COVID-19 UPDATE: USA daily cases plunge to new low 16,853 (-2,029 1D chg) but on 35% fewer tests. As US bottoms, Latam sustaining status as "global epicenter" -- time to shrink "barbell" and favor "epicenter"

COVID-19 remains a global crisis and we realize that many people need to keep up with COVID-19 developments, particularly since we are moving into the more critical stage ("restart economy"), so feel free to share our commentary to anyone who has interest.



The "half-full" perspective gained quite a bit of traction yesterday.  The S&P 500 made a decisive close well above the key 62% retrace (2,934) and there was mostly good news on the economic front (consumer confidence, new home sales, Dallas Fed) and a new low in daily COVID-19 cases in the US as well (somewhat discounted by the 35% drop in tests).

To appreciate the improvements in overall visibility (and thus, more "half-full"), it is helpful to compare what we know today compared to a month ago:

A month ago (mid-April):
- NYC was burning (case growth)
- NY tristate is epicenter crisis + nursing homes
- Risk of re-infection (Korea >450 cases) aka "no immunity"
- Vaccine 12-18 months away
- Second wave risk high, do not re-open
- S&P 500 struggling at 50% retrace (2,794)


Today:
- NYC/ NY tristate cases down 90% from highs
- US no longer epicenter
- Korea CDC says ZERO cases of re-infection.  Looks like recovered patients are immune.
- 10 vaccine candidates in clinical evaluations + 114 in pre-clinical evaluation
- States open >3 weeks are not seeing a rise in cases.  Europe is not seeing the second wave.  No second wave in Asia
- S&P 500 blasted past 62% retrace (2,934) and looks to make "new highs" before year-end

As you can see, on many fronts, visibility has improved considerably.  And factoring in the record cash on sidelines (money market cash) plus extreme risk aversion by investors (BofA fund manager survey + AAII), and we have the juxtaposition of improving fundamentals with lots of dry powder on the sidelines.  Hence, this is why the market risk/reward is positive and affirms our view that the market is now in the hands of buyers.

The decisive close above the 62% retracement also solidifies we are in a new bull market.  Since 1929, there is no instance of a 35% bear market, then a 62% retrace, that ever fell to new lows.  In fact, the 50% retrace in those precedent instances acted as support.  Thus, 2,794 is really the key level on the downside.  And we also think it is time to reduce the "barbell" and take less exposure on secular growth and add this to "epicenter" exposure.



Epi-center groups (Discretionary, Financials, Energy and Industrials) have already asserted leadership.  As of yesterday's close, they are now outperforming the S&P 500 from the 3/23 lows AND in the past week. Yup.  The epicenter is now the pivot driving overall market gains.

There is a lot of upside if this is the case.

- Epicenter are only 26% of the market cap (hence, why indices did not crash further)
- But they are 62% of the potential point gains if stocks retrace to Feb highs -- 234 points of the 400 total points.

Thus, with better incoming economic data, the risk/reward is much better for "epicenter" stocks.

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