COVID-19 UPDATE: Positive reversal in stocks in face of "bad news" not a sign of equities topping.

Click HERE to access the FSInsight COVID-19 Daily Chartbook.

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For the next two weeks, we are going to be publishing on a shortened holiday schedule:

Week of 12/20…
Monday 12/21
Tuesday 12/22
Wednesday 12/23

Week of 12/27…
Monday 12/28
Tuesday 12/29
Wednesday 12/30
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STRATEGY: Monday positive equity reversal is a sign of “lots of gas left in the tank”
For anyone watching equity futures overnight (Sunday), it was looking very foreboding with all the major equity indices down >2%.  The ‘ostensible’ reason is fears over the ‘potential new strain’ and ‘more contagious’ strain of COVID-19.  But stocks were weak on Friday and the Sunday overnight weakness, arguably, was simply follow through.

Source: Reuters


The “UK new strain” is more common in London but its high prevalence is not necessarily due to being more contagious
This newly discovered COVID-19 strain in the UK has 28 mutations.  And it is showing up more commonly, which is the reason there is conjecture that it is more transmissible.  

https://www.nytimes.com/2020/12/21/health/new-covid-strain-uk.html


But it is also possible that this increased prevalence is simply a result of human behavior as well.  As Dr. Cevik is quoted in the NY Times article notes.

Source: NY Times (https://www.nytimes.com/2020/12/20/health/coronavirus-britain-variant.html?auth=login-email&login=email)


Policymakers globally reacted quickly and have banned flights into their nation from the UK.  Take a look at the graphic from the UK’s DailyMail.  Nearly 20 countries implemented bans on incoming flights from the UK. There was much consternation that the US did not follow suit. 

https://www.dailymail.co.uk/news/article-9074677/British-travellers-held-German-airports-mutant-Covid-strain.html



The strong reversal yesterday in stocks in the face of “scary new” was not a sign of an equity market topping…
Based on our conversations with managers in the past week or so, the plurality of managers seem to think stocks are on “borrowed time.”  That is, the strong rally since March and more notably, the surge since late-October is extended. 
– Consensus sees buying stocks here is like “picking up nickels in front of a train”
– In other words, many believe the Santa Claus rally came early and is done

But take a look at the intraday equity chart below.  
– S&P 500 opened down 2% as the “virus strain” fears caused a tumble
– Equities then rallied strongly and closed nearly flat (-0.4%)

This is very strong price action.  In the face of bad news, and a very horrific open, stocks did not manage to see much further downside selling.  Instead, in the face of bad news, stocks closed above their open. 

So this suggests to me there is a lot more gas still in the tank –> Stocks can rally strongly into YE

This view is also echoed by our Head of Technical Strategy, Rob Sluymer.  As he notes below, it is better not to over-react to Monday trading.  But he also likes yesterday’s equity recovery

Source: Instant messaging

STRATEGY: 67 stocks (*) in the ‘Top 3’ sectors…
Our data science team, led by tireless Ken, has put together the trifecta list of stocks, coming from the ‘top 3’ sectors: Discretionary, Industrials and Energy.  These are stocks that there is consensus between myself, Rauscher and Sluymer.

Consumer Discretionary (30 stocks)
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

Industrials (28 stocks)
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

Energy  (9 stocks)
HP, NOV, SLB, EOG, PXD, HFC, MPC, PSX, XEC

Source: Fundstrat  

(*) The 67 stock ideas are the subset of the “Epicenter” Trifecta stock list we published on December 11th, 2020. To view the full list of stock idea, 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.

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: Wave 3 still rolling over.  Daily cases 178,785, -13,605 vs 7D ago.
The latest COVID-19 daily cases came in at 178,785, down -13,605 vs 7D ago.  
– ex-CA, the 7D delta has been falling for ~12 days now (see below)

Wave 3, in other words, is essentially ending for the US, except for CA

Source: COVID-19 Tracking Project  and Fundstrat


The 7D delta is again negative and ex-CA, daily cases are rolling over more noticeably.  
– ex-CA, daily cases are indeed rolling over in the US for the past 12 days

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.  

 
Source: COVID-19 Tracking and Fundstrat 

Source: COVID-19 Tracking and Fundstrat  



POINT 2: 7D delta in daily deaths and hospitalizations is also slowing 
There are increasing signs that Wave 3 is rolling over.  Not only have daily cases been falling vs 7D ago, but we are seeing similar trends in daily deaths and in net hospitalizations.  As shown below, the 7D delta for all 3 look to be rolling over. 

– these can be found in the daily chartbook, which we attach everyday

Source: COVID-19 Tracking Project


And even the coefficient for hospitalizations, or the incremental hospitalization rate is rolling over.  In fact, it is at the lowest level since September.  In other words, we are at a 12-week low for this ratio.

– this is a sign that Wave 3 could also be slowing, in its burden on the healthcare system.

Source: COVID-19 Tracking Project




POINT 3: Cases in London are surging, while the rest of Europe rolls over…
If you are wondering why the UK and London seem to be going into panic about COVID-19, take a look at the chart below.  This shows the absolute number of daily cases, for various major global cities (we also include Boston as well).  And as is apparent below:

– daily cases in London are soaring, to ~7,500 per day
– this is >2X NYC at the moment
– other European cities are seeing cases fall/stabilize

So London is standing out, meaningfully.  Just a month ago, London was seeing <2,000 cases per day and this has exploded to 7,000 in a few weeks.

Source: Various health departments



Adjusting for the size of the population, or daily cases per 1mm, you can see London’s surge is not standing out as much.  In fact:
– London’s surge is similar to the same surge seen in Paris, Madrid, Milan

Source: Various health departments



And across the UK, it seems like the worst of the outbreak, measured in daily cases per 1mm is London and the southern parts of the UK.

Source: UK Health Ministry