COVID-19 UPDATE: Deaths still defying a surge. F-CAT daily cases +27k, down -6.8K from 1D ago. Granny Shot re-balance. +7 names. +1,880bp outperformance in 1H2020.

Please join Brian Rauscher, Head of Global Portfolio Strategy and Asset Allocation at FS Insight, on Wednesday, July 15th at 2:00 pm Eastern Time for a Webinar “Climbing the COVID Wall of Worry – Positioning for 2H20” with Q&A. Register here to attend

Earnings season starts later this week, and for the next few weeks, financials will follow the dual tracks of COVID-19 developments and the company commentary reflecting the experience of a full 90 days worth of COVID-19 impacts.  The COVID-19 data reported today, is on the balance, constructive:

– US daily deaths fell to 345, down from the elevated 800-900 per day last week
– the epicenter, FL, CA, AZ, TX, or F-CAT saw a drop in daily cases to  27,634, down -6,859 from 1D ago 
– TX and AZ show signs of being past the peak
– CA is further course-correcting by shutting down dine-in and bars, and while a potential over-reaction, is going to slow the spread

Source: COVID-19 Tracking Project

F-CAT cases and death relationship diverging sharply from what was seen in NY tristate area…
There remains the curious but positive divergence between the surge in US COVID-19 cases and the relatively flat/muted daily deaths.  Any death from COVID-19 is a needless tragedy, but the rate of mortality today is far lower.  Take a look at the chart below comparing NY tristate to F-CAT.  The x-axis is cumulative cases and the y-axis is cumulative deaths.

– NY tristate has ~624,000 cases and 42,000 deaths
– when F-CAT had ~630,000 cases, cumulative deaths was only 13,000

In other words, the number of deaths seen at the same number of cases is 75% lower than NY tristate.  And this underscores the diminished healthcare severity of COVID-19 in these states seeing an outbreak.  While many have argued there is simply a lag and deaths should begin to soar, the chart below argues against that.

– NY tristate deaths soared and even now, the slope is steeper than F-CAT (see recent plots).

Source: COVID-19 Tracking Project




STRATEGY: Re-balance Granny Shots.  +7 names.  +1,880bp outperformance 1H2020
YTD (as of July 10th), “granny shots” are up 17.4% vs S&P 500 -1.4%, or 1,880bp outperformance. We have listed the relative performance of Granny Shots below, including performance by month. For the first 7 months of 2020, including the 10 days of July, Granny Shots have outperformed every month, except March 2020.

– In March 2020, Granny Shots underperformed by 120bp.  So in a down month, it was worse
– In 2019, Granny Shots outperformed the S&P 500 in 9 of 12 months.
– Granny shots outperformed S&P 500 by 1,500bp in 2019, so 2020 is a stronger start.

Listing changes to Granny Shots
We skipped the March 31 rebalance, because the world was in the midst of COVID-19 meltdown, and our data science team, led by tireless Ken, instead focused his energies on creating tools to track COVID-19.  When we rebalance Granny shots, we are rebalancing the 3 tactical portfolios. 

So here is the summary(*) of the Granny Shots rebalance:

Stocks: 7 New stocks, 11 deletions
+ LOW
+ HPQ
+ BWA
+ LEN
+ CF
+ AMZN
+ PG

– AMP
– FB
– ROK
– DE
– DOV
– EXPE
– KSU
– PSX
– QCOM
– TTWO
– VRSN

Style tilt
+ Now Pure Value + Value Cyclicals
– Prior (Dec 2019 rebalance) was Growth Cyclicals + Quality Growth


Seasonally attractive industries (7 new)
NEW
+ Tech Hardware
+ Fertilizers
+ Homebuilders
+ Household Products
+ Distributors
+ Consumer Electronics
+ Home Improvement Retail
+ Internet Retail (was in December 2019 list)

POINT #1: USA Cases come in at +58,204, -1,458 vs 1D ago…
USA total cases came in at 58,204, down 1,458 from 1D ago and generally showing an easing of the intense surge seen in the past two weeks.  There was quite a lot of churn from states.  Tennessee, in particular, saw a surge in reported cases, but the state daily tests tripled to 35,000 from 10,000 1D ago.

Source: COVID-19 Tracking Project

The 7D change in daily reported cases showed some easing as well.  Daily cases are still growing week over week, up +11,764 but this is down from the +16,787 reported 1D ago.

Source: COVID-19 Tracking Project


6 states reported a sizable 1D increase
Tennessee  3,314 vs     954 (1D) +2,360
Georgia       3,643 vs 2,525          +1,118
Louisiana    1,705 vs 1,319             +386
Alabama      1,958 vs 1,640            +318
Missouri         447 vs     310            +137
Idaho             500 vs     397            +103
Total 6 states                                +4,422

The chart below shows TN daily cases and daily reported tests.  As you can see, daily tests (blue line) surged to 35,000 from 10,000 1D ago and this mostly explains the 3X rise in daily reported cases.  A rise in cases is a rise in cases, so TN is dealing with a sizable surge.

Source: COVID-19 Tracking Project 


As you can see below, TN positivity rate is below 10% still, but it is trending higher.  So the state has to work to contain this rise in daily cases.

Source: COVID-19 Tracking Project 


6 states reported sizable declines
Florida           12,624 vs 15,300 (1D) -2,676
Texas               5,655 vs    8,196        -2,541
Arizona            1,357 vs    2,537        -1,180
Mississippi         393 vs       868            -475
South Carolina 1,520 vs   1,949            -429
Pennsylvania       328 vs     725            -397
Total 6 states                                     -7,698

Source: COVID-19 Tracking Project

Hospitalization trends have been relatively benign as well.  While hospitalizations are increasing, the intensity of the rise is slowing.  And as we mentioned yesterday, is nowhere near what we saw in NYC/NY tristate area in late-March/April.

POINT #2: F-CAT material decline in daily cases to +27,634, -6,859 vs 1D ago
F-CAT daily cases came in at 27,634, which is down from a near-record 34,493 yesterday (peak was 7/8/2020 at 35,182).  This is a good sign given F-CAT is the US epicenter for COVID-19.  And of course, if F-CAT cases rollover, one could argue the US is likely seeing the apex of this first wave (a second wave possible in the Fall).

Florida           12,624 vs   15,300 (1D) -2,676
Texas               5,655 vs     8,196         -2,541
Arizona            1,357 vs     2,537         -1,180
California         8,358 vs     8,460            -102
F-CAT           27,634  vs   34,493        -6,859

Source: COVID-19 Tracking Project 

Looking at the individual F-CAT states, the trends are fairly promising:

– TX looks like it has peaked
– Arizona certainly looks like cases are past the peak
– CA and FL still seeing rises, but hopefully at a less intensifying rate

Source: COVID-19 Tracking Project


CA rolls back re-opening…
CA Gov. Gavin Newsom announced a rollback of the re-opening, ordering the closure of bars and indoor dining.  And in counties on the “watchlist” gyms, salons, and churches were required to close.

Source: WABC


The surprise of the CA move is that the state is certainly suffering from uncontained spread of COVID-19.  But it is primarily in the southern portion of the state.  As shown on the heatmap below, which shows the 14D change in cases.

– the cases are concentrated in the South.

Source: CA Open Data


In fact, using county data from California Open Data, we can see the Southern counties are 72% of the incremental cases.  The Bay Area, which is 20% of the population has only 11% of the new cases.  This is a reason we think this dramatic measure could be an over-reaction.  

Source: CA Open Data


Arizona cases likely peaked, as Phoenix daily cases (per 1mm) matched NYC at its peak… 
Phoenix, AZ daily cases (per 1mm) peaked in early July, at a level that matched NYC in its worst days.  And Phoenix is the nucleus of the AZ breakout. Miami continues to see a surge in cases and in fact, the daily cases per 1mm have surpassed NYC on its worst days.

Source: Johns Hopkins

Miami has already blasted past NYC on a case prevalence basis.  Total cases per 1mm is higher than NYC.  And while other counties in FL are rising too, none has the escape velocity of Miami.

– One reason, we believe, is behind the surge in Miami, is the potential for imported cases to cause accelerated spread.

Source: Johns Hopkins data


Miami continues to see significant inbound flights from Latin America
We have written multiple reports about the fact that many cases in the Southern states, particularly, F-CAT, are imported from Mexico and Latin America.  What many may not realize is that there continues to be a significant number of inbound flights into MIA (Miami International Airport).  Tireless Ken compiled the inbound flights into MIA for Tuesday.  He found the following:

– 213 flights scheduled to arrive in Miami Tuesday
– 45 are from Latin America and the Caribbean

So this is 1,350 flights per month from Latin America or the Caribbean into MIA. 

Below is a snapshot of the MIA board (website  http://webvids.miami-airport.com/webfids/).  And you can see a large number of inbound flights.

http://webvids.miami-airport.com/webfids/



POINT #3: Granny Shots, explaining the style tilt change + seasonal industry bets
Below we have highlighted the style tilt changes and the seasonal changes associated with our Granny Shots.

Style tilt
+ Now Pure Value + Value Cyclicals 
– Prior (Dec 2019 rebalance) was Growth Cyclicals + Quality Growth

Basically, the DQM model says the Value has a higher probability of beating Growth in the next 6 months, and this is a component of our granny shot rebalance.

Seasonally attractive industries (7 new)
NEW
+ Tech Hardware
+ Fertilizers
+ Homebuilders
+ Household Products
+ Distributors
+ Consumer Electronics
+ Home Improvement Retail
+ Internet Retail (was in December 2019 list)

The rebased composite history of these seasonally favorable industries is shown below.

* Please note that the stocks newly added into the portfolio strategies meet the requirements of our investment theme as of the rebalance date. A stock taken off from these portfolios 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.