Investors got pretty cautious over last 4-6 weeks, and rally of past few days doesn't negate it

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STRATEGY: Investors got pretty cautious over the last 4-6 weeks, and the rally of the past few days doesn’t negate it

Sweden and Norway ending all COVID-19 restrictions –> Norway Health chief now compares COVID-19 to flu
The most interesting COVID-19 headlines over the weekend, in our view, is that Norway ended all COVID-19 restrictions on Saturday (9/25), following Sweden, which announced such plans earlier in September.

– interestingly, Norway’s health chief, Geir Bukholm, said:
– “We are now in a new phase where we must look at the coronavirus as one of several respiratory diseases with seasonal variation”
– in other words, he is comparing COVID-19 now as similar to the flu
– 67% of residents are fully vaccinated, so the nation has something akin to herd immunity

Cases in both Sweden and Norway have been in a promising trend, and this is in the face of the Delta variant. Thus, the decisions are coming at a time when COVID-19 is generally retreating there.

…USA COVID-19 cases are falling harder over past few days, -27,521 vs 7D ago
Case trends are showing a sharp and accelerating improvement. Sundays are usually the low water mark for the week, and we can see daily cases were down sharply vs same day a week ago. And the 7D trend is more illustrative of this:

– 7D delta is -27,521 and showing signs of further improving in the past few days

…Composite models suggest the USA may not see Fall COVID-19 surge (flu season)
But many will ask, things might be good now, but won’t this all get worse again in the next few months?

As we approach the upcoming flu season, many are naturally concerned about a renewed wave in COVID-19, triggered by the combination of flu season and by a potential variant. To this extent, if this is “priced into the market” is not entirely clear to me. But, this potential risk is brought up frequently clients. A research consortium, called COVID-19 Scenario Modeling Hub, has updated their composite forecasts. It is based on a consensus of 10 forecasters. The Business Insider article below has written on this latest forecast from this group:

– the group forecasts COVID-19 cases to actually decline from here, and fall to as low as 9,000 by March 2022.

The consortium has 4 scenarios, as outlined below. The scenarios are a combination of two factors:

– childhood vaccination YES or NO
– new variant emerges YES or NO

As shown below, the 4 scenarios all show that we are already past the worst of COVID-19 cases:

– best case is childhood vax YES and variant NO, not surprising
– but even worst case of childhood vax NO and variant YES, sees the next wave weaker than Delta wave 4

…if consortium is correct, the US should be following Sweden and Norway and removing all remaining restrictions
Thus, if this forecast composite is correct, the worst is behind the US. From a policy perspective, this suggests that perhaps the US should be following the policy path of Sweden and Norway. That is, remove all remaining COVID-19 restrictions.

– of course, the future is uncertain

FYI, the IHME, actually forecasts a slight surge in cases post-October 17th (see below). But:

– this wave falls short of the Delta wave 4
– IHME state-level forecast shows FL still sinking
– but surge in IHME model is northern states, like NY

STRATEGY: Investors got pretty cautious over the last 4-6 weeks, and the rally of the past few days doesn’t negate it
I had many conversations with institutional investors over the past week, the intensity of selling triggered many clients to “check in” with us. And the collective picture, in my view, is that the quantity (not necessarily quality) of risks had risen considerably and that it was forcing investors to reduce their exposure.

– Delta wave
– China increasingly hostile actions
– Fed tapering
– Evergrande debt default
– US debt ceiling
– US govt shutdown prospects
– Afghanistan
– US border crisis
– Peak everything
– Supply chain issues worsening
– “inflation everywhere”
– Demand risk given Nike results

The list goes on and on. And it was evident this combination of factors was causing a serious deterioration in retail investor sentiment. I mean, check out the mass liquidations by retail since July. Wow.

EPICENTER: Not a single Epicenter sector is back to 2019 levels (vs S&P 500)
Not a single Epicenter sector has re-attained its 2019 levels (relative to the S&P 500). Does that make sense?

– not a single sector has re-attained its relative standing
– the Epicenter sectors peaked in June 2021 and have since tanked

– the tanking coincides with the Delta variant surge

Sure, since June 2021, investors are generally a lot more skeptical. There is the whole “peak everything” and “inflation” and “new variants” and these arguments are keeping investors skeptical of cyclical stocks. But to us, this could also be viewed as a typical over-reaction.

– after all, we know many of these epicenter companies have drastically improved their cost structure
– coupled with demand surprise

= major profit upside

So we think the key is signs of pent-up demand.

KEY IS PENT-UP DEMAND: as Delta recedes, demand for travel is bouncing back = strong case for pent-up demand
This pent-up demand is already showing up again. Take a look at the credit card data from JPMorgan Chase. As shown below, there is signs of an upturn:

– as COVID-19 cases wane (Delta-variant surge ending)
– airline spend is ticking up sharply
– restaurant spending boosting as well

So, it is clear that US consumers went into retreat due to the recent surge in cases. This is more akin to pent-up demand. That is, this is not “peak growth” but “scared people staying home.”

…Cruise lines sailing from Port of Los Angeles
This is another good sign. Carnival is launching a cruise from Port of Los Angeles. This was the very ship that was stranded offshore during the early days of COVID-19.

– difference now is all passengers need to be vaxxed
– this is full circle and another sign of return to normalcy

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26 Granny Shot Ideas:
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 19,785, down -22,940 vs 7D ago…
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Current Trends — COVID-19 cases:
– Daily cases 19,785 vs 42,725 7D ago, down -22,940
– Daily cases ex-FL&NE 19,785 vs 33,393 7D ago, down -13,608
– 7D positivity rate 6.9% vs 7.4% 7D ago
– Hospitalized patients 76,817, down -10.0% vs 7D ago
– Daily deaths 1,836, down -17.1% 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 19,785, down -22,940. The 7D delta appears to be accelerating to the downside suggesting that cases are currently rolling over.

At the individual state level, we’ve recently been at the critical stage of case rollover. 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 is negative…
As shown in the chart below, the rolling 7D delta in daily cases remains negative and is accelerating to the downside. 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

Hospitalization continues rising, while positivity rate has plateaued… Daily deaths also start to surge now…
Below we show the aggregate number of patients hospitalized due to COVID, daily mortality associated with COVID, and the daily positivity rate for COVID.

– Hospitalization has exceeded the peak level we’ve seen in Wave 1 and 2 in 2020 and continues surging.
– With the increasing number of daily tests, positivity rate has plateaued over the past week. As daily cases have already start to roll over in some states, the positivity rate could roll over soon.
– Daily deaths have been surging recently, but less “dramatic” than the cases or hospitalization trends. Currently, daily death has surpassed the peak we have seen in Wave 2.

POINT 2: VACCINE: vaccination pace has been steadily rising…
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Current Trends — Vaccinations:
– avg 0.6 million this past week vs 0.8 million last week
– overall, 54.9% fully vaccinated, 63.7% 1-dose+ received
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Vaccination frontier update –> all states now near or above 95% combined penetration (vaccines + infections)
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 90% combined penetration
– RI, MA, FL, CT, SD, NJ, IL, NY, DE, NM, UT, PA, ND, NV, KY, ND, CO, KS, TN, OK, WI, SC, AZ, MN, CA, NE, LA, DC, MT, AK, MD, ID, VI, AR, AL, MS, and NC 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. 90.5% 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 732,599 doses administered reported on Monday, up 10% vs. 7D ago. As more people are getting vaccinated, the vaccination trend is beginning to decrease. Nonetheless, we believe many catalysts could continue to push the vaccination pace higher.

– 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.

57.1% 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 89.5%. And only 78.2% 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 97.8% of US states have seen 1 dose penetration > 50%, 80.2% of them have seen 1 dose penetration > 55% and 57.1% 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 ~7 for the past few days
– this means 6 vaccines dosed for every 1 confirmed case

In total, 392 million vaccine doses have been administered across the country. Specifically, 211 million Americans (64% of US population) have received at least 1 dose of the vaccine. And 181 million Americans (55% 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.