Omicron is an anagram (read below) and likely to turn Black Friday to Green Cyber Monday

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Friday

STRATEGY: Omicron is an anagram (read below) and likely to turn Black Friday to Green Cyber Monday

New meaning to “Black Friday” –> Panic around Omicron-variant hit on one of the least “liquid market” days
On Friday, equities around the world sold off sharply, on the heels of market panic around the newly termed Omicron-variant of COVID. As has been the case for the past 18 months, financial markets have reacted to incoming COVID-19 developments via “fire, ready, aim” — meaning, markets often assess the situation once “risk-off” is achieved.

– since making new highs on Nov 22, the S&P 500 is now off 3.3% from those highs
– this is consistent with the base case by Fundstrat’s Head of Technical Strategy, Mark Newton (learn more)
– Newton has called for a 3-5% sell-off in late November, bottoming before 12/4/2021
– and a subsequent fierce rally in December

The S&P 500 is off 3.3%, which is within the “3 to 5%” window. For multiple reasons discussed in this note, we would be aggressive buyers of this pullback. As with the case for Beta and Delta variants, the “bark” has proven worse than the bite in each of those precedent instances.

– the market carnage, in our view, will be short-lived and transitory
– the future is uncertain, but the probabilities favor a V-shaped rebound, starting this week

The WHO yesterday declared the Omicron variant of concern. This comes after an eruption of policymaker reactions to the Omicron variant on Friday. This variant has several mutations that could make it more transmissible and possibly evade, to an extent, vaccinations and even prior immunity. There is no clinical information that validates whether this variant is more transmissible. Nor is there any evidence yet that this variant is more deadly.

– but as this FT graphic shows, policymakers fear a new wave of cases triggered by this dominant variant

Is Omicron an anagram?
Globally, policymakers panicked. By our count, over 20 nations imposed travel restrictions, many of are African nations, in response to the Omicron variant. This is a massive over-reaction, in our opinion. And arguably a vestige of a policymaker framework of “zero cases”

– Omicron variant is already in many of these 20 nations
– and very likely in the US already
– so this “travel ban” seems to be a move just to appease the public?

This is why the below tweet is awesome, in my opinion. Omicron is indeed an anagram for moronic — lol

Below are the 8 African nations that are subject to travel bans.

South Africa
Botswana
Zimbabwe
Namibia
Lesotho
Eswatini
Mozambique and
Malawi

And this is the list of > 20 nations (EU multiple) that have imposed travel bans. This is a growing list as well. Have we ever seen such a lightning response?

– question –> do policymakers wish they did this with the Delta variant?
– like ban UK travelers from entering other nations?

EU
USA
Canada
UK
Singapore
Saudi Arabia
Jordan
Turkey
Egypt
Australia
Russia
Thailand
Philippines
Morocco
Angola

Even NY Governor Kathy Hochul declared a COVID-19 “disaster emergency” on Friday. This is a response to both the rise in cases in the state as well as the Omicron variant. Again, is this just a massive excessive response?

Does Omicron warrant a travel ban? We don’t know but found Dr Scott Gottlieb’s views useful
Dr Scott Gottlieb was on Face the Nation yesterday morning. And I found his measured answers useful. The link to the transcript is below.

Dr Gottlieb said 3 critical questions are key.

– first, is this more virulent?
– second critical question is, does this escape immunity?
– third, does that escape from immunity increase its transmissibility?

The answers to his questions are included in the transcript below. We did not include his full answers below (see transcript) for readability and brevity’s sake. Bottom line?

– his answers seem to be counter to the logic of travel bans
– these variants are not known to be more transmissible nor more harmful
– this could change with time, however

QUESTION: Why is Delta disappearing, as Omicron is surging?
The FT chart below (above too) really caught my eye. This shows:

– the dominance of variant,
– leading to a massive surge in cases
– and then a collapse

Again, it still surprises me that there are few cases of a person infected with two variants of COVID-19 at the same time. In fact, there is little research on this. But here is my question:

– why isn’t Delta still surging in South Africa?
– a recent study showed 99.7% of global cases are Delta-variant at the moment

One explanation is the one proposed by several Japanese scientists. That Delta-variant implodes or self destructs.

– will Omicron similarly self-destruct?
– history suggests this will be the case

STRATEGY: VIX surged +54% is surest sign markets priced in a lot of bad news
Bottom line, we expect stocks to bottom this week. Tactically, we will look for cues from our Head of Technical Strategy, Mark Newton.

But in the meantime, looking at the VIX is often a way to assess how much bad news is priced into financial markets. As shown below, the VIX surged +54% on Friday.

– this the 4th ever largest % increase in VIX in the past 31 years
– a clue to market direction in the coming week is the behavior of the VIX

This is a somewhat obvious statement. But if the VIX stabilizes at 28 or moves lower, this is a sign that equities have bottomed. In other words, getting cues from the VIX is what we will be watching.

…Incidentally, the VIX term structure never inverted, we watch 4M less 1M futures
Another reason we are not getting more structurally cautious, is the VIX term structure, specifically the spread between 4-month and 1-month VIX did not invert on Friday.

– so despite a horrific market sell-off
– investors were not seeking protection even 1-month out
– the 1M contract is still lower than the 4M contract

This is a sign that investors do not even see heightened volatility, even 1-month out. If Omicron was this concerning, wouldn’t VIX levels for the next few months be above the 4-month VIX?

SECTORS: Leadership still Cyclicals/Early-cycle aka Epicenter
Relative sector performance is shown below and as we can see, 5 sectors are showing positive relative trend:- Energy
– Basic Materials
– Technology
– Transports
– Discretionary

– sort of Financials/Banks

These are all cyclical groups. And also have general positive exposure to reflationary trends. Inflation, incidentally, in isolation is not a bad word. The real risk to markets is:

– too much inflation hurting consumer confidence
– or unanchored inflation expectations, fear of uncontained inflation

This is not necessarily what markets seem to be pricing. If markets were worried about either of the above, Defensive stocks or Growth stocks would be leading. Instead, we are seeing Cyclicals lead.

Into YE, our recommended strategies are:

– Energy
– Homebuilders (Golden 6 months) XHB
– Small-caps IWM-0.14%
– Epicenter XLI-0.33%  XLF0.43%  XLB0.06%  RCD
– Crypto equities BITO3.94%  GBTC4.29%  BITW5.27%

Into 2022…
– Industrials

30 Granny Shot Ideas: We performed our quarterly rebalance on 10/25. Full stock list here –> Click here

POINT 1: Daily COVID-19 cases 19,724, up +10,741 vs 7D ago…

Current Trends — COVID-19 cases:

• Daily cases 19,724 vs 8,983 7D ago, up +10,741
• Daily cases ex-FL&NE 19,724 vs 8,983 7D ago, up +10,741
• 7D positivity rate 8.5% vs 7.2% 7D ago
• Hospitalized patients 49,308, up +5.3% vs 7D ago
• Daily deaths 747, down -33.2% vs 7D ago

*** 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 19,724, up +10,741 vs 7D ago. The data is currently distorted from underreporting due to Thanksgiving. The distortion will likely remain for the next week or two.

Nonetheless, Wave 4 is clearly underway; this is not surprising, and is our base case. We expect this surge to peak below the wave 3 peak of 300,000 cases per day. Case roll over will likely resume in the near future as booster vaccine rates are increasing.

Rolling 7D delta to distorted due to Thanksgiving…
The rolling 7D delta is currently distorted due to Thanksgiving. We’ll continue to monitor the data closely.

33 states are seeing a rise in cases while cases continue to decline in the remaining states…
*** We’ve split the “Parabolic Case Tracker” into 2 tables: one where cases are falling, and the other where cases are rising

In these tables, we’ve included the vaccine penetration, case peak information, and the current case trend for 50 US states + DC. The table for states where cases are declining is sorted by case % off of their recent peak, while the table for states where cases are rising is sorted by the current daily cases to pre-surge daily cases multiple.

– The states with higher ranks are the states that have seen a more significant decline / rise in daily cases
– We also calculated the number of days during the recent case surge
– The US as a whole, UK, and Israel are also shown at the top as a reference

Hospitalizations, deaths, and positivity rates are rolling over amidst case rollover…
Below we show the aggregate number of patients hospitalized due to COVID, daily mortality associated with COVID, and the daily positivity rate for COVID.

– Net hospitalizations peaked below the Wave 3 peak and are currently rolling over
– Daily death peaked slightly above the Wave 2 peak and are currently rolling over
– As per the decline in daily cases, the positivity rate is currently rolling over

POINT 2: VACCINE: vaccination pace accelerates as boosters become more widely available…

*** We noticed the CDC reported an unusually low number of vaccines administered yesterday. It could be a result of delayed data since Thanksgiving is on Thursday. If that’s the case, the data may likely be distorted until next week. We will be tracking it closely. Data has been distorted every major holiday due to test site closures and delays in the data collection process. As such, vaccine data will likely be “overreported” following the holiday. Nonetheless, distortion aside, the overall trend in vaccination remains healthy.

Current Trends — Vaccinations:

• avg 1.4 million this past week vs 1.5 million last week
• overall, 58.6% fully vaccinated, 69.1% 1-dose+ received

Vaccination frontier update –> all states now near or above 80% combined penetration (vaccines + infections)
*** We’ve updated the total detected infections multiplier from 4.0x to 2.5x. The CDC changed the estimate multiplier because testing has become much better and more prevalent.

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
– Given the new multiplier. only RI, FL, MA, CT, NM, NY, NJ, IL, CA, PA, DE, SD, KY, UT, OK, ND, NH, AZ, SC, TN, AK, NC, CO, KS, MN, VA, DC, NE, and NV 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 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 1,735,117 doses administered reported on Sunday, up 23% vs. 7D ago. As per the note above, we believe the low number of vaccines administered is due to Thanksgiving coming up. This distortion aside, we’ve been seeing the vaccination pace accelerate as booster shots are becoming more widely available. Also, the same catalysts remain in place:

• 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.

77.9% 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 99.5%. And only 88.5% 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 100% of US states have seen 1 dose penetration > 50%, 97.8% of them have seen 1 dose penetration > 55% and 77.9% 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 ~19 for the past few days
– this means 19 vaccines dosed for every 1 confirmed case

In total, 424 million vaccine doses have been administered across the country. Specifically, 229 million Americans (70% of US population) have received at least 1 dose of the vaccine. And 195 million Americans (59% 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.