Click HERE to access the FSInsight COVID-19 Daily Chartbook.
STRATEGY: Market is bi-furcating… Epicenter surges on healthcare progress
We got some very good news after the close yesterday regarding treatments for COVID-19. The FDA issued an EUA (Emergency Use Authorization) for Olumiant (baricitinib), the rheumatoid arthritis drug, to be used for the treatment of COVID-19, alongside Remdesivir. We had written about Olumiant this past Sunday, as a Swedish/UK study showed it reduced mortality by 71%.
Source: Bloomberg
– Wow. The FDA moved lightning fast
– Olumiant was shown to reduce mortality by 71% and was effective for older patients
Source: FDA
In just the past few weeks, we have witnessed advances in the treatment and prevention of COVID-19. While we are not yet seeing this in reduced cases or mortality, these collectively should slow the scourge of COVID-19 and eventually stop it in its tracks (vaccine):
Prevention
– Vaccine candidated by Moderna and Pfizer
– Vitamin D (UK govt proposal)
Treatment/Cure
– Olumiant
– steroids
– antibody cocktails
So while COVID-19 remains a deadly disease, the medical progress is bringing considerable hope.
Index is treading water, as “Epicenter” stocks take the lead… properly responding to improved healthcare outlook
As for markets, for the past 9 days, the S&P 500 has limped along, trading in the same range as highlighted below. There has not been a lack of “good news” for one could be somewhat alarmed to see this:
– market has bi-furcated, as “epicenter” stocks have risen strongly in the past 9 days.
– the S&P 500 RSI (4-hr, 14 period) is oversold, so it is likely the S&P 500 could resume its gains
Source: Bloomberg
The “epicenter” stocks, using the SPHB ETF as a proxy, have risen strongly in that same 9 day period. As shown below, the ETF has risen 15% in that timeframe versus a nearly flat S&P 500.
– in other words, the cyclicals that should respond positively to the vaccine/therapeutics are indeed rising
– this most recent news on Olumiant (Eli, see above) is another positive, adding to the case for Epicenter stocks
Source: Bloomberg
Bottom line. Stay constructive. We see P/E rising into YE, hence, S&P 500 3,800.
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 181,547, +32,824 vs 7D ago — not as “less bad” as last few days
The latest COVID-19 daily cases came in at 181,547, up +32,824 vs 7D ago. Wave 3 is still surging.
– cases starting to decelerate on a “rate of change” basis in some places
– but jumped sizably yesterday in Texas and CA and FL… so it is like F-CAT is seeing a resurgence
Source: COVID-19 Tracking Project and Fundstrat
It is wave 2 states seeing a surge, particularly CA yesterday and FL to a lesser extent.
Source: COVID-19 Tracking Project and Fundstrat
California is taking aggressive “soft lockdown” measures, limiting outside home activity after 10pm. This is a pretty drastic move, but could prove to be effective. This only applies to areas they deem purple.
https://www.latimes.com/california/story/2020-11-19/california-limited-stay-at-home-rules-covid-19-surge
I guess this is really designed to curb youth from congregating outside. After all, most older Americans are likely already home, unless their employment is after hours.
– the CDC data does show that COVID-19 is now more rapidly spreading among older Americans
– so not entirely sure this policy is properly focused
– a snarky take is COVID-19 is a 24-hour virus
https://www.latimes.com/california/story/2020-11-19/california-limited-stay-at-home-rules-covid-19-surge
7D delta jumped from 19,536 (the lowest in nearly 3 weeks) back to 32,824…
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 had been rising at >40,000 7D delta
– the pace slowed to <20,000 on Wednesday, but jumped again
Source: COVID-19 Tracking and Fundstrat
Source: COVID-19 Tracking and Fundstrat
Source: COVID-19 Tracking and Fundstrat
POINT 2: Deaths are rising and now exceed Wave 2 levels…
Yesterday, we pointed out that age >60 is now the largest group of infected from COVID-19. And with this, is a higher associated risk of mortality. Age is a big factor in the severity of COVID-19, particularly death.
Source: CDC and Fundstrat
And daily deaths from COVID-19 now meaningfully exceeded the death toll seen in wave 2 as shown below. In fact, daily deaths are only 27% below the peaks in Wave 1.
– Given daily cases are like 4X wave 1
– we should expect daily deaths from COVID to surge in the coming weeks
– however, new treatments like Olumiant, etc also reduce the risk of mortality, so we can be less pessimistic than previously
Source: COVID-19 Tracking and Fundstrat
US daily deaths are tracking the IHME forecast fairly closely. As you might recall, the IHME forecast daily deaths would surge in wave 3 and nearly match the wave 1 peak. This is expected to be reached in late January 2021.
– so please, be vigilant!
Source: IHME
POINT 3: Cruise lines and Airlines making further progress to open safely
We have talked about why these 5 industries below are the most levered to a vaccine/cure, viewing a COVID-19 cure/therapeutic/vaccine as a binary event for these stocks. Moreover:
– given stringent cost cutting taken in 2020, these companies can achieve pre-COVID levels of profitability with far lower revs
– if revs recover to pre-COVID levels, levels of profit will exceed that of pre-COVID
Hence, these stocks have a particularly strong upside to a binary outcome.
Source: Fundstrat
But this is a waiting game as well. As a vaccine/cure is still a mid-2021, these epicenter industries need to deal with viability and improving safety as they prepare to re-open their businesses, or return to a post-pandemic world.
Royal Caribbean has signed up 100,000 volunteers to sail on a cruise, free of charge. The purpose of these sailings is to test safety protocols on these simulated cruises.
– But 100,000!!!
– Wow, talk about pent-up demand!!!
This is the reason we believe demand recovery could be shocking.
https://nypost.com/2020/11/19/royal-caribbean-attracts-100000-volunteers-for-cruise-ship-test-runs/?utm_campaign=iphone_nyp
Similarly, American Airlines and British Airways and United Airlines are inviting some passengers to participate in a plan to take pre-flight COVID-19 test and this would lead to relaxed travel restrictions. United process is somewhat different, but the passengers essentially test themselves 72 hours before takeoff and then again at the landing and again 3 days after arrival.
– so it is testing 3 times over 6 days.
https://www.cnbc.com/2020/11/19/can-americans-travel-to-europe-preflight-tests-may-make-it-possible.html?__source=iosappshare%7Ccom.tinyspeck.chatlyio.share
This proactive approach makes sense. Even after the vaccine/cure is found, we expect new safety protocols to be key to convincing customers to return. Thus, these steps are useful to enable a full re-opening.
