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: Santa Claus rally seems to be starting ‘on cue’
After so many ‘false dawns’ we are reluctant to think Wave 3 is reaching an apex. But it does seem like the rate of change (7D delta) has turned negative. This is a good sign as the cases reported on Tuesday were -12.511 less than 7D ago. This is the first negative 7D delta in 15 days.
– but with the holiday season underway, it is too early to see this as a decisive change in trend
– it is encouraging though
Source: COVID-19 Tracking and Fundstrat
Tuesday was 12/15 and the S&P 500 surged >1%, its best day in December so far. It seems like the seasonals are indeed kicking in (see below). And as we have mentioned before, we believe ‘strong markets end strong’ = S&P 500 rally into YE. And we believe the S&P 500 can surpass 3,800 before the end of the year.
Source: LPL and Fundstrat
I cannot emphasize enough how significant it is that volatility is expected to fall in 2021 and beyond. Earlier this week, we wrote about how VIX tends to collapse following years when we see elevated VIX. See below. And if the 30-years of history proves correct, we should expect VIX to remain below 20 for much of 2021-2023. And this is risk-on, largely.
Source: Fundstrat
But a more important point, we believe, is that in 2020, investors expected near term volatility to be high and surpass that of long-term. This inversion is very unusual.
– in all of 2020, the average term structure was inverted
– last time this happened was 2009
– 2021-2023 should see a normal VIX term structure = risk-on
Source: Fundstrat
S&P 500 returns positive 100% of time whenever VIX term structure inverted >12m…
Look at the comparative return of S&P 500 at various levels of VIX term structure inversion (12M rolling). It is pretty interesting:
– 10th decile of inversion <-0.4 (12M avg)
– As of today, 4M-1M (12M avg) = -1.1
– 12M forward return = 23% avg
– win-ratio = 100%
So history says stocks, once they exit a period of high volatility, see unusually strong returns. It is evident also by seeing that line bend on both sides. This suggests 2021 equity returns should be far above long-term average.
– the caveat, is this data is only 16 years of duration
– but intuitively, this makes sense to me.
Source: Fundstrat
Epicenter tends to see even stronger performance when VIX normalizes…
We published this chart earlier this week, but want to repeat it. In the period after the VIX term structure normalizes, Epicenter stocks tend to massively outperform low volatility/growth stocks. The rationale is that during high volatility, investors seek low volatility businesses. But conversely, when volatility falls, investors seek higher volatility businesses = epicenter leads.
– Since 2004, Epicenter outperforms by 3,200bp (Growth) in the 12M following a 10th decile (highest) VIX term structure inversion
– This is based upon 12M avg VIX 4M less 1M
– As of today, that average is -1.1 and the 10th decile cut-off is -0.4
Source: Fundstrat
Bottom line, we see a Santa Claus rally into YE. Strong markets stay strong. And this is led by Epicenter stocks. The most current list is below.
Epicenter Trifecta list
Below is our current “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).
Source: Fundstrat, 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: AN, GM, F, HOG, GRMN, LEG, TPX, PHM, TOL, NWL, HAS, MAT, PII, MGM, HLT, MAR, NCLH, RCL, WH, WYND, SIX, DRI, SBUX, FL, GPS, LB, CRI, VFC, GPC, BBY, FITB, WTFC, ASB, BOH, FHN, FNB, PB, PBCT, RF, STL, TFC, WBS, PNFP, SBNY, NYCB, MTG, AGNC, EVR, IBKR, VIRT, BK, STT, SYF, BHF, AGCO, OC, ACM, WAB, EMR, GNRC, NVT, CSL, GE, MMM, IEX, PNR, CFX, DOV, MIDD, SNA, XYL, FLS, DAL, JBLU, LUV, MIC, KEX, UNP, JBHT, R, UBER, UHAL, HP, NOV, SLB, EOG, PXD, HFC, MPC, PSX, XEC, LYB, EXP, MLM, CF, MOS, ESI, NEU, NUE, RS, SON, STOR, HIW, CPT, UDR, KIM, NNN, VNO, JBGS, RYN
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 184,543, -12,511 vs 7D ago. Wave 3 7D delta turned negative… good tentative sign
The latest COVID-19 daily cases came in at 184,543, up -12,511vs 7D ago.
– Daily case growth, measured as 7D delta, turned negative, the first time in 15 days
– For ~9 days now and maybe as much as 11 days, the 7D delta is flattening and now turned negative
– But we are still in the holiday season, so the threat of renewed spread is high
Source: COVID-19 Tracking Project and Fundstrat
7D delta at -12,511…Wave 3 momentum still slowing
Again, the daily change vs 7D ago, in our view, is the leading indicator as it is what influences the 7D moving average.
– it turned negative for the first time in 15 days
– the 7D delta is falling for ~9 consecutive days now, maybe as much as 11 days
– but we are still in a period of distortion from post-Thanksgiving- plus, we are still in the holiday season, so renewed spread is a risk
– this week will provide a much clearer picture
Source: COVID-19 Tracking and Fundstrat
CA remains the state with the highest daily count in cases and also among the biggest 7D jump in cases. But COVID-19 is pretty bad everywhere.
Source: COVID-19 Tracking and Fundstrat
Is CA finally peaking? Hopefully….
Source: COVID-19 Tracking and Fundstrat
POINT 2: COVID-19 retreating everywhere in the world except the USA
Below is the most recent snapshot of COVID-19 cases worldwide (7D avg) and as you can see, Europe is still the region with the highest number of daily cases. And the US is the second highest. But looking at this chart, a more notable trend is taking place:
– regionally, COVID-19 is retreating (in large numbers) everywhere except the US
– thus, when US finally reaches its apex on Wave 3, we should see COVID-19 globally rolling over
In other words, once the US sees COVID-19 cases rolling over, this is a roll-over for the entire world.
Source: Johns Hopkins and Fundstrat
It is also helpful to look at cases per 1mm residents, so we can better compare the rate of spread. The US case levels, of 636 per 1mm residents, ranks it #9 in the World. But it is the highest of major nations.
– Topping the list of top 20 are Lithuania and Croatia with 1,129 and 966 cases per 1mm.
– These are levels that nearly match the massive spread we saw in North Dakota and South Dakota
Source: Johns Hopkins and Fundstrat
As for regionally, you can see the US has soared to become the region in the world with the highest cases per 1mm residents. Latin America has seen cases slow and it does coincide with the arrival of warmer weather in that region.
Source: Johns Hopkins and Fundstrat
POINT 3: FDA authorizes first OTC at-home antigen test kit by Ellume
The FDA yesterday issued EUA (emergency use authorization) for the Ellume home COVID-19 test kit. The company is based in Queensland, Australia. They have products for hospitals and institutions, and this is one of their consumer products.
There are a few things that make this unique:
– no prescription needed — this is sold ‘over the counter’
– test results in 20 minutes
– need to use a nasal swab
– results on the smartphone
3 million test kits are expected to be available by January 2021, per FDA
Source: FDA
Ellume claims their antigen test is 96% accurate. According to Ellume’s data (based on 198 subjects):
– sensitivity of 95% (positive percent agreement)
– specificity of 97% (negative percent agreement)
The latter means 3% of those getting ‘positive’ results actually do not have COVID-19.
Similarly, 5% of those getting ‘negative’ results actually have COVID-19.
Source: Ellume
The Ellume product is the second ‘at home’ authorized EUA by the FDA. The first was a product by Lucira on November 17, 2020 (see below). The Lucira product, however, requires a doctor prescription.
Source: FDA
