Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

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STRATEGY: Retail sentiment is now the worst since April 2013… an 8-yr new low in sentiment

Canadian researchers explain why double-vaxxed Canadians more likely to test positive on COVID-19
There is a curious statistical trend in the COVID-19 infection rate in Canada. Those Canadians who are double vaxxed are more likely to test positive than their non-vaxxed Canadian counterparts:

– double-vaxxed is 89 per 100,000 people confirmed case rate
– unvaxxed is 68 per 100,000 people confirmed case rate

So oddly, double vaxxed Canadians are seeing a higher rate of confirmed cases. The article below offers two explanations for this:

– vaxxed people are more likely to seek PCR testing, for employment, vacations, etc
– vaxxed people are more likely “put at risk” by going to restaurants, going to work, gyms, theaters, etc

This might be the factor. I found it interesting. I have not seen the same statistics for the US, but I am curious.

…Despite “markets” yawning about Omicron, the hit on consumer spending is comparable to Delta
As Omicron fades across the US, the natural question is whether we can expect a bounce in consumer spending. The chart from JPMorgan on Chase credit card data shows the impact on consumer spending due to Omicron:
– Omicron impact was notable on airlines, lodging and travel
– Omicron impact similar to the hit seen on Delta

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

STRATEGY: Retail sentiment is so bad, it points to violent upside in the next 3 months
The fragility of equity markets has continued this week, but with a slightly better tone:
– instead of making new lows, like last week
– equities seem to be basing
– after an 11% decline in 14 days
– equities seem to be steadily strengthening
– as we know, less bad is good

Thus, in our view, the message from markets is that much of the bad news is priced in. And as such, if a corresponding alignment of sentiment and positioning is in place, we could see stocks soon stage a sustainable rally. It seems that sentiment has already aligned itself — that is, sentiment is now extremely bearish. And at the extremes, that is a contrarian buy signal.

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

…AAII % bulls less bears is the worst since the start of the pandemic
AAII retail sentiment (American Association of Individual Investors) is released every Thursday and yesterday’s reading is a new low in retail sentiment.
– % bulls less % bears is -29.8
– the worst ever reading since the start of the pandemic (see below)

Does it make sense that investors are more bearish now than at any time since the pandemic started? I find this a startling negative sentiment reading. And for background, we view the AAII retail sentiment indicator as among the most reliable of sentiment indicators and our team has been using this series for the past 12 years. And this series has been published since 1987.

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

…Current sentiment ranks among the 5 worst since 2009 = violent upside
In fact, zooming out a little further, this is among the top 5 worst sentiment readings since 2009. Take a look below:
– the current -29.8%
– is the 3rd worst since 2009
– there are 6 precedent instances where sentiment is this bad

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

6 of 6 times, we saw a violent rally — mean 12-month gain is 32%
And take a look at the forward returns from those 6 precedent instances:
– 6 of 6 times, stocks higher 3M later
– mean gain 13.8%

– 5 of 6 times, stocks higher 1M later
– mean gain 8.4%

– 6 of 6 times, stocks higher 6M and 12M later
– mean gains 19% and 32%

These are absolutely astonishing gains. My takeaway? There might be some limited further downside for stocks, given the enormous technical damage.

– but the risk/reward is very strong for stocks here
– hence, this corroborates the incrementally positive views by Mark Newton and Brian Rauscher (see prior comments)

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

Even taking a further step back, whenever retail sentiment is in the bottom decline (below -15%), forward returns are very good for stocks in the next 6 months. This is data since 1987.

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

…Good earnings are not offsetting the “buyers’ strike”
We are still early in the 4Q2021 earnings season. As shown below, only 23% of the companies reported:
– 83% are beating
– mean surprise is 2.2%

But the relative return of stocks has been weak. The top 3 sectors for relative performance are:

– Energy + 26.5% (vs S&P 500)
– Financials + 7.4%
– Consumer Staples + 5.1%

To me, the cyclical leadership of Energy and Financials is appropriate. Energy benefits from structural shortage plus the relatively attractive equity value. And Financials benefit due to rising rates.

– Consumer Staples outperformance, in our view
– reflects P/E expansion for a group that has seen massive P/E compression

– and arguably, reflect possibly easing supply chain restrictions
– Staples are actual products
– not “electronic” or services or experiences
– actual goods moving

Thus, their outperformance is somewhat eye catching to me.

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

STRATEGY: 2022 theme –> BEEF –> Bitcoin (B) + Bitcoin equities (E) + Energy (E) + FAANG (F)
Our 2022 themes are shown below. And in not in any order:
– Bitcoin + Bitcoin Equities  BITO -3.25%   GBTC -3.15%   BITW -2.06%
– Energy
– FAANG  FNGS 1.69%   QQQ 0.75%

Combined, it can be shorted to BEEF.

– Homebuilders (Oct – Apr aka Golden 6 months)  XHB -0.49%

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

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


POINT 1: Daily COVID-19 cases 455,031, down -192,740 vs 7D ago…

Current Trends — COVID-19 cases:

  • Daily cases 455,031 vs 647,771 7D ago, down -192,740
  • 7D positivity rate 25.2% vs 28.0% 7D ago
  • Hospitalized patients 139,458, down -8.2% vs 7D ago
  • Daily deaths 2,413, up 23% vs 7D ago

The latest COVID daily cases came in at 455,031, down -192,740 vs 7D ago. The daily new cases have been falling across the nation. In fact, only 8 states (see below) reported a higher case figure compared to 7D ago, and 7 of 8 have seen an increase <1,000 (the case spike in Minnesota was also primarily due to backlog cases). Hence, we should see the case trends in these states start to roll over soon as well.

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

The trend in the 7D delta in daily cases reflected the rapid decline in the Omicron wave. The 7D delta in daily cases has been negative in 7 of the past 8 days – the only positive day was due to data distortion from MLK Day. And as the 7D delta continues to fall, daily cases should accelerate to the downside, similar to what we have observed in South Africa, the UK, and even the tri-state area.

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

7D delta in daily cases has been negative in 7 of past 8 days…
The 7D delta in daily cases continues to fall. About three weeks ago, the 7D delta was still +300,000 and now it has fallen to -150,000. This actually reflected the rapid and steady decline in daily cases. And if this trend persists, we could see the daily cases accelerate to the down side.

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

29 states are seeing a rise in cases while 21 states + DC are seeing cases falling or about to roll over…
*** We’ve split the “Parabolic Case Tracker” into 2 tables: one where cases are falling (or about to fall), 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
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

Daily deaths are still rising, while positivity rates and hospitalization are falling 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

– Net hospitalization started to roll over. And more importantly, the daily mortality did not follow the same pattern as hospitalization, which shows Omicron is less deadly compared to other variants (at least so far).
– Positivity rate finally started to fall after plateauing for two weeks. It also confirms the recent decline in daily cases.

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

POINT 2: VACCINE: vaccination pace has slowed recently… Still more than half of eligible people have not received their booster shots…

Current Trends — Vaccinations:

  • avg 0.9million this past week vs 1.1 million last week
  • overall, 26.1% received booster doses, 63.3% fully vaccinated, 75.5% 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 2.5x multiplier, all states besides MS, WA, OR, TX, ID, MI, MO, and GA 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

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

There were a total of 784,539 doses administered, as reported on Thursday. The CDC vaccine tracker seems to have some data issue as it shows California administered a negative number of doses yesterday. That said, the overall vaccine pace has slowed and the daily number of vaccines administered has been down over the past week. As we noted previously, the decline in daily cases could play a role in influencing people’s willingness/urgency to get vaccinated. But given the benefits that vaccination provides (reduce severity –> reduce hospitalization –> prevent healthcare crisis), we believe the daily number of vaccines administered remains the most important metric to track.

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

Below we plotted the number of people who are eligible for the booster dose and the number of people who received the booster dose over time. As you can see, about half of eligible people have yet received their booster dose (174 million eligible, 87 million received). Hence, to convince these people to receive their booster dose remains the key.

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

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

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

In total, 536 million vaccine doses have been administered across the country. Specifically, 251 million Americans (76% of US population) have received at least 1 dose of the vaccine. 210 million Americans (63% of US population) are fully vaccinated. And 87 million Americans (26% of US population) received their booster shot.

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

POINT 3: Tracking the seasonality of COVID-19
***We’ve updated the seasonality tracker to show figures from the last 9 months, from this calendar day, in each of the last two years***

As evident by trends in 2020 and 2021, seasonality appears to play an important role in the daily cases, hospitalization, and deaths trends. 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
– Opposite effects hold true in the winter

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.

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

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.

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

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.

Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months
Retail sentiment reaches 8-yr low --> points to violent upside in next 3 months

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