Click HERE to access the FSInsight COVID-19 Daily Chartbook.
HOLIDAY WEEK: Due to the Thanksgiving holiday, we are only publishing our COVID-19 BLAST updates on the following days:
– Monday am
– Tuesday am
– Wed am
No more reports
– Thursday and Friday –> Thanksgiving
STRATEGY: “Violence of action” in epicenter demonstrates investors underweight
It looks like Wave 3 is rolling over. The 7D delta is lower on Monday compared to the past few weeks and would have been lower except for distortions from WA and OH (see Point #1). But with the holiday season and family gatherings, this rolling over of Wave 3 might be temporary. Keep in mind, CA is micro-Wave 3 — the surge in that state is due to areas seeing COVID-19 that were spared in Wave 2.
Source: COVID-19 Tracking and Fundstrat
Third time is the charm — stocks finally react to vaccine news…
The arrival of “holiday season” (Monday before Thanksgiving to YE) heralded solid gains in equities, as the AstraZeneca COVID-19 vaccine news plus the Regeneron antibody approval, was a double-whammy that reversed the growing skepticism. After the close, media reports confirmed that a potential Biden administration plans to select Janet Yellen as Treasury Secretary. No doubt, we expect markets to be happy with this choice — in my view, Mnuchin has done a great job in this role (by the way).
Janet was well regarded in her role as Fed chair and I admired many of her decisions during her tenure. I was Chief Equity Strategist at JPMorgan at that time. And as many are aware, Janet had a short tenure as Fed Chair, and was replaced by Powell. The media reported that then incoming administration found her too diminutive and thus, was replaced by Powell, who is considerably taller (~5′ vs ~6′)
Source: LPL
I had a chance to meet Janet Yellen in 2019, at a charity event (thanks Barry Haimes). And this photo is a treasured item in my “celebrity sightings” album. But as you can see, Ms. Yellen is a giant in stature. She clearly towers over her peers and myself as well
Source: Tom Lee
Many investors are still reluctant to stay risk-on…
Despite the widespread view that investors have become overly ebullient, we have not found this in our conversations. In fact, we heard from a few larger investors that they were getting ready to “fade stocks again” given how equities seem to have made little progress despite “great headlines” and they saw downside risk in stocks due to:
– Treasury/Fed pulled away the “training wheels” (last week, termination of the facility) and
– Was all the good news priced in as S&P 500 has not made gains despite great “vaccine” headlines”
But as we commented last week, the past few weeks looked like a market consolidating its gains — a pause that refreshes, as evidenced by the 4hr RSI getting oversold (see below). And this week, that consolidation seems to be ending. Plus as noted yesterday, over the last 25 years, the S&P 500 has risen 89% of the time from Monday (pre-Thanksgiving) to YE.
Source: Bloomberg
Epicenter stocks continue to rise, even as S&P 500 has been flat for the past few weeks…
But over the past 3 days, even as the S&P 500 has been flat, there has been a dramatic outperformance by cyclical stocks, or as we refer to them, “epicenter” stocks. The top 15 best performance sub-industries (of S&P 500) are shown below, based upon 3D performance:
– Energy stocks have dominated the top 15, 5 of the top 5
– everything else is cyclical
– stating the obvious –> while S&P 500 has been flat, massive move in epicenter stocks
Source: Fundstrat
We had suggested that the eventual rotation into epicenter stocks would be violent (harkening General Mattis comment about violence of action, see our past commentaries). And the factors for triggering a violent move are:
– Epicenter stocks are most positively impacted by vaccine –> binary event
– Epicenter stocks are most negatively impacted by COVID-19 spread –> somewhat binary
– Epicenter stocks are only 25% of S&P 500 markets cap vs 75% for Growth/Defensives –> mismatch
– Epicenter stocks are most positively geared to re-opening –> 2021 is turning point
– Epicenter stocks have strongest operating leverage, due to massive cost cutting –> Big EPS surprise in 2021
Most importantly…
– Epicenter stocks are UNDER-OWNED –> Epicenter was the pariah for much of 2020, for understandable reasons
Source: HBO
The rally in Epicenter in past month is only “baby steps” –> 7,000bp of mean reversion…
Given the reasons discussed above, you can see why any actual rotation into epicenter stocks would indeed be violent. And over the past week, we had pointed out that many of our institutional investor clients saw the post-election epicenter rally as only “short-lived” and they planned to buy the Growth on the dip.
– hence, dramatic moves as therapeutic visibility improved
And as the chart below highlights, the outperformance of FANG vs Epicenter in 2020 has been 7,000bp. And if we used a mean reversion as a potential base case, this is 7,000 of outperformance of Epicenter in 2021:
– in other words, if S&P 500 is up 10% in 2021
– Epicenter could rise 80%
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
Tickers: AAPL, AMZN, AXP, BF.B, CSCO, EBAY, GOOG, GRMN, GWW, INTC, KLAC, LEN, LOW, MNST, MSFT, MXIM, NVDA, OMC, PM, PYPL, QCOM, TSLA, XLNX
Trifecta Epicenter:
Full stock list here –> Click here
Tickers: ACM, AGCO, AN, ASB, BBY, BHF, BK, BOH, BWA, CF, CFX, CPT, CRI, CSL, DAL, DOV, DRI, EMR, F, FITB, FL, FLS, FNB, GE, GM, GPC, GPS, GRMN, HIW, HLT, HOG, IBKR, IEX, JBLU, KIM, LB, LEG, LUV, LYB, MAR, MGM, MIDD, MLM, MMM, MOS, NCLH, NEU, NNN, NUE, NVT, NWL, NYCB, OC, PB, PBCT, PHM, PNFP, PNR, RCL, RS, SBNY, SBUX, SIX, SNA, STL, STOR, SYF, TOL, TPX, UBER, UNP, VFC, WAB, WBS, WH, WTFC, WYND, XYL
Biden White House vs. Trump White House:
Full stock list here –> Click here
ADDENDUM II : Did you miss our Webinar last week? We had the big guns, including David Zion, of Zion’s Research
We had a great line up and discussed a lot of things between now and year-end. Here are the replay links:
– Replay –> Click here
POINT 1: Still looks like Wave 3 rolling over. Daily cases 157,024 +9,848 vs 7D ago
The latest COVID-19 daily cases came in at 157,024, up +9,848 vs 7D ago. There were some distortions:
– WA had a jump in cases as they did not report on Sunday, so Monday’s data is 2-day’s worth
– OH had a huge jump due to backlog cases. but the state didn’t specify how many are backlog cases
So yesterday was actually better than it appears
Source: COVID-19 Tracking Project and Fundstrat
7D delta at 9,848 is one of the lowest in nearly 40 days…
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 considerably mid-October
Source: COVID-19 Tracking and Fundstrat
Source: COVID-19 Tracking and Fundstrat
Source: COVID-19 Tracking and Fundstrat
POINT 2: Another sign Wave 3 peaking (for now), US counties declining cases rising…
It is helpful to look at county-level data (vs state-level) to see the internal spread of COVID-19. That is, gathering data at the county-level gives us an early look at trends. And one of the charts we used in the past is below.
This chart shows the % of the US (based upon county-level data) that are showing a decline in daily cases (vs 7D ago). Thus, a rising figure is a good thing and when COVID-19 is surging, this line is falling:
– We can see the peaks in Wave 1 and Wave 2, as this line inflected and began to rise
– This line is suggesting Wave 3 might have peaked, as this line is now turning upwards
Source: Johns Hopkins
POINT 3: Colleges less COVID-19 than USA… the risk is students catch COVID-19 at home
There are several stories recently about the fear that college students will spread COVID-19 as they return home for Thanksgiving. The most recent such article is from the Washington Post below.
https://www.washingtonpost.com/local/education/thanksgiving-coronavirus-campus-university-wisconsin-madison/2020/11/20/9b2c68c0-2a07-11eb-92b7-6ef17b3fe3b4_story.html
And the writer here frets that students will spread COVID-19 as they go home.
https://www.washingtonpost.com/local/education/thanksgiving-coronavirus-campus-university-wisconsin-madison/2020/11/20/9b2c68c0-2a07-11eb-92b7-6ef17b3fe3b4_story.html
These perspectives are wrong for two obvious reasons:
– first, COVID-19 spread is far lower on campus than it is in the rest of the US
– second, wave 3 means COVID-19 is spreading rapidly in communities, having nothing to do with students
In other words, the greater risk is that Thanksgiving and Winter break cause students to catch COVID-19 and bring it back to their campus. The most obvious way to see this is by looking at the NY Times database, which reports cases by colleges. And our data science team, led by tireless Ken, has compiled this by various tiers of states and compare it to case data in those states.
– as shown below, the college share of COVID-19 daily cases is down to 3.2% nationally
– this was 15% two months ago
Colleges are far safer than the surrounding cities
Source: Fundstrat, New York Times