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 including no Weekly Roadmap
– Thursday and Friday –> Thanksgiving
STRATEGY: Thanksgiving a reminder that 2020 is a year of many “black swans”
This is our last update this week, during the shortened Thanksgiving holiday week. And I want to start this by thanking all of our clients for your support in 2020. Without your support, our firm would not exist and so on behalf of all of us at Fundstrat, thank you for letting us keep the lights on.
Wave 3 seems to be definitively rolling over. Below is the 7D change in daily COVID-19 cases, ex-CA, and as you can see, we saw a decline. This is a meaningful turn, and the 6 states are the heart of Wave 3 (see Point #2) seem to be rolling over. But we also caution this could all be temporary, since the holiday season involves new family gatherings, and thus, Wave 3 could be re-invigorated.
Source: COVID-19 Tracking and Fundstrat
The last 3 weeks have seen a lot of meaningful progress on COVID-19 vaccines. And the CDC Director Redfield even commented US citizens could be receiving the first doses in mid-Dec (see Point #3). So markets are appropriately lauding the approval of 3 vaccines. And as the Bloomberg article below highlights, future vaccines should be even more effective. The article discusses inhaled vaccines under development:
– these should be local (lungs, respiratory) vs systematic, and also act similarly
– can be stored at lower temperatures
– do not require needles (big plus)
Source: Bloomberg https://www.bloomberg.com/news/articles/2020-10-11/covid-19-inhaled-vaccines-may-be-more-effective-than-injections?sref=NVS0rEaE
46 million turkeys will perish as part of the US Thanksgiving holiday. And this fact makes me think of an illustration from the book, the Black Swan, written by Nassim Taleb.
Nassim Taleb, mathematician extraordinaire, and author of the book “The Black Swan” (which became very widely read during the GFC) has a great illustration of a Black Swan event — the life of a turkey. In the 1001 days in a life of turkey chart, you can see the wellness of a turkey.
– it rises steadily until the Wednesday before Thanksgiving
– then, down to zero
Source: Nassim Taleb
At least 4 Black Swans in 2020
But his illustration of the turkey actually bears relevance in 2020 as well. Looking at 2020 so far, it is a year of Black Swan (completely unexpected) events:
– Global pandemic killing >1 million people
– First ever shutdown of the global economy
– Greatest ever economic contraction in the US
– Fed completely abandons its playbook
These are completely unexpected events. And as Taleb comments below, is akin to the life of a turkey.
Source: Business Insider quoting Nassim Taleb
The greatest market blessing in 2020 is we now realize US corporates are “unkillable = P/E going to rise…
I am thankful for many market events in 2020, but the most notable is that we learned US corporates, both large and small, are unkillable. The US experienced:
– worst ever economic contraction
– near virtual lockdown of economy
– largest surge in unemployment
– near fatal crash in financial markets
Yet, US companies managed liquidity, cut costs, found ways to reach customers and generally did not collapse. This is absolutely incredible.
Seismic ripple is structurally lower equity risk premia = higher P/E
And I think the seismic ripple, going forward, is going to be a drop in the equity risk premia, at least for the next 4-5 years. In other words, we think P/E is going to step up dramatically. Why?
– Equity is arguably inherently less risky, if companies can survive the 2020 apocalypse
– Corporate credit trades at 50X P/implied “E” while stocks are 18X, this should meet in the middle
– Millennial investors made a fortune in stocks in 2020, during a Great Depression and their enthusiasm should not abate
– Millennials will inherit $68T over next 20 year = richest ever generation
So there could a huge runway for stocks — it doesn’t mean 2021 is going to be lights out good. But I certainly think this argues we finish 2020 very very strongly. Hence, we see S&P 500 reaching 3,800 by year-end. This is ~7% upside which is reasonably considering this seasonally strong period.
But the VIX is also key to a YE rally, to an extent. We believe VIX<20 would be a strong risk-on signal, as this level of VIX was only seen pre-pandemic. The VIX measures the market’s anticipated future volatility. Hence, lower VIX means investors see lower future volatility = higher leverage. Thus, falling VIX = more capital flowing into equities.
– Hopefully, we get a VIX <20 soon, and as such, is fuel for YE rally
Source: Bloomberg
Updated Epicenter Trifecta list — adding 14 stocks. +8 Energy stocks
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).
14 Additions to the Epicenter Trifecta Stock List:
– Consumer Discretionary: HAS, PII
– Financials: MTG
– Industrials: JBHT
– Energy: HP, NOV, SLB, EOG, PXD, HFC, MPC, PSX
– Basic Materials: SON
– Real Estate: VNO
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
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, EOG, F, FITB, FL, FLS, FNB, GE, GM, GPC, GPS, GRMN, HAS, HFC, HIW, HLT, HOG, HP, IBKR, IEX, JBHT, JBLU, KIM, LB, LEG, LUV, LYB, MAR, MGM, MIDD, MLM, MMM, MOS, MPC, MTG, NCLH, NEU, NNN, NOV, NUE, NVT, NWL, NYCB, OC, PB, PBCT, PHM, PII, PNFP, PNR, PSX, PXD, RCL, RS, SBNY, SBUX, SIX, SLB, SNA, SON, STL, STOR, SYF, TOL, TPX, UBER, UNP, VFC, VNO, 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: Wave 3 rolling over and ex-CA, cases declining. Daily cases 162,465 +5,987 vs 7D ago
The latest COVID-19 daily cases came in at 162,465, up +5,987 vs 7D ago.
– 7D delta is lowest in 40 days
– ex-CA, 7D delta is actually negative
– 6 states at the heart of Wave 3 are seeing cases rollover (Point #2)
– so for now, Wave 3 seems to be rolling over
Source: COVID-19 Tracking Project and Fundstrat
7D delta at +5,987 is the lowest in nearly 40 days…ex-CA, daily cases are NEGATIVE vs 7D ago…
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
Source: COVID-19 Tracking and Fundstrat
POINT 2: Wave 3 –> WIINSU daily cases looks to be rolling over = good
Wave 3 for COVID-19 is widespread, so it is not as geographically isolated as Wave 1 and 2 (see below). But the epicenter of Wave 3, measured as case prevalence (daily cases per 1mm) is 6 states –> WI, IL, ID, ND, SD, UT, or WIINSU And as shown below, the case velocity in these areas dwarfed what was seen in Wave 1 and Wave 2.
– even as cases pick up on Wave 1 (NY tristate) and Wave 2 (F-CAT) areas, the velocity is far lower
Source: COVID-19 Tracking and Fundstrat
But looking at the county-level data in WIINSU, we can see the first signs of Wave 3 peaking. This is highlighted the 3 largest counties in each state. This seems to be the case in:
– ND definitively peaked
– SD definitively peaked
– WI maybe
– UT maybe
So there are signs of peak in COVID velocity. Part of this stems from policymaker panic (soft lockdowns) and citizen panic (mask usage) and a part of this could be COVID-19 reaching the infection break point. The latter is interesting, but with therapeutics and vaccines, natural herd immunity is arguably less pertinent.
Source: Johns Hopkins
But looking at cases per 1mm residents (per capita) can be misleading in the sense that the aggregate number of cases tells a slightly different story. As shown below, if we look at state’s absolute daily cases, dominating this are Wave 2 states (Wave 2a now?) CA and TX.
Source: COVID-19 Tracking and Fundstrat
POINT 3: Nursing homes could receive vaccines in December…WOW!!!
Robert Redfield, CDC Director, was interviewed on Fox News and said a Coronavirus vaccine might be distributed across the US as soon as mid-December. This is a big milestone, if correct. I realize many of you might view the CDC with a jaded eye, given their secondary role in this crisis.
– But if Redfield is correct, this is a big deal
– the most vulnerable are the elderly
Source: https://nymag.com/intelligencer/2020/11/cdc-director-redfield-covid-vaccine-to-be-ready-in-december.html
And as reported by NY Magazine, which is quoting the Fox News interview, talked about distributing the vaccine in a hierarchical way. It seems he wants to give it to:
– nursing home residents
– healthcare providers
– individuals at high risk
If I was to add to this hierarchy, I think it should include:
– first responders
– essential workers, particularly at grocery stores
