Click HERE to access the FSInsight COVID-19 Daily Chartbook.
STRATEGY: Less “uncertain” is incremental certainty
Soft lockdowns, or rollbacks, are underway in the US. This is a necessary step. And it is hopefully sufficient to stem the surge in cases. I am not sure national lockdowns, ala UK, France and Germany, would meet with wide support here in the US.
– CT Gov Ned Lamont announced that CT restaurants will be limited to 50% capacity vs 75% previously
– This rollback is Phase 2.1 (was Phase 3, prior)
Source: WNBC CT
It has been an excruciating few weeks for equities as we move into Election Day (11/3, Tuesday). But the day has finally arrived. And over this period of time, the buyers strike has continued, even as selling (and VIX) has risen in the past few days. Thus, the S&P 500 is off ~9% from its one-month highs. That is a serious correction. And not many would argue this is due to changes in expectations around election outcomes. Maybe, to a lesser extent, one could say the rise in COVID-19 cases has hurt. But the fact of the matter is, the equity markets have only focused on two things for the past month:
– 2020 Elections (plus stimulus)
– COVID-19 trends
In other words, investors have been on a buyers strike due to the uncertainty of election outcomes. Thus, stocks have drifted painfully lower. Presuming this view is directionally correct, Election day itself will reduce “uncertainty” — a material change in the level of uncertainty is the same as incremental “certainty.” Thus, we believe stocks actually rally post-Election Day.
– Biden –> consensus base case –> 10% rally
**Cyclicals lead, but Tech trails due to tax risk
– Trump –> surprise –> 15%-17%
**Higher due to no lockdowns. Cyclicals rally. Tech rallies too due to tax cuts
– Contested –> negative –> 5%-7%
**Rally due to stimulus odds passage go up. Fed intervenes
In the past month, retail has been raising cash = buyers strike
Of course, the magnitude of the rally is also dependent on the positioning. Take a look at the money market fund balances below. In the past month:
– Retail investors have been raising cash steadily (light blue)
– Institutional cash balances have been falling though
Hence, we have seen retail investors on a buyers strike. Now, one might counter and say institutions have been buying, so isn’t their buying power used up? Recall, institutional money market cash is $2.8T now. It was <$2.0T at the start of the year. So, this is still a huge cash position compared to the beginning of the year.
Source: ICI
Cyclicals are probably the best bet for post-election, unless there is a political revolution
In terms of strategy, the best bet, in our view, remains to have a cyclical tilt into YE. The combination of:
– fiscal stimulus
– easy Fed
– vaccine/cure
– improving ISM, etc.
These are tailwinds.
The incoming economic data continues to be relatively favorable. So, this is another reason to stick with cyclicals.
Updated Trifecta Epicenter stock list (*)
We have updated our “trifecta epicenter” list of stocks. These are the names that are OW by:
– Brian Rauscher, Head of Global Portfolio Strategy;
– Rob Slumyer, Head of Technical Strategy;
– DQM ranked 1 by quant model, tireless Ken
13 additions to Trifecta:
Consumer Discretionary: F, HOG
Financials: ASB, BOH, FNB, PB, PBCT, STL, WBS, BK
Industrials: NVT, MMM, FLS
9 Deletions from Trifecta:
Consumer Discretionary: CHH, CRI, ULTA
Energy: WMB
Industrials: AAL, ALK, UAL
Real Estate: SLG, O
(*) 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.
Source: Fundstrat
POINT 1: Daily cases 80,845, +18,959 vs 7D ago — Michigan has highest daily cases
The latest COVID-19 daily cases came in at 80,845, up +18,959 vs 7D ago.
– Daily cases still increasing vs 7D ago
– Pace similar to past 10 days or so
– Wave 3 still underway
Michigan reported the highest number of cases at 6,703. But this is primarily because Michigan doesn’t report cases on Sunday.
Source: COVID-19 Tracking Project and Fundstrat
7D delta still rising by 15,000-20,000
Again, the daily change vs 7D ago, in our view, is the leading indicator as it is what influences the 7D moving average.
– Daily cases are rising vs 7D ago,
– last week, it looked semi-parabolic
– in the last two days, it looks a lot better
– on Monday, it is back to the higher end of 19,000
Source: COVID-19 Tracking and Fundstrat
Source: COVID-19 Tracking and Fundstrat
Source: COVID-19 Tracking and Fundstrat
POINT 2: Hospitalizations rising, mostly in wave 3 states…
Hospitalizations are rising as COVID-19 cases continue to rise. The colder weather certainly weakens our immune system, and we also get a lot less sunlight (vitamin D), so I think we should all be prepared to take additional steps to reduce our personal risk of catching COVID-19. I am against the idea of lockdowns, however, and managing our personal risks is important, and maybe more important.
But as cases are up, hospitalizations are creeping up as well. Despite cases blowing past to new highs, the level of Americans hospitalized is at a lower level than wave 1 and wave 2. This is good news, so far. But hospitalizations will continue to rise.
Source: COVID-19 Tracking and Fundstrat
Looking at the hospitalizations per 1mm residents, we can see the rise in hospitalizations is primarily in wave 3 states. These are the states marked red:
– South Dakota has 400 per 1mm, about the same as CA at CA’s wave 2 peak
– next is North Dakota
But wave 1 and wave 2 states are seeing relatively benign levels of hospitalizations.
Source: COVID-19 Tracking and Fundstrat
This is slide 12 from our daily chartbook. Below you can see the individual trends in each state. The rises are broad and taking place in states that were previously untouched.
– the same issue holds true
– wave 3 is rolling through states previously unscathed
POINT 3: Massachusetts expands the COVID-19 dataset. The young catching COVID-19
The Massachusetts Dept of Health has updated the information datasets around COVID-19. And their revised briefings now include information on the age of the confirmed infections. There are other changes as well, but the age information is the most interesting.
Source: MA Dept of Health
The chart below shows the cumulative 14D cases (since 10/17) by age group. And of the total rise, the overwhelming majority of new cases are residents under the age of 40. The surge in cases in MA, in other words, is largely younger persons. College students generally fall into the first tier of information.
– it is not really “students” accounting for the rise in infections
– rather, it is young adults (<age 40)
https://www.mass.gov/doc/covid-19-dashboard-november-2-2020/download
This chart, from their dashboard, shows the quilt of cases since March 2020. And as we highlighted, there has been a shift in cases:
– March, the largest share of new cases was >age 60
– In the last few months, the largest cohort is <age 40
– Bulk of that is <age 30
https://www.mass.gov/doc/covid-19-dashboard-november-2-2020/download
This partially explains the better outcomes for COVID-19 patients. Younger persons are generally experiencing milder symptoms and tend to recover faster. But the risk is that these infections start to reach older adults. That is what needs to be watched carefully.
