Click HERE to access the FSInsight COVID-19 Daily Chartbook.
We are shifting to a 4-day a week publication schedule:
- Monday
- Tuesday
- Wednesday
- SKIP THURSDAY
- Friday
Webinar with Tom DeMark and myself on Wed April 28th at 3PM ET
A reminder, we are hosting a webinar to talk about equities and Bitcoin (BTC) this Wednesday at 3PM ET. Some important insights we want to highlight:
– potential scenario for stocks over next few weeks (hint, more historic appreciation)
– Bitcoin roadmap, prior ’13’ saw 20% fall (already happened) and why trading this week is key to next few months
Tune in, there are some key alignments taking place and this will be timely
Link to register –> CLICK HERE
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STRATEGY: Historic appreciation to continue, but powered by Epicenter
As our firm tracks COVID-19 case trends, both in USA and rest of world, the key overlay is whether the US is on track for a full reopening by Summer. This has been open to question over the past few weeks because:
– USA case progress stalled
– MI saw an idiopathic wave 4 surge
– India case surge
– Variants
– Medical experts have been calling for a US surge to follow the surge seen in Europe
And as a result, consensus has been far less confident of a reopening. In fact, even as vaccine penetration rose, we had many clients cite the lack of case progress as proof that vaccines are not necessarily effective.
That is why this recent leg down in cases is so decisive. As this chart shows, for the past 13 days, daily cases (vs 7d ago) has been legging down in a big way.
…Vaccine is acting as Metcalfe’s law of virus mitigation
The role of the vaccine penetration, if it is the factor, is key. The vaccine is conferring cumulative benefits and protection against COVID-19. In this way, Metcalfe’s law is coming into play. The value of the “vaccine protection” is a square of the number of vaccinated
If you are not that familiar with Metcalfe’s law It was originally cited in supporting the growth of telecom networks (popularized by George Gilder), says the network value exponentially grows based on users (N^2).
– Metcalfe’s law is often called network value effect models
– the power of social media platforms is proof of this effect.
In the COVID context, vaccine effectiveness is the same way.
– The rise in vaccine penetration does not lead to a linear boost
– the effect is exponential but it takes “critical mass”
In fact, even Dr. Scott Gottlieb made reference to this today
– see below where is cites the Cumulative benefit of vaccine penetration
Source: https://www.cnbc.com/2021/04/26/covid-mask-requirements-dr-scott-gottlieb-says-lift-them-for-outdoors.html#:~:text=%E2%80%9CThe%20gains%20we’re%20seeing,FDA%20during%20the%20Trump%20administration.
STRATEGY: As US cases retreat, the Epicenter trade is coming on in full again again…
For most of April, equities have been strong and consistent with our expectation of an exceptional rally. But this rally was initially very Defensive with Growth/FAANG leading the gains. And part of that stems from the stalling (aka deterioration) of COVID-19 trends in April.
– daily cases had neither improved, nor fallen
– Dr. Fauci and other experts suggested USA would follow Europe and see a sizable surge
– MI was seeing its own new “wave” of cases
But as US vaccine penetration crossed “40%” (now 42%), the path of cases in Israel has become the possible roadmap. We have written for several weeks now about how Israel’s cases took a “leg down” as vaccine penetration surpassed 40%.
– now that the US is at 42%, we are apparently seeing USA cases leg down, pretty hard
And as such, the Epicenter trade has come back on in a big way. We alerted our clients to this possibility last week — that is, the 7D delta in US cases was suddenly plunging.
…this playbook is still in force And if USA cases are retreating, the “playbook” in our minds is still in play. We see the rejuvenation of the Epicenter trade strongly, led by:
– small-caps IWM -0.23%
– Energy XLE 0.81% and OIH
– Epicenter SPHB XLI -0.26% XLF -0.01% XLY 0.38%
But a “reflation” back on does mean interest rates will become the focus later this year…Interest rates will become a focus of markets later this year, especially if the reflation trade is back on. JPMorgan’s Fixed Income Technical Strategist, Jason Hunter and team. I found the summary by his team very useful. In short:
– Treasuries, in the bigger picture, are in a bear market (higher rates)
– Short-term, 10Y could rally to 1.4%, but this is a “head fake”
– Hunter sees 10Y reaching 1.9% by 3Q2021
– Contemporaneous macros, commodities, etc support this view
In other words, the path of lower rates near-term is merely a counter-trend move and the larger fractal is higher rates.
Source: JPMorgan US Fixed Income Weekly, April 23, 2021
This is the stylized view of where they see 10Y moving over the next few months. A move lower to 1.4% but then reversal to 1.9% or higher by 3Q2021.
Source: JPMorgan US Fixed Income Weekly, April 23, 2021
…higher rates = good for Epicenter aka Cyclicals + Commodity sensitives (Energy stocks)The natural question is whether equity valuations get squeezed by higher rates. I know this is top of mind for investors, and we get asked this all the time. And our Head of Global Portfolio Strategy, Brian Rauscher (aka Rocky) has written extensively about this. You can find many of his comments in his “Wall Street Whispers” reports. Or we can set up a call with him, if that is something that you would like.
I can’t be definitive on how stocks will handle higher rates. But we have some analysis looking at past periods, plus we have some additional perspectives to add.
– current US interest rates are ludicrously low, even at 2.0%, it is a ridiculously low rate
– hence, a move to even 3% interest rates is still a ridiculously low rate
The real question is when does this “break”
– that is, when does?
– ludicrous –> ridiculous –> merely low –> yikes!!!
There is no easy answer for this. After all, rising rates engulf and create complex interactions:
– rising rates = higher debt service for corps and govt
– rising rates, on inflation = higher tax receipts + progress tax system
– rising rates = inflationary expectations rise = inflationary behavior = good
– rising rates improves return on cash = more $$$ for savers
…Looking at the rates since 1950, the “yikes” point is probably ~5% on the US 10YOur data science team, led by tireless Ken, compiled comparative interest rates and P/E levels since 1950s (or 70 years). And the scatter plot shows the trade-off between rates and P/E.
– from “low rates” to 5.0% 10Y, rising rates = rising P/E
– above 5.0%, rising rates = lower P/E
So you can see, there is a crossover. At some point, the combination of rising rates, turns from a virtue to a headwind. But if history is a guide, this is around 5.0%
– in the meantime, we expect higher rates = higher P/E
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), 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: GOOG, AMZN, EBAY, GRMN, TSLA, BF/B, MNST, MO, PG, PM, PSX, AXP, BIIB, GILD, REGN, AAPL, CSCO, MSFT, MU, MXIM, NVDA, PYPL, QCOM, QRVO, SWKS, XLNX, D, EIX
Trifecta Epicenter (*):
Full stock list here –> Click here
Tickers: AAP, AN, AZO, F, GM, HOG, BBY, GRMN, GPC, LEG, TPX, PHM, NWL, MAT, PII, RL, MGM, HLT, MAR, NCLH, RCL, WH, TNL, SIX, FL, GPS, KSS, LB, VFC, WTFC, ASB, FNB, PB, TFC, WBS, PACW, NYCB, MTG, EVR, IBKR, VIRT, BK, STT, BHF, AGCO, OC, ACM, WAB, GNRC, CSL, GE, GGG, IEX, PNR, CFX, DOV, MIDD, SNA, XYL, FLS, EAF, ITT, ALK, DAL, JBLU, LUV, MIC, KEX, JBHT, R, UBER, UHAL, MAN, XOM, HP, BKR, HAL, NOV, SLB, COP, EOG, FANG, HES, MRO, MUR, PXD, XEC, HFC, MPC, PSX, EXP, CF, NEU, NUE, RS, SON, IP, ARE, BXP, HIW, JBGS, ESS, UDR, KIM, NNN, O, WRI, PSA
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: Daily COVID-19 cases 51,241, -8,971 vs 7D ago… 7D delta has been negative in the past 13 days and accelerated to the downside…
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Current Trends — COVID-19 cases:
– Daily cases 51,241 vs 60,212 7D ago, down -8,971
– 7D positivity rate 4.3% vs 5.2% 7D ago
– Hospitalized patients 38,443 down -7.1% vs 7D ago
– Daily deaths 684, down -4.2% vs 7D ago
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– The latest COVID-19 daily cases came in at 51,241, down -8,971 vs 7D ago.
– The 7D delta has been negative in the past 13 days and accelerated to the downside (7D avg shown as blue dash line). On average, the 7D delta in daily cases was over negative 11k in the past 7 days. If this decline persists, we could see the daily cases drop below 20k in the early May.
– As we wrote before, at this stage of pandemic, as long as vaccinations work, eventually the rollout of the vaccines will lead to a decline in the pervasiveness of the COVID pandemic. And according to the recent data, this decline seems to finally arrive.
7D delta in daily cases has turned negative in the past 13 days…
The 7D delta has been negative in the past 13 days and accelerated to the downside (7D avg shown as blue dash line). On average, the 7D delta in daily cases was over negative 11k in the past 7 days. If this decline persists, we could see the daily cases drop below 20k in the early May. As we wrote before, at this stage of pandemic, as long as vaccinations work, eventually the rollout of the vaccines will lead to a decline in the pervasiveness of the COVID pandemic. And according to the recent data, this decline seems to finally arrive.
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 has fallen significantly from the wave 3 peak.
POINT 2: VACCINE: 49 states near ~60% infected + vaccinated… 1 in 4 Americans have been fully vaccinated…
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Current Trends — Vaccinations:
Vaccinations ramping steadily
– avg 2.7 million this past week vs 3.1 million last week
– overall, 28.7% fully vaccinated, 42.2% 1-dose+ received
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Vaccination frontier update –> almost all states now near or above 60% combined penetration (vaccines + infections)
Below we sorted the states by the combined penetration (vaccinations + infections). 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, all states except OR and HI (see below) are basically all at this level
– SD, ND and RI are now above 90% combined penetration (vaccines + infections)
– So slowly, the US is getting to that threshold of presumable herd immunity
Collectively, these 49 states represent about 99.0% of the US population. In fact, 79.1% of US states (based on state population) have seen combined infection and vaccination >70% and 55.8 of US states have seen combined infection and vaccination >80%. As the chart below highlights, the US is seeing steady forward progress and this figure continues to rise steadily.
There were a total of 2,097,500 doses administered on Monday, down 3% from 7D ago. The 7D moving average has been trending downward recently. It could be caused by the pause of JNJ vaccines or/and the vaccine hesitancy because of the JNJ vaccines. As both CDC and FDA lifted the recommended pause of JNJ vaccines last week, the vaccination pace could re-accelerate again in the near future.
~89.3% of the US has seen 1-dose penetration >35%…
To better illustrate the actual footprint of the US vaccination effort, we have a time series showing the percent of the US with at least 25%/30%/35% of its residents fully vaccinated, displayed as the orange line on the chart. Currently, 89.5% of US states have seen 25% of their residents fully vaccinated. However, when looking at the percentage of the US with at least 30% of its residents fully vaccinated, this figure is 41.1%. And only 2.3% of US (by state population) have seen 35% of its residents fully vaccinated.
– While 89.3% of US states have seen vaccine penetration >35%, 61.4% of them have seen 1 dose penetration >40% and 42.0% of them have seen 1 dose penetration > 45%.
– 89.5% of the US has at least 25% of its residents fully vaccinated, However, only 41.1% of US has fully vaccinated >30% and 2.3% of US has fully vaccinated >35%.
– This is still a small figure but this figure is rising sharply now.
This is the state by state data below, showing information for states with one dose and for those with two doses.
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 ~45 for the past few days
– this means 45 vaccines dosed for every 1 confirmed case
This figure is rising nicely and likely surges in the coming weeks
In total, about 140 million Americans have received at least 1 dose of a vaccine. This is a good pace and as we noted previously, implies 50% of the population by May.
POINT 3: Tracking “un-restricted” and “restriction-lifted” states
We are changing Point #3 to focus primarily on tracking the lifting of restrictions, as states begin to ease various mandates. Keep in mind, easing/lifting restrictions can take multiple forms:
– easing indoor capacity
– opening theaters, gyms, salons, saloons
– eliminating capacity restrictions
– eliminating mask mandates
So there is a spectrum of approaches. Our team is listing 3 tiers of states and these are shown below.
– states that eased in 2020: AK, OK, MO, FL, TN
– states that eased start 2021 to now: SD, ND, NB, ID, MT, IA, NC, MS, SC, AZ, TX, MD
– states that announced future easing dates: GA, NY, WI, AR, CA, AL, CT
GROUP 1: States that eased restrictions in 2020…
The daily case trends in these states is impressive and it is difficult to say that lifting restrictions has actually caused a new wave of cases. Rather, the case trends in these states look like other states.
GROUP 2: States that eased restrictions in 2021 to now…
Similar to the list of states above, the daily case trends in these states are impressive and it is difficult to say that lifting restrictions has actually caused a new wave of cases.
– we have previously written about how ND and SD, in particular, have seen an utter obliteration of COVID-19 cases in those states
– that seems to be a function of vaccine penetration + infection penetration, leading to something akin to “herd immunity”
GROUP 3: States that announced plans ease restrictions in 2021…
These states have upcoming dates to ease restrictions. The dates are indicated on each chart. The cases trends in these states have been mostly positive, with perhaps the exception of NY state:
– NY state case levels seem awfully stubborn at these high levels
– weather is improving in NY area, so if weather has any effect on virus transmission, it should slow cases
