Click HERE to access the FSInsight COVID-19 Daily Chartbook.
STRATEGY: Winter just starting, so the risk of COVID-19 remains elevated until Spring
Wave 3 is unfolding in the US and the source of case growth is changing. From Sept to Oct, this surge was in the 22 states previously unscathed in Waves 1 and 2 (led by WI, IL, ID, ND, SD and UT, or WIINSU). But now as shown below, it is being led by the NY tristate (ex-NY) and by wave 2 states, FL, CA, AZ, TX, or F-CAT.
Source: COVID-19 Tracking and Fundstrat
Our base case remains that COVID-19 Wave 3 will not peak until the Spring, consistent with the forecast model of IHME (healthdata.org). Winter has not even yet started, commencing December 21 and not ending until March 2021.
Source: Google
WSJ had an article citing research by UCLA, showing that the dry and cold air in winter actually could make COVID-19 virus more stable, and thus, more contagious. So this spread in COVID-19 is likely to continue for a few months.
Source: WSJ
Financial markets took the November jobs miss in stride. The VIX finished Friday’s session trading lower (see below) despite the double whammy of vaccine potential delays and the Nov jobs miss. And as we have noted in the prior commentary, we think the key level to watch is a sub-20 VIX, as this would be a strong risk-on signal.
Source: Bloomberg
We believe stocks are attractive into YE, benefitting from positive seasonals, among other factors. We tend to view stocks as the junior piece of the capital structure, meaning stocks follow the lead of economic and credit markets. As shown below, high-yield markets have been very robust, continuing to rally.
– in fact, on Friday, it looks like HY had an upside breakout
– if so, this is a major risk-on signal for equities
Hence, we see stocks rallying into YE, consistent with a Santa Claus rally
Source: Bloomberg
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
(*) 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.
POINT 1: Daily cases 176,039, +41,879 vs 7D ago. Northeast getting bad.
The latest COVID-19 daily cases came in at 176,039, up +41,879 vs 7D ago.
– the massive 7D jump is due to the fact that last week was Thanksgiving, so cases were suppressed (closures)
We won’t have a clearer picture of COVID-19 trends until after this “payback” period ends, which is a few weeks away. This is not that different than the distortions seen after Labor Day weekend.
Source: COVID-19 Tracking Project and Fundstrat
7D delta at +41,879…yikes
Again, the daily change vs 7D ago, in our view, is the leading indicator as it is what influences the 7D moving average.
– This is payback, as Thanksgiving is the 7D ago date…
Source: COVID-19 Tracking and Fundstrat
To appreciate the distortion caused by Thanksgiving weekend, take a look at the difference between the 7D and 14D moving average of COVID-19 cases below. As you can see, the 14D is showing a sustained rise, but it is not showing the 7D dip (around Thanksgiving) and 7D post-surge.
Source: COVID-19 Tracking and Fundstrat
Source: COVID-19 Tracking and Fundstrat
Source: COVID-19 Tracking and Fundstrat
POINT 2: Wave 3 is slowing in 16 states, but now surging in NY tristate
Wave 3 continues to surge across the US but as it unfolds, the nature of the case surge is changing:
– From Sept to Nov, Wave 3 was surging across states that were previously unaffected in Wave 1 and Wave 2
– These 22 states, led by WI, IL, ID, ND, SD, UT, or WIINSU, saw a massive surge in cases
– In the past few weeks, Wave 3 is engulfing NY tristate (hit in Wave 1) and FL, CA, AZ, TX, or F-CAT (hit in Wave 2)
The chart below highlights this. It shows the # days since peak and is color coded.
– Red is recently made a new high
– Green is more days since the peak
Notice how it is coasts (East and West) and border states again?
Source: COVID-19 Tracking Project and Fundstrat
– NY tristate (Wave 1) and you can see every state, except NY state is making a new high in cases.
– F-CAT states have all seen a new high, except for FL. FL has seen a surge but not approaching Wave 2 levels
Source: COVID-19 Tracking Project and Fundstrat
But this surge in cases belies the differences in healthcare severity. Below are the Wave 1 and Wave 2 states and their associated current levels of COVID-19 patients hospitalized. As you can see, of these 9 states, only 2 are seeing a new high in hospitalizations:
– RI and CA
This is not to be dismissive of the severity of COVID-19. Rather, we are balancing that cases are indeed exploding, but the key to watch is the levels of hospitalizations, which leads to further severity (deaths). Thus, while aggregate US hospitalizations are up, it is spread across a much greater number of states.
Source: COVID-19 Tracking Project and Fundstrat
POINT 3: CA massive surge in cases also exposing policy dilemmas
Daily cases in CA have surged in the past few days, surpassing >30,000 over the weekend. As the chart below shows, this is 2X the peak during wave 2 (F-CAT) and there is no sign this surge of cases in CA is slowing. There is also a commensurate rise in hospitalizations.
– CA cases are 2X that seen at the peak in Wave 2
– Hospitalizations, however, are only slightly above the prior peak of Wave 2
Hospitalizations are severe and in fact, prompting policymakers to act and a reminder that once COVID-19 reaches a vulnerable cohort (aged, pre-existing conditions), there are risks of severe outcomes.
Source: COVID-19 Tracking Project and Fundstrat
On Friday, CA Gov Gavin Newsom announced new stay at home orders, but this is conditional upon a region exceeding 85% of available hospital capacity. At the moment, no region is exceeding those levels.
– Several regions are expected to exceed that level within a few weeks;
– Specific cities are instituting their own actions, including Los Angeles.
A stay at home order is basically a ‘hard lockdown’ and mirrors what we saw in early 2020. This includes closing restaurants except for takeout and limiting retail capacity to 20%. In fact, this is essentially the same as the lockdowns announced in Europe.
https://abc7.com/newsom-press-conference-live-today-gavin-stay-at-home-order-covid-19-california-shelter-in-place-update/8443007/
A lockdown is a blunt instrument. It surely is effective at slowing COVID-19, but at a cost of devastating the local economy. Unless policymakers offer offsetting economic support, this is essentially triggering another catastrophic wave of economic chaos. The tweet threat by Dr. Monica Gandhi (below) is a good perspective.
– in short, she is asking why implement March 2020 orders, when the understanding of COVID-19 has improved?
https://twitter.com/monicagandhi9/status/1335296125255831552?s=21
And already, some counties are taking more drastic measures. LA County in late November suspended outdoor dining.
https://www.latimes.com/california/story/2020-11-22/l-a-county-suspends-outdoor-dining-at-restaurants-as-coronavirus-surges
But this has led to many restaurant owners to plea for help. There has not been any economic assistance offered, by the state nor by the Federal government. Additionally, it seems like other industries, like catering (to the media industry) are allowed to continue to serve people outdoors.
There was a widely circulated video over the weekend made by Angela Marsden, owner of the Pineapple Hill Saloon & Bar in Sherman Oaks, CA. She was highlighting the hypocrisy of the new LA County policy.
https://www.thewrap.com/closed-restaurant-owner-decries-hypocrisy-of-la-covid-19-orders-allowing-film-shoots/
So, as her video shows, the catering tents are allowed to serve customers. While her outdoor dining area, which looks identical, has been ordered closed.
https://www.facebook.com/phsaloon/videos/391065455557657/
