Click HERE to access the FSInsight COVID-19 Daily Chartbook.
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Our 2021 Year Ahead Outlook will be released Thursday, December 17th at 3:00 PM EST
Joining us for a webinar, which will include the Fundstrat Macro Team. The following topics will be discussed:
• Overall macro and strategy outlook 2021
• Economic outlook, what can we reasonably expect for GDP growth?
• Where are we in this investment cycle and what themes will dominate?
• We discuss key policy risks and upsides
• New investment themes
• Full EPS and sector outlook
Don’t miss it!!!!
You must register in advance.
Register here to attend –> REGISTRATION LINK
Should you have any questions, please do not hesitate to contact us at (212) 293-7140 or email inquiry@fsinsight.com.
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STRATEGY: We still believe in Santa Claus (rally), led by Epicenter stocks
COVID-19 Wave 3 remains pernicious and the same virus that killed so many Americans this year. COVID-19 is also widespread in Wave 3, initially engulfing areas of the US previously unscathed, but in the past few weeks, COVID-19 has surged in all areas of the US. In the midst of this, our base case was COVID-19 Wave 3 would not peak until Feb/March 2021.
But when we look at 7D delta in US cases, we are seeing some signs that COVID-19 could actually be slowing. We prefer to look at 7D delta to clear up the noise of daily delays. And this is a leading indicator of the 7D moving average.
– the 7D delta, excluding CA, seems to be rolling over pretty hard
– 45,600 7D delta 5 days ago to <6,000 now
– It is possible this could be negative by end of the week
If this dips negative and manages to stay negative, we could be seeing Wave 3 rolling over. Granted, you might question this since we saw negative prints last week — but that was an expected result because of the Thanksgiving holiday — testing centers were closed, etc.
– But then again, holidays bring people together = greater risk
So, I will not venture to guess the actual trend, since it is uncertain. It is better to watch the data.
Source: COVID-19 Tracking Project and Fundstrat
Equities have struggled this week. And technicals have been hurt the fact the S&P 500 posted a new high on Wednesday but closed lower. There have been multiple headwinds emerging this week, so far:
– Vaccine supply questioned in the US, as the White House passed on buying more Pfizer doses (but US has ordered 700 million doses)
– Relief package seems stuck in the Washington quagmire
– COVID-19 cases are surging widely in the US and hospitalizations are record and deaths elevated
– FTC and multiple state AG brought anti-trust charges to Facebook
– Did Doordash and now AirBnB IPO create a lot of new supply?
So you can see equities have some incremental headwinds this week.
But we still expect stocks to benefit from positive seasonals and rally into YE. In other words, we still believe in Santa Clause (rally). In fact, stocks look oversold using 4-hr 14-period RSI. Take a look below.
– the 4-hr RSI is solidly oversold (<30)
– the last 3 times we saw this, this was a buy signal for the S&P 500
I don’t see how anything has changed in the past week, compared to the past month. This is an oversold condition and I believe stocks should soon bounce from here.
Source: Bloomberg
In the past 2 months (8 weeks), Epicenter has outperformed S&P 500 6 of the last 8 weeks = signal
As for leadership, take a look at the weekly quilt below. The blue boxes are epicenter stocks (aka Cyclicals). They have been stupendous performers in the past 2 months:
– 6 of 8 weeks, outperform S&P 500
– 4 of last 5 weeks, best performing cohort in S&P 500
Unless something has changed, which it does not seem so, Epicenter looks like the leaders into YE.
The greatest potential risk to this view, probably, is a delay in fiscal relief. But then again, in 2021, we see a new administration. So I don’t think investors would see a near-term setback as a thesis changer. In other words, stick with Epicenter stocks.
Source: Bloomberg and 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
(*) 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 209,206, +16,076 vs 7D ago. Ex-CA, it almost looks like Wave 3 peaking
The latest COVID-19 daily cases came in at 209,206, up +16,076 vs 7D ago.
– the massive 7D jump is due to the fact that last week was Thanksgiving, so cases were suppressed (closures)
– CA is getting hit especially hard, with >30,000 cases on Wednesday
– but ex-CA, the 7D delta seems to be really slowing
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 +16,076…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 less than two weeks ago…
Source: COVID-19 Tracking and Fundstrat
CA remains the state with the highest daily count in cases and also the biggest 7D jump in cases. But COVID-19 is pretty bad everywhere.
Source: COVID-19 Tracking and Fundstrat
Source: COVID-19 Tracking and Fundstrat
POINT 2: Daily cases in Boston (per 1mm residents) > NYC peak in Wave 1
Wave 3 is now moving across most of the US. And many areas of the US are seeing a second wave of cases. For instance, in the NY tristate area (+MA +RI), many cities are seeing a new wave of cases. Essentially the second wave for these areas, which were hit hard in Wave 1.
I was pretty surprised at the magnitude of the case figures. For instance, look at Boston below. Boston recently recorded >750 daily cases per 1mm residents, on a 7D moving average
– This exceeds NYC at its absolute worst (~625)
– And is 25% above Boston’s prior peak
Granted, more cases are being detected because of the increase in testing availability. And many of the cases are not as severe.
Source: Johns Hopkins and Fundstrat
In MA, the share of cases from Hispanic residents is still high relative to the overall population. The most recent data shows 28% of cases are Hispanic, down from 50% in Sep/Oct. And this was 40% in Wave 1.
Source: COVID Tracking Project and Fundstrat
According to Wikipedia, about 10% of the state’s population is Hispanic. So even at 28%, this is ~3X higher share of Latino/Hispanic compared to the overall population.
Source: Wikipedia
I am not clear about the reasons behind this high share, but this does show that Hispanics/Latinos are disproportionately impacted by COVID-19.
POINT 3: COVID-19 rolling over hard in Europe, as lockdowns stop COVID-19 cold
Daily cases in Europe are rolling over hard. A few weeks ago, most EU countries implemented fairly strict stay at home/ lockdown orders, nearly matching the restrictive measures put in place in March 2020. And as you can see on the chart below, COVID-19 daily cases are rolling over hard.
– Milan has seen the sharpest decline but Paris and Madrid are not far behind.
– London is the exception, where daily cases have hovered at a constant level, but this level is way below what was seen in Western Europe.
Source: Fundstrat and local government health agencies
Lockdowns are being taken pretty seriously in Europe. Undoubtedly, because of the severity of the restrictions, there will be economic consequences in 4Q2020 and likely early 2021. And for the most part, we have not seen negative stories of these lockdowns. Below seems to be a very rare exception and an odd one. It looks like someone was shot in Albania for violating curfew.
https://www.reuters.com/article/us-health-coronavirus-albania-protests/albanians-protest-after-police-shot-dead-a-man-for-violating-coronavirus-curfew-idUSKBN28J2UU?il=0
As noted above, of the major metropolitan areas, London seems to be the exception, where COVID-19 case trends have not improved. The levels of daily cases have been low, but still stubbornly high.
Within the UK, there two regions with cases trending relatively high are London and Wales.
– But regions that saw massive outbreaks in October, like Midlands, or North End, all seem to be showing large declines in cases.
This is all a good sign actually for the US. It is possible that the US could see Wave 3 peak earlier than February. But as we have written multiple times, COVID-19 is a very difficult disease to understand. So this means the future is uncertain.
Source: Fundstrat and local government health agencies
