COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Click HERE to access the FSInsight COVID-19 Daily Chartbook.

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STRATEGY: Leadership in 2021 is starting to look like it has “legs”
COVID-19 progress –> White House accelerates supply to May + Texas re-opens completely…

On the COVID-19 front, there are really two key headlines in the past 24 hours:

– White House accelerates forward vaccine supply to supply all adults by May, enlisting the aid of Merck to boost production
– Texas re-opens economy completely

There has been quite a lot of moving forward in the past few weeks.  COVID-19 cases are trending definitively lower, even as variants remain a worry.  And the US has been steadily improving vaccine supply. The Biden Administration is invoking the Defense Production Act to boost the J&J vaccine production, which received the EUA (emergency use authorization) in the past week.  Merck and J&J will work together to boost production.

– unequivocally good news
– nothing to quibble (unless someone is an mRNA avid fan)

COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: https://www.npr.org/sections/coronavirus-live-updates/2021/03/02/973030394/biden-says-u-s-will-have-vaccine-supply-for-all-adults-by-may-prioritizes-teache


Vaccine penetration might be contributing to the acceleration downwards of daily cases…
On that note, it certainly seems like the vaccinations might be contributing to a renewed downward acceleration of cases.  The chart below is 7D delta of daily COVID-19 cases and as you can see, it has accelerated to the downside in the past few days.

COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: COVID-19 Tracking and Fundstrat  



And the other news is Texas is re-opening its economy fully as the Texas Governor, Greg Abbott, issued an Executive Order, ending all restrictions.

COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: https://www.star-telegram.com/news/coronavirus/article249627903.html


As far as COVID-19 case metrics, the charts below plot the case trends for the state of Texas.  And as you can see, the metrics have all been moving in the right direction.  Even daily cases are down 73% from their highs of >25,000 per day to ~5,000 per day.  This is not as steep as the declines seen by states >60% combined vaccinations + infections.  But still, not bad.

COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks


We estimate that Texas has only ~44% combined vaccination + infections, below the 60% seen in “herd immunity” states
We have been using the 60% threshold, based upon the combined infections + vaccinations, as the level where we might expect to see early signs of “herd immunity.”  And indeed, in the 5 states above that level, daily cases are collapsing.

Our data science team, led by tireless Ken (and Jax) did the same calculations for Texas and for the 5 largest counties in the state.  And as shown below, you can see this figure is below 60%:

– Texas overall estimated 44% (infection 32% + 13% vaccinated)
– 5 largest counties similar (see below)

COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: Fundstrat, Johns Hopkins and CDC



STRATEGY: A very different leadership is emerging in 2021 so far… and it arguably has legs
We are only two months into 2021, but the leadership YTD is very different from what most investors are accustomed to.  Granted, the leadership in 2021 so far looks like a continuation of the leadership since mid-2020:

– Asia is leading –> China + Korea + Japan
– Small-caps + mid-caps crushing large-caps
– Value is beating Growth
– Sector leadership is Cyclical, especially Energy + Financials

The above 4 factors are the complete opposite of the story for the prior 2 years and even prior 5 years, or prior decade. The leadership we are seeing in 2021 is really the opposite of what most of the institutional investor universe has seen work.

COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks


In fact, take a look at the style boxes below and you can see the abrupt shift in leadership since mid-2020.  Again, to reiterate, the stuff that worked for the past decade has not been leading since mid-2020.

COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: Fundstrat



STRATEGY: Leadership in 2021 is starting to look like it has “legs”
With this as context, over the past few weeks, one of the most common perspectives, in our many conversations with institutional investors, is “when will this Cyclical-led rally end”?

– logically, our institutional investor clients believe Growth stocks are the most attractive over the long run.
– after all, price appreciation is gains achieved by “E” (grow EPS) and “PE” (P/E up).
– so buying companies focused on large addressable markets (TAM) + durable advantage = winning stocks.

This makes sense to me.  For more than 15 of my 28 years of investment experience, I was an equity research analyst covering the wireless industry.  That sector grew from 34 million subs (in 1993) to ~5 billion today, so my career was built covering “Growth” stocks and believing in the power of durable advantage and large TAM.


But COVID-19 Pandemic is a global war, and the post-war period is creating an entirely new economy…
But there is something that is different, in our view, about the Global Depression of 2020.  Consider what happened in 2020 that did not happen in any recession in our lifetime, or 5 lifetimes:

– Global economy shutdown in a synchronized manner
– “Shelter in place” orders in place for >12 months (largely)
– Global borders have been largely shut for >12 months in a way not seen anytime except wartime
– Unemployment rates surged to levels not seen since the Great Depression

2020 was no ordinary recession.  It was a full blown Depression, and one that forced every single company to rethink:
– their business,
– their customer relationships,
– their business processes,
– and their staffing requirements.
– true for every business, large or small  

So, this is what we can easily forget as the US economy starts to approach a return to normalcy.


STRATEGY: Post-war rebuild means Cyclical companies are the new “growth stocks”
So the world is emerging as a post-war economy. And the need to rebuild and reconnect is creating growth opportunities for cyclical companies.

Think about it.  After any war, cyclical companies become growth companies as economies are rebuilt. This is why cyclicals, in our view, are taking leadership.

If the above statement is true, then investors need to realize that many Cyclical companies are re-inventing themselves.  Not all, but many.  And these are about to re-engage with their customers.  And in this context, we think this is contributing to the confusing sector leadership:

– business cycle is not in sequence, due to the global nature of the pandemic
– sectoral leadership, therefore, will not follow the typical cycle (see below).

As shown below, it is not really normal to see Energy + Financials lead at the same time.  Energy tends to be a late-cycle sector, while Financials are early sector.

– but both can outperform in reflationary conditions

But in summary, we think investors should look at the message from markets, rather than try to force an overlay on the market.  The equity markets are showing a very different type of leadership in 2021. And as we noted above, we think many Cyclical stocks are poised to surprise investors with improved business models.

Bottom line –> We are still buying Epicenter stocks.

COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks


Source: Fundstrat




STRATEGY: Rationale for why investors need to increase their exposure to Epicenter…
When looking at this positioning data, one can really get the sense that Energy is a completely orphaned sector.  Hence, the rise in Energy stocks, we believe, is eventually going to create FOMO. We continue to urge investors to increase their exposure to “Epicenter” and reduce “Growth.”

One thing to keep in mind is that as the economy re-opens, investors and customers are going to be living a very different experience.  Consider some “future” anecdotes we might see by Summer 2021:

What will be thinking?
– Theme parks are booming, I am going to buy Netflix? Nope
– People are back at the gym, I am going to buy Peloton? Nope
– I am taking my first trip in a year, I am going to buy Zoom? Nope

So you can see, there will be a shift in the mindset of both customers and investors are we move through mid-year and it will show up as consumer wallet change and in equity investor decisions.

– Notably, take note below. 
– Energy is up 31% YTD, yet, hardly anyone is talking about Energy

COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: Fundstrat and Bloomberg


STRATEGY: Epicenter Trifecta List 121 stocks(*)
The case for being Cyclically-tilted is strengthening:
– Vaccine rollout set to accelerate
– US cases collapsing
– US economy set to re-open
– US corporates reset cost structures = strong operating leverage
– US credit markets strong = cost of capital falling


Below is our updated “Trifecta” epicenter stock list. These are the stocks which were hit the hardest by the pandemic and have the greatest operating leverage to a re-opening.  And we like the earnings upside in these stocks, because of the massive cost reset.  The stocks are based on positive views coming from the trifecta of: (i) Quant (tireless Ken), (ii) Global Portfolio Strategy (Brian Rauscher, aka Rocky) and (iii) Technicals.  

Consumer Discretionary:
AN, GM, F, GRMN, LEG, TPX, TOL, NWL, MAT, PII, RL, MGM, HLT, MAR, NCLH, RCL, WH, TNL, SIX, DRI, SBUX, FL, GPS, KSS, LB, VFC

Financials:
FITB, WTFC, ASB, BOH, FHN, FNB, PB, PBCT, RF, STL, TFC, WBS, PNFP, PACW, SBNY, NYCB, MTG, EVR, GS, IBKR, VIRT, BK, STT, SYF, BHF

Industrials:
AGCO, OC, ACM, WAB, EMR, GNRC, NVT, CSL, GE, IEX, PNR, CFX, DOV, MIDD, SNA, XYL, FLS, EAF, TTC, ITT, ALK, DAL, JBLU, LUV, MIC, KEX, UNP, JBHT, R, UBER, UHAL, LSTR, MAN

Energy:
XOM, HP, BKR, HAL, NOV, SLB, COP, EOG, FANG, HES, MRO, MUR, PXD, XEC, HFC, MPC, PSX

Basic Materials:
LYB, EXP, MLM, CF, MOS, ESI, NEU, NUE, RS, SON, IP

Real Estate:
BXP, HIW, UDR, KIM, NNN, WRI, VNO, JBGS, RYN

COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks
COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: Fundstrat, Bloomberg

(*) 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.






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
Tickers: AAPL, CSCO, INTC, MXIM, NVDA, EBAY, KLAC, GRMN, GOOG, MNST, MSFT, AMZN, QCOM, TSLA, PYPL, AXP, BF/B, PM, XLNX, TGT, PG, XOM, VLO, GL, RF, ATVI, BBY, GE, AMAT, LRCX, MU, HPQ

Trifecta Epicenter (*):
Full stock list here –> Click here
Tickers: AN, GM, F, GRMN, LEG, TPX, TOL, NWL, MAT, PII, RL, MGM, HLT, MAR, NCLH, RCL, WH, TNL, SIX, DRI, SBUX, FL, GPS, KSS, LB, VFC, FITB, WTFC, ASB, BOH, FHN, FNB, PB, PBCT, RF, STL, TFC, WBS, PNFP, PACW, SBNY, NYCB, MTG, EVR, GS, IBKR, VIRT, BK, STT, SYF, BHF, AGCO, OC, ACM, WAB, EMR, GNRC, NVT, CSL, GE, IEX, PNR, CFX, DOV, MIDD, SNA, XYL, FLS, EAF, TTC, ITT, ALK, DAL, JBLU, LUV, MIC, KEX, UNP, JBHT, R, UBER, UHAL, LSTR, MAN, XOM, HP, BKR, HAL, NOV, SLB, COP, EOG, FANG, HES, MRO, MUR, PXD, XEC, HFC, MPC, PSX, LYB, EXP, MLM, CF, MOS, ESI, NEU, NUE, RS, SON, IP, BXP, HIW, UDR, KIM, NNN, WRI, VNO, JBGS, RYN

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 50,568, -10,262 vs 7D ago… 7D delta in daily cases accelerate to the downside…

_____________________________

Current Trends — COVID-19 cases: 
– Daily cases    50,568 vs 60,830 7D ago, down -10,262
– 7D positivity rate   4.9% vs 5.7% 7D ago
– Hospitalized patients   46,388, down -16% vs 7D ago
– Daily deaths    1,942, down -4.0% vs 7D ago
_____________________________



– The latest COVID-19 daily cases came in at 50,568, down -10,262 vs 7D ago.  
– After being positive for three days last week, the 7D delta in daily cases has turned negative again. This shows the rise in daily cases last week could just be the results of the distortion of test/case data due to the cold snap.
– The 7D delta in daily cases now is accelerating to the downside, and US COVID-19 cases are on the track for sub-40,000 later this week or early next week.


COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: COVID-19 Tracking Project  and Fundstrat


7D delta in daily cases turns negative for 5 consecutive days and accelerates to the downside…
After being positive for three days last week, the 7D delta in daily cases has turned negative again. This is good news – it shows the rise in daily cases last week could just be the results of the distortion of test/case data due to the cold snap and the daily cases in the US are still falling.

  
 

COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: COVID-19 Tracking and Fundstrat  




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. It has fallen significantly from the wave 3 peak.



COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: COVID Tracking Project and Fundstrat


COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: COVID Tracking Project and Fundstrat



COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks
COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: COVID-19 Tracking and Fundstrat 


COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: COVID-19 Tracking and Fundstrat  

 




POINT 2: VACCINE: 9 states (+2 vs Friday) near ~60% infected + vaccinated

_____________________________

Current Trends — Vaccinations: 
Vaccinations ramping steadily
– avg 1.9 million this past week vs 1.8 million last week
– overall, 7.8% have 2-doses, 15.5% 1-dose
_____________________________



Vaccination frontier update –> 9 states > 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, only ND + SD + RI + AZ + OK + UT + TN + NM + NE are basically all at this level
– So slowly, the US is getting to that threshold of presumable herd immunity

COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: CDC, COVID Tracking Project and Fundstrat



There was a total of 1,730,603 doses administered on Tuesday, up from 853,143 7D ago. Overall, the pace is steadily rising, as evidenced by the 7D moving average (see blue line).

COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: CDC, COVID-19 Tracking Project and Fundstrat 


~60% of the US has seen 1-dose penetration >15%… still not wide geography
To better illustrate the actual footprint of the US vaccination effort, we have a time series showing the percent of the US with 2-doses covering at least 5% (and 10%) of its residents, displayed as the orange line on the chart. Currently, all US states have seen 5% of their residents with 2-doses administered.   However, when looking at the percentage of the US with 2-doses covering at least 10% of its residents, this figure is only 3.6%.


– While all US states have seen vaccine penetration >10%, 63% of them have seen 1 dose penetration >15%. Not a lot of geography.
– All of the US has at least 5% of its residents with the full 2 doses, However, only 3.6% of US has 2-dose vaccinated >10%
– This is still a small figure (5%/10% of residents with 2 doses) but this figure is rising sharply now
– the takeaway is the vaccination efforts are unlikely to be having much of an effect on case figures, currently

COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: CDC, COVID-19 Tracking Project and Fundstrat 



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


COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: CDC, COVID-19 Tracking Project and Fundstrat 





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 ~30 for the past few days
– this means 30 vaccines dosed for every 1 confirmed case

This figure is rising nicely and likely surges in the coming weeks

COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: CDC, COVID-19 Tracking Project and Fundstrat




In total, about 51 million Americans have received at least 1 dose of a vaccine.  This is a good pace and as we noted previously, implies 30% of the population by April.  


COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: CDC and Fundstrat




POINT 3: Texas Gov ends all COVID-19 restrictions
Texas Governor, Greg Abbott, issued an Executive Order ending all COVID-19 restrictions…
On Tuesday, the Governor of Texas, Greg Abbott, issued an Executive Order, ending all restrictions related to COVID-19.  The rationale for this action is the drop in COVID-19 cases along with the rise in the number of Texans receiving the vaccination.

– Vaccine distribution has been pretty wide in the state
– My friends in Texas have told me there is plenty of access to vaccinations, for those seeking vaccinations.


COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks

Source: TX Governor’s Office



Texas cases are down 73% from its peak, not as impressive as the 95%-ish seen by North Dakota or South Dakota…
As far as COVID-19 case metrics, the charts below plot the case trends for the state.  And as you can see, the metrics have all been moving in the right direction.  Even daily cases are down 73% from their highs of >25,000 per day to ~5,000 per day.  This is not as steep as the declines seen by states >60% combined vaccinations + infections.  But still, not bad.

COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks



We estimate that Texas has only ~44% combined vaccination + infections, below the 60% seen in “herd immunity” states
We have been using the 60% threshold, based upon the combined infections + vaccinations, as the level where we might expect to see early signs of “herd immunity.”  And indeed, in the 5 states above that level, daily cases are collapsing.

Our data science team, led by tireless Ken (and Jax) did the same calculations for Texas and for the 5 largest counties in the state.  And as shown below, you can see this figure is below 60%:

– Texas overall estimated 44% (infection 32% + 13% vaccinated)
– 5 largest counties similar (see below)

COVID-19 UPDATE: Daily cases resuming acceleration to downside. Remember, in a post-war economy, cyclicals become the new “growth” stocks


Source: Fundstrat, Johns Hopkins and CDC

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