Click HERE to access the FSInsight COVID-19 Daily Chartbook.
STRATEGY: Investors not as bullish you think, otherwise, why is VIX so high?
31% rise in US vaccinations in the past 24 hours… IMPRESSIVE
Vaccinations in the US are ramping up. As shown below, +579,632 doses were administered in the past 24 hours. This is a 31% rise in the daily doses administered. This is impressive, and as noted previously, if this rate reaches 1 million per day, the US could reach that 30% of citizens vaccinated by early April.
Israel’s daily COVID-19 cases might be the MOST IMPORTANT CHART IN THE WORLD
The vaccines have proven effective in trials, but the “real world” test is whether the infections slow after a region has vaccinated >30% or more of its residents. The nation to watch is Israel. As the data below shows, the % of citizens vaccinated is 17% (up from 6% a week ago) and is on course to hit 30% within 2 weeks.
This is the real test:
– cases in Israel should begin to slow dramatically in the coming weeks
– if cases slow, we see a roadmap for the end of the pandemic
– if cases do not slow, yikes!!!
Stocks on track to finish the first week strong…
Markets are wrapping up their first full week of 2021 and after a sloppy stumble on Monday, the S&P 500 managed gains and is now up ~1% for the week. There has already been a substantial bifurcation of sector performance:
– Energy is up >9% YTD
– Epicenter sectors 5 of 5 are up YTD (see below)
Equities seem to be telling us to expect a pretty vigorous economic recovery in the coming months. And we can see this possibility, given the continued ramp in vaccinations and along with better seasonal weather (starting March), COVID-19 cases could turn down sharply.
Even the contemporaneous economic data has been robust. Both December ISMs (manufacturing and services) posted solid beats and up versus Nov. In fact, the levels could arguably be considered pretty boomy.
There are many ways to measure investor sentiment, but the two we tend to rely on the most heavily are:
– AAII Bulls less Bears, which is a reliable way to measure retail investor sentiment for older Americans
– VIX futures, particularly the term structure, to judge institutional investor constructiveness on risk
The latest AAII survey (1/7) came in at 12.5, a middle of the road reading, and not really indicative of ebullience
But the more important metric remains the relatively high level of VIX across the term structure. Take a look below at the VIX futures with expirations through 9M. The current level is the thin blue line.
– VIX futures have improved from the extremely elevated levels throughout 2020 COVID-19 period
– But current levels are still far elevated compared to average VIX levels for the past 16 years
So, the VIX futures market shows a high relative level of cautiousness, as the market is implying volatility through the next 9 months. To me, that is hardly a sign of bullishness.
Moreover, look at the contracts from 4M to 9M out. The current levels of 26-27 are essentially the same as they averaged in 2020:
– In other words, VIX futures show markets think future volatility is going to look like it did in 2020
– Wow, this is not a sign of complacency, arguably the opposite
As we wrote in our 2021 Outlook, periods of high volatility tend to be followed by a collapse in volatility. And 2020 volatility was the 3rd highest ever. But notice how volatility collapses in years following high vol regimes?
In fact, look at the chart below which compares the VIX term structure and forward S&P 500 returns.
– In 2020, VIX term structure, 4M-1M averaged -1.0:
– This is 10th decile (worst, shaded red)
– Average forward return is +23%
– Win-ratio is 100%, stocks never posted negative 12M returns following 12M of inverted VIX term structure
The future is uncertain, but the data suggests a high probability for equities to post shockingly high gains in 2021. And this is also consistent with our observations that most of our institutional investor clients are cautious.
– and keep in mind, 94% of all investor flows since 2009 have gone into bonds. A mere 6% into stocks.
Rough Roadmap for 2021
COVID-19 is unpredictable and the renewed post-holiday surge in cases reminds us that the virus remains prevalent. And the path of equity markets is equally unpredictable but our rough roadmap for 2021 remains as follows:
– rally into Feb-April peaking at S&P 500 ~4,000
– pullback towards 3,500
– rally into YE towards 4,300
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 reach new high at 261,571, +41,113 vs 7D ago –> but it still could be caused by the holiday distortions
The latest COVID-19 daily cases came in at 261,571, up +41,113 vs 7D ago.
– the holiday effect is going to cause distortions for several weeks
– over Thanksgiving, it was not until a full two weeks after Thanksgiving that underlying trends were visible
– this will be the case with current data, meaning mid-Jan is when we can start to get a better handle on trends
The 7D delta turned positive, and this 7D delta has been rising in the past few days
– because of holiday scheduled closures/etc, distortions in the data will be prevalent until mid-Jan
– so I would look at trends with a grain of salt
The hotspots for the increase in new cases (7D delta in new cases per 1mm residents) are shown on the chart below. The hotspots are in the southern states of the US. These are places Americans are gathering for vacation and for the holidays, so this is not entirely surprising.
POINT 2: Watch outcome here… Israel likely first nation to reach herd immunity via vaccination
Israel’s progress in vaccinating its population is impressive. As shown below, ~17% of the nation has received a vaccine dose.
– coupled with an estimated recovered infection rate of 21%
– we estimate that 39% of Israel has some level of COVID-19 antibodies
The next closes nation, in terms of vaccine progress, is the UAE. But that nation does not provide time series data.
Israel is in the midst of a pretty serious breakout of COVID-19, so the urgency of vaccinations is similar to that of the US.
In the past week, about 11% of the population received a vaccination. But this is what makes Israel the key area to study. With this rapid rate of vaccination, we should expect Israel to begin posting a decline in COVID-19 cases.
– If cases keep rising, worrisome –> vaccine doesn’t work
– If cases plunge, positive surprise –> COVID-19 pandemic end in sight
POINT 3: NZ study looks at COVID-19 spread on an 18-hour flight
A new study by the New Zealand Health Ministry, led by Dr. Tara Swadi, provides some insight on how COVID-19 spreads on an intercontinental flight with current protocols in place. The study specifically looked at infection spread on an 18-hour single flight from Qatar to New Zealand.
– 1 passenger boarded infected (though tested negative 5 days prior)
– patient zero spread to at least 4 but more likely 6 (others pre and post)
– 2 of the 4 did not wear a mask on the flight
– genetic testing showed this was a single virus
The study also shows the seat map of the infections. These are color coded and the labels assigned letters “A” (patient zero) to “G”
– all infections were within 4 rows of patient zero
– we marked other passengers marked “x”
– 8 “x” (no infection) and 6 infections and ~125 passengers total
– no crew member became infected
– attack rate was 5% on an 18-hour flight
To me, the latter point is kind of interesting. Despite being in an enclosed space for 18 hours, only 6 of the total ~125 passengers were infected. And not a single crew member.
I guess this supports the idea that flying is relatively safe.
The full study link is below and the bigger takeaway from the authors is the need to do more preventative testing pre and post flight. New Zealand requires 14-day quarantine, so this was a contained outbreak.
