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We are shifting to a 4-day a week publication schedule:
- Monday
- Tuesday
- Wednesday
- SKIP THURSDAY
- Friday
STRATEGY: Of 10 key 2021 macro drivers, 8 of 10 likely to support higher P/E in 2021… a tailwind for upside surprise
Multiple positives COVID-19 developments over the weekend…
It was mostly over the weekend, there were several positive developments over the weekend:
– US COVID-19 cases fell to 90,780, the first sub-100,000 since Wave 3 started
– EXO-CD24 in a Phase I trial in Tel Aviv shown to cure COVID-19 in 29 or 30 cases (see Point #3), thanks AR+RJ and SJ for flagging this.
– Daily US vaccinations reached 2 million per day (past 2 days)
– Vaccine “boost” not even kicking in yet — only 2.6% of US received 2 doses (per data compiled by tireless Ken)
So you can see, multiple positive developments over the weekend. A possible cure! Sub-100,000 cases?
– as we commented last week, at this pace of decline (-25k to -30k vs 7D ago), we could see sub-50,000 cases in two weeks
– vaccinations will “boost” this figure as only 2.6% of US citizens have 2 doses but could be 10% or more in two weeks
The first drug that seems to result in an actual COVID-19 cure…
Over this weekend, results of Phase I trial of a drug currently named EXO-CD24 developed by the Tel Aviv Ichilov Medical Center (thanks AR+RJ in NYC and SF in Little Rock). Below is the summary key points:
– completed Phase 1 trial at Tel Aviv Ichilov Medical Center
– cured 29 of 30 recipients within 3-5 days
– all 30 recovered after originally developing moderate to severe COVID-19
– mechanism is fighting cytokine storm using a protein called CD24
– product is inhaled
Source: https://www.timesofisrael.com/new-israeli-drug-cured-moderate-to-serious-covid-cases-within-days-hospital/
With only 2.6% of US receiving two doses — suggesting fall in US cases not reflecting vaccinations
Given that only 2.6% of the US has received two doses, it is unlikely the recent plunge in US cases stems from vaccinations.
– This figure is only >5% (2 doses) is a more 0.8%
– Virtually none of the US has any geography benefitting from vaccine penetration
This is actually good news, as this suggests that most of the decline in the US cases stems from factors not stemming from vaccination efforts. Thus, the boost from vaccine penetration should be seen in the coming weeks.
Source: CDC, COVID-19 Tracking Project and Fundstrat
Daily vaccination doses are ramping up… ~2 million per day now
We are still “growing pains” in daily doses of vaccines, and this progress will not be linear. As shown:
– Daily vaccinations in the US were 2,043,677 improved from the abysmal 1,454,950 last Sunday
– This only reflects 2 approved vaccines. But within the coming weeks, it is expected that both JNJ and Astra-Zeneca would both receive EUA approval
– Will the US be vaccinating at a 4 million per day pace in March-April? Maybe. Wow
Source: CDC and Fundstrat
STRATEGY: Super Bowl indicator, NFC win is better = Tampa Bay win
Super Bowl 55 is last night. And as many of you might be aware, there is actually a Super Bowl indicator for equities. This is very likely merely statistical noise, but take a look at equity returns, depending on which conference wins the Super Bowl.
– AFC wins –> 7.1%, 65% win-ratio
– NFC wins –> 10.2%, 79% win-ratio
Interestingly, NFC wins seem to be associated with better outcomes for stocks. So, just to remind everyone in Super Bowl LV:
– Kansas City Chiefs AFC
– Tampa Bay Buccaneers NFC
Therefore, a win led by Tampa Bay would be good for equities. Do we believe this is just chance? Of course, it is rational to purely attribute this to statistical noise — but then again, equity markets are mysterious, so maybe there is something to this??
Source: https://twitter.com/RyanDetrick/status/1358052658871959554
STRATEGY: Of 10 key 2021 macro drivers, 8 of 10 likely to support higher P/E in 2021… creating a tailwind for upside surprise
Last year, I made reference to a comment made by George Boyd, former Director of Research of Kidder Peabody (my first job on Wall Street was at Kidder Peabody), who said:
“it takes a whole lot of ‘E’ to offset ‘P/E'”
I am sure this has canon on Wall Street for many years, but it was from those at Kidder where I heard this first uttered. By the way, my DOR at Kidder in the early 90s was Ted Johnson. He was someone I admired greatly, and I am forever indebted to Ted for not only watching my career while at Kidder, but also helping me land at Smith Barney in 1997.
But the key point is that change in P/E impacts equity returns that many investors appreciate. And in 2021, P/E is in focus, because we hear so many investors suggest the market’s forward P/E is so high that it is a headwind for stocks.
Let’s consider some of the major macro events on the timeline in 2021. Below is not an exhaustive list, but one’s we see on the horizon:
– COVID-19 recedes P/E up
– Consumers restart “normal” life P/E up
– Global GDP growth accelerates P/E up
– Washington to pass fiscal relief P/E up
– Fed dovish P/E up
– Trump impeachment trial P/E mixed
– Millennials open equity accounts P/E up
– Baby Boomers rotate bonds to equities P/E up
– Commodity prices rise P/E mixed
– Interest rate increases P/E up, yup
So, you can see, of the 10 factors above, 8 of the 10 are positive.
YUP: Since 1950, higher interest rates = higher P/E when 10Y <5%
Investors might be surprised that higher interest rates = higher P/E. This is true, when the starting point for interest rates is low. Take a look below at this chart comparing:
– US 10Y (x-axis)
– S&P 500 P/E (y-axis)
– while are periods show, Fed tightening cycles colored by period
Two interest rate vs P/E relationships exist:
– US 10Y <5%, higher rates = higher P/E
– US 10Y >5%, higher rates = lower P/E
Source: Fundstrat, Bloomberg, Shiller
In other words, when interest rates are very low, interest rates and P/E are positively correlated. Higher rates = higher P/E. Why?
– low rates = likely low economic growth expectations
– low rates = low pricing power companies
– low rates = equities look riskier
Hence, if interest rates move from low levels and creep higher, this has resulted in rising equity P/E. While this may seem counterintuitive, look at how this positive correlation has existed in multiple different interest rate regimes and in different Fed cycles.
Bottom line, we think S&P 500 in 2021 has a potential P/E tailwind.
STRATEGY: Stick with Epicenter stocks, yield curve argues this… 110 stocks in Trifecta list (*)
Our base case has been altered last week, as we alerted our clients previously — record de-grossing + record VIX collapse = high probability first half 2021 correction is over.
And we think the prior leadership resumes. That is, we anticipate investors looking for considerable EPS beats (most of the active manager universe) will show a preference for Epicenter stocks aka those hit hardest by the pandemic.
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.
Consumer Discretionary:
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
Financials:
FITB, WTFC, ASB, BOH, FHN, FNB, PB, PBCT, RF, STL, TFC, WBS, PNFP, SBNY, NYCB, MTG, AGNC, EVR, IBKR, VIRT, BK, STT, SYF, BHF
Industrials:
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:
HP, NOV, SLB, EOG, PXD, HFC, MPC, PSX, XEC
Basic Materials:
LYB, EXP, MLM, CF, MOS, ESI, NEU, NUE, RS, SON
Real Estate:
STOR, HIW, CPT, UDR, KIM, NNN, VNO, JBGS, RYN
(*) 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)
– Violence in USA –> companies that are involved in some aspect of home or personal security. We are not “recommending” these stocks, but rather, bringing these stocks to your attention.
Granny Shots:
Full stock list here –> Click here
Tickers: AAPL, CSCO, INTC, MXIM, NVDA, EBAY, KLAC, GRMN, GOOG, MNST, MSFT, AMZN, QCOM, TSLA, PYPL, AXP, BF/B, PM, XLNX, TGT, PG, XOM, VLO, GL, RF, ATVI, BBY, GE, AMAT, LRCX, MU, HPQ
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
Violence in USA:
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: COVID-19 cases plunge to 90,780, -22,811 vs 7D ago… tracking sub-50,000 two weeks
The latest COVID-19 daily cases came in at 90,780, down -22,811 vs 7D ago.
– US cases fell below 100,000 this week and set to fall further
– Vaccinations are not “kicking in” since only 2.6% of Americans have two doses
– COVID-19 cases have declined (vs 7D ago) for 27 consecutive days
– The strongest retreat in cases since Wave 2
Source: COVID-19 Tracking Project and Fundstrat
Daily cases are falling by ~30,000 vs 7D ago (7D delta, see below)… Wow
The 7D delta has turned negative for the past 27 days consecutively. This is impressive and the rate of change is accelerating to the downside.
– this is contributing to the sense that this receding of cases is a much faster retreat than seen in the past few months
Source: COVID-19 Tracking and Fundstrat
US hospitalization still rolling over … and even US deaths seem to be rolling over…
Below we show the aggregate patients who are currently hospitalized due to COVID. It certainly seems to be rolling over = good sign.
Source: COVID Tracking Project and Fundstrat
Source: COVID-19 Tracking and Fundstrat
Source: COVID-19 Tracking and Fundstrat
POINT 2: VACCINE: Only 2.6% of the US has 2-doses of the vaccine
Based on revised data, only 2.6% of the US has been fully vaccinated (assuming time = 0 is effective)
A number of our clients asked us to parse the data to reflect 1-dose versus 2-dose vaccinations. Our data science team, led by tireless Ken, parsed the data to reflect those recipients of 1-dose versus 2-doses.
– using this adjusted data, the % of the US with 2 doses is only 2.6%
– West Virginia and Alaska are the only states >5%
– 1-dose only is 9%
Obviously looking at two doses makes a lot more sense than looking at one dose only. Adjusting this data for one versus two doses shows that 9% of US residents have received at least one dose. One dose is considered to have some effect.
Source: CDC, COVID-19 Tracking Project and Fundstrat
When adjusting for 2-doses <1% of states have seen their 5% residents with 2-doses….
To better illustrate the actual footprint of the US vaccination effort, we have a time series showing the percent of the US with 2-doses covering at least 5% of its residents, displayed as the orange line on the chart. This figure is only 0.8%.
That means, while 2.6% of the US overall has received 2 doses, this figure is so dispersed, that less than 1% of US states has US citizens with >5% .
– the takeaway is the vaccination efforts is unlikely to be having much of an effect on case figures, currently
– this could accelerate if the dispersion starts to hit meaningfully show that >10% of the residents have received 2 doses.
Source: CDC, COVID-19 Tracking Project and Fundstrat
Vaccination frontier update –> only ND + SD > 60% combined penetration (vaccines + infections)
The latest vaccine frontier is shown below. As we commented in the past, the key figure is the combined value >60%, which is presumably near herd immunity. That is, the combined value of infections + vaccinations as % population > 60%.
– Currently, only ND + SD are at this level
– many states are approaching this such as UT, OK, AZ at >50%
– So slowly, the US is getting to that threshold of presumable herd immunity
Source: CDC, COVID Tracking Project and Fundstrat
The ratio of vaccinations/ daily confirmed cases is generally trending higher (red line is 7D moving avg) and this is the most encouraging statistic.
– the 7D moving average is about ~20X for the past few days
– this means 10 vaccines dosed for every 1 confirmed case
This figure is rising nicely and likely surges in the coming weeks
Source: CDC, COVID-19 Tracking Project and Fundstrat
In total, about 31 million Americans have received at least 1 dose of a vaccine. This is a good pace and as we noted previously, implies 30% of the population by April.
Source: CDC and Fundstrat
The ratio of vaccines administered as % vaccines distributed is creeping up. Nationwide, this figure is now 70%. While this is certainly less than ideal (higher is obviously better), the fact this figure is rising is a good thing. States are getting better at distributing doses.
Source: CDC and Fundstrat
Source: CDC and Fundstrat
POINT 3: Potentially “cure” breakthrough: Israeli Phase I drug “cures” COVID-19.
A COVID-19 cure is equally, and in some ways, more important than a COVID-19 vaccine. This is something many might debate, but the simple reason a cure matters is:
– not every person can/will take the vaccine
– curing COVID-19 makes it a treatable condition, rather than a life threatening disease
Over this weekend, two clients shared with us the results of Phase I trial of a drug currently named EXO-CD24 developed by the Tel Aviv Ichilov Medical Center (thanks AR+RJ in NYC and SF in Little Rock). Below is the summary key points:
– completed Phase 1 trial at Tel Aviv Ichilov Medical Center
– cured 29 of 30 recipients within 3-5 days
– all 30 recovered after originally developing moderate to severe COVID-19
– mechanism is fighting cytokine storm using a protein called CD24
– product is inhaled
Source: https://www.timesofisrael.com/new-israeli-drug-cured-moderate-to-serious-covid-cases-within-days-hospital/
Source: https://bgr.com/2021/02/06/coronavirus-cure-exo-cd24-trial-israel/
This is really impressive. Within 3-5 days, those with moderate to severe COVID-19 were cured. And this medicine is administered topically, via an inhaler.
It will be important to watch the progress of this drug over the coming months.
