IWM more than large-caps. 

– we are watching $215 and that is where we expect a reversal, or an attempt at one, to take place
– this expect rally would be consistent with our constructive stance on Epicenter

COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...








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 32,404, -11,334 vs 7D ago… 7D delta accelerate to the downside…

_____________________________

Current Trends — COVID-19 cases: 
– Daily cases    32,404 vs 43,738 7D ago, down -11,334
– 7D positivity rate   3.3% vs 3.9% 7D ago
– Hospitalized patients   31,023  down -11.4% vs 7D ago
– Daily deaths    643,  down 3.7% vs 7D ago
_____________________________



– The latest COVID-19 daily cases came in at 32,404, down -11,334 vs 7D ago.

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

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



COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...






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.
  

COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...








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.

COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...





 
Michigan daily cases have been down nearly 70% from its peak…
We have been closely tracking the daily cases trend in Michigan as it is the “epicenter” of the recent mini wave. As the chart shown below, Michigan daily new cases have fallen nearly 70% from its peak in early April. Currently, 44.6% of Michigan population has received at least one dose of vaccines and 36.3% of it has been fully vaccinated. With that, we believe the daily cases of Michigan will continue to fall.


COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...





COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...



 
 

COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...




POINT 2: VACCINE: all states reached ~60% infected + vaccinated… Over one-third of Americans have been fully vaccinated…
_____________________________

Current Trends — Vaccinations: 
Vaccinations ramping steadily
– avg 2.1 million this past week vs 2.3 million last week
– overall, 34.6% fully vaccinated, 45.7% 1-dose+ received
_____________________________



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

COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...


All states have reached 60% combined vaccination + infection. Besides, 95.0% 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.

COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...





There were a total of 2,352,831 doses administered on Monday, up 59% from 7D ago. The rollout of the vaccination seems to speed up again. As we wrote before, the number of vaccines administered per day had been slowing down since the pause of JNJ vaccines. Four weeks after CDC and FDA lifted the recommended pause of JNJ vaccines, we finally start to see the pace of vaccination turning up (evidenced by the blue 7D moving average line). Although current number of vaccines administered per day is still ~40% lower than its peak, this a good sign along with the falling daily cases across US.

COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...



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 52.6%. 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 49.2% of them have seen 1 dose penetration > 45%.
– 87.4% of the US has at least 30% of its residents fully vaccinated, However, only 52.6% 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.


COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...






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

COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...




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


COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...









In total, about 152 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.  

COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...









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.

COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...



COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...






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”


COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...



COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...






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

COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...



COVID-19 UPDATE: Technology/Growth need favorable outcomes on 5 of 5 wall of worries to avoid further downside...





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