COVID-19 UPDATE: Risk of COVID-19 hospitalization 10X greater in NJ/CT (1 in 27) than in ND/UT (1 in 250). No idea why. Updated Epicenter stock list +18 new names

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

STRATEGY: US case surge driving “soft lockdowns” but epicenter stocks have other tailwinds
COVID-19 is spreading across the US at an accelerating rate and as we commented earlier this week, the US could see >200,000 cases within a few weeks.  The tally for Thursday was >148,000 (+34,000 vs 7D ago), so by Thanksgiving, daily cases should surpass 200,000.  And given flu season lasts until Feb 2021, a peak in cases is still some time away.  But the states we are watching most closely are those with the fastest case growth in Wave 3, WI, IL, ID, ND, SD, UT, or WIINSU.  With the exceptions of ND and SD, daily cases are still surging there.

We have yet to see real panic by policymakers in these wave 3 states.  Elsewhere, we are seeing soft lockdowns, NY, even IL.  In fact, as this chart below shows, the hospitalization coefficient (or % of new cases requiring hospitalization) varies widely by state:

– In ND and UT, the coefficient is 0.4%, or 1 in 250 confirmed COVID-19 cases is hospitalized
– In CT and NJ, the coefficient is 2.7% and 3.1%, or 1 in 37 and 1 in 32, respectively

That is a massive differential.  A COVID-19 confirmed case in CT/NJ, aka NY tristate, is basically 10X more likely required to be hospitalized.  Wow.

Is this due to demographics (age), co-morbidities (obesity, smoker?), or just plain bad luck?  We have no idea.  But if we look at the chart below, states at the bottom of the chart are dealing with less severe forms of COVID-19 infected.
 

Source: COVID-19 Tracking Project and Fundstrat




Is 200,000 cases enough to kill the epicenter trade? Not necessarily
For the better part of the last few weeks, we have seen a fierce rally in epicenter stocks, and gasoline was added this week with the Pfizer vaccine news.  But over the past few days, the epicenter rally has run into a brick wall.

– did the surge in cases finally break the market’s tolerance?
– was stimulus talk failure today again throwing water on Washington getting something done?
– is this just profit taking?

I don’t know.  But we think the risk/reward is very favorable for epicenter stocks into year-end, even as COVID-19 cases are rising.  The reason for this is outlined in the graphic below.  In short:

– Tangible development towards are vaccine now outweighs the 3-6 headwind of rising COVID-19 cases
– Europe COVID-19 cases are indeed rolling over, another catalyst (See Point #3)
– Retail investors are finally moving cash off the sidelines — they are going to become dip buyers
– VIX looks ready to fall below 20 = risk-on

Source: Fundstrat


Updated Trifecta Epicenter stock list (*) — 18 additions, now 78 stocks in total…
We have updated our 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 (Rob Sluymer).  

This updated list has 18 new stocks and ZERO deletions.  Thus, it is now comprised of 78 stocks.  The additions are:

Consumer Discretionary: AN, GRMN, LB, CRI, BBY

Financials: PNFP, SBNY, NYCB, IBKR

Industrials: AGCO, IEX, PNR, UNP

Basic Materials: NEU

Real Estate: HIW, CPT, KIM, NNN


Below is the latest list.  Have a great weekend.  Get as much sun as possible.  And get some vitamin D!!!

(*) 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

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), Sluymer (Technicals)
– Biden vs Trump  –>   based on correlation to either candidate odds

Granny Shots:
Full stock list here –> Click here

Trifecta Epicenter:
Full stock list here –> Click here

Biden White House vs. Trump White House:
Full stock list here –> Click here

POINT 1: Daily cases 148,559, +34,409 vs 7D ago — on pace to hit 200,000 by mid-Nov
The latest COVID-19 daily cases came in at 148,559, up +34,409 vs 7D ago. Wave 3 is gaining momentum, so we are not really near a peak in daily cases

– the spread of cases across the US is widening
– the fastest spread remains in the wave 3 states, in particular, WI, IL, ID, ND, SD, UT, or WIINSU.
– but other states are seeing higher cases and dominating top 10 are essentially all previously “unscathed” states
– we all should be cognizant that cooler weather is making spread faster, perhaps due to weaker immune systems or “indoor” time

Source: COVID-19 Tracking Project  and Fundstrat


7D delta is now running at >40,000, which means we could be at 200,000 cases in two weeks
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,
– It is rising at >40,000 7D delta

At this pace, we could see daily cases rise to >200,000 within two weeks.  So wave 3 is clearly gaining momentum.

Source: COVID-19 Tracking and Fundstrat  

Source: COVID-19 Tracking and Fundstrat  

Source: COVID-19 Tracking and Fundstrat




POINT 2: Wave 3: States with the highest hospitalization rates are those hit hardest in Wave 1 and Wave 2
We have been looking at different ways to give the best context to Wave 3.  Up until now, Wave 3 for COVID-19 differs from Wave 1 and wave 2 for several reasons:
– it is spreading across states previously unscathed in wave 1 and wave 2
– it is more geographically disperse but mostly in the Mountains region
– 6 states are seeing the fastest spread, WI, IL, ID, ND, SD, UT, or WIINSU
– Unlike Wave 1 and wave 2, states caught up in wave 3 are largely laissez-faire, without any policy intervention

New:
– Daily cases per 1mm for wave 1 (NY tristate) and wave 2 (F-CAT) are identical for the first time


Hospitalizations in the US reached an all-time high…
US hospitalizations have reached an all-time high today.  This is not surprising, given the massive surge in daily cases.  But this differs from Europe, where cases have soared, but hospitalizations have not risen to the same extent.

Source: COVID-19 Tracking Project


But the coefficient of hospitalizations is still quite low.  As shown below, the coefficient is still ~1% (1.4-1.5%), meaning for every 100 cases of COVID-19, about 1.5 are hospitalized.  This is far lower than Wave 1 (~13%) and Wave 2 (~3%).

Source: COVID-19 Tracking Project


But the current coefficient for hospitalizations is very low for Wave 3 states, WIINSU, but high for those states hit in wave 1 and wave 2…
Below is the incremental hospitalization rates, grouping states by their associated waves.  As shown below:

– NY tristate, or wave 1 states, are seeing the highest incremental hospitalization rates
– Wave 3 states, led by WI, IL, ID, ND, SD, UT, or WIINSU, are below the Wave 1 states

Source: COVID-19 Tracking Project


In fact, look at the individual states below.  As you can see, Wave 1 states are seeing the highest incremental hospitalization rates:

– NJ and CT are among the highest incremental rates of hospitalization currently
– Even TX and AZ are higher than WIINSU

Source: COVID-19 Tracking Project


What does this mean?  I am not entirely sure, but it does show that demographics and other cohorts remain a factor in who is getting hospitalized.  COVID-19 remains dangerous.  Take a look at the major counties/areas in Texas plus NY states.

– Dallas is leading TX with hospitalizations
– But Houston is hardly affected in this cycle

Source: TX DSHS and Fundstrat






POINT 3: Cases are already rolling over in Europe…
For the last few months, we have all watched the soaring COVID-19 case counts in Europe with alarm, as these regions surpassed the figures seen in Europe’s first wave, but also surpassed the daily case figures for the US overall.  But Europe has pursued lockdowns, to different extents, and we are now starting to see daily cases rollover in Europe.

– this rollover in daily cases in Europe is a positive development
– Why? If Europe is containing the outbreaks here, this marks a finite peak to Europe’s wave 2
– This despite the flu season continuing on until February

In other words, if Europe is able to contain the outbreak in COVID-19, albeit with a blunt instrument of shutting down the economy.

Source: Johns Hopkins and Fundstrat


The rollover in cases started with France and UK, followed by Spain and Germany, and Italy still in the process…
The chart above shows that the rollover in daily cases started with France and UK, followed by Spain and Germany and Italy is still seeing a surge.  The date of the lockdowns has not followed this sequence.  As shown:

– Spain instituted a regional lockdown (Madrid) on 10/1/2020, but daily cases surged for another 30 days
– France started 10/30/2020 and it looks like this coincided with a peak in cases
– UK (England) instituted lockdowns 11/5/2020, but daily cases had already peaked on 10/24/2020
– Germany announced lockdowns 11/2/2020 and we are already seeing a peak

In other words, with the exception of Spain, the lockdowns led to an almost immediate slowdown in cases.