Click HERE to access the FSInsight COVID-19 Daily Chartbook.
We are shifting to a 4-day a week publication schedule:
- Monday –> NONE THIS WEEK
- Tuesday
- Wednesday
- SKIP THURSDAY
- Friday
STRATEGY: Time to ‘HODL’ Energy stocks
Energy is the best performing S&P 500 sector YTD, rising ~42%, easily trouncing the +12% for the S&P 500 and the +6% gain of the NASDAQ 100. And one would think that institutional investors are Overweight Energy and enthusiastic to boot. This is not the case.
In fact, over the past 9 months, when we made Energy a focus of our research efforts, the response has been mostly blasé. This is something that our entire research team can confirm, and even Brian Rauscher, our Head of Global Strategy, has noted this in many of his comments. Among the multitude of reasons for the skepticism:
– The world is moving away from oil
– Energy has been a widow maker for the past 13 years
– Energy companies are terrible allocators of capital
– Oil is not ESG friendly
– Energy at 3% weight is less important than Tesla or Apple
– Energy is boring, and Millennials and GenZ don’t care
– Lol, who wants to own a loser
– Energy is a dirty word
So you get the picture. In fact, institutional investor feedback on Energy reminds me of the pushback we got on Bitcoin in 2017. Granted, instead of “criminals/pirates using money” the glib statement is “nobody uses oil”
But the set up, in our view is similar. Energy is a sector where the capacity for positive surprise is substantial, because consensus simply has written off the group as unimportant and non-strategic for their portfolio.
However, as we noted in our commentary on Tuesday, Energy executives and private equity firms in the Energy space have made the same comment. Even if one is a major advocate of ESG (all private equity is ESG focused), there is simply not enough substitution for oil, and oil demand is set to rise for the next 5-10 years. Hence, this seems similar to our thesis for digital assets.
…Rule #5 for Bitcoin is “10 best days” and this applies to Energy –> HODL
For those that follow our crypto/digital asset research, you might be familiar with our Rule #5 for Bitcoin, the “rule of 10 best days”
This rule points out that Bitcoin annual returns are concentrated in its 10 best days. In other words, despite those that want to trade Bitcoin, the Hodlers, or those that own it, have realized strong returns because Bitcoin makes its gains in 10 days.
This is true for Energy stocks:
– as shown below, Energy stocks also concentrate gains in the 10 best days
– YTD, Energy is up 42%
– the top 10 days YTD are 38% gains, hence, ex-10 best days, Energy is actually negative
– Similar, in 2020, Energy 10 best days were +95%, ex-10 best days, Energy was negative
If our call is correct and Energy can rise for next 5-10 years, then Energy is a “fire and forget sector” or HODL.
How many can actually have the fortitude to hold for 5-10 years?
…Crude has broken to the upside, reaching to $68, and next stop is $80
Take a look at WTI below. It has decisively broken out, surging to $68.11 and taking out the $67.98 highs of February.
– the next key level is $80
– despite those saying Iran deal would quash oil gains, this has not happened
– consensus is generally wrong!!!
…thus, Energy sector has +40%-plus upside with key XLE resistance at $68 vs $54 on TuesdayEven the Energy sector is pushing towards 2019 highs. As shown below, XLE at $54.22 is within stone’s throw of exceeding $55.14 (Feb 2021 highs) and the next key level is really $68
– how many S&P 500 sectors can we say have this much upside?
And if one is seeking even greater upside, the OIH, or oilfield services sector has the most beta. This group is capex sensitive, but as we noted in multiple prior reports, we see capex spending surging in coming years, given the structural shortfall in oil production.
– we think the key levels of OIH remain $374 and OIH was only $223 on Tuesday.
In fact, as the comparative scatter below highlights, OIH is severely lagging WTI prices. At $70 oil, OIH should be closer to $450. And OIH was $223 on Tuesday.
– hence, is it any wonder we think investors need to HODL OIH?
BOTTOM LINE: We remain positive on equities, and see signs of capitulation. Our top 3 sectors remain:
– IWM set for a tactical 10 day rally, back to $235-$240 possibly
– IWM needs a few more days, like 5-10 days
– Top 3 sectors still Energy, Materials and Financials –> XLE -1.29% XLB -1.04% XLF -0.08%
– We are cautious on Technology and recommend using strength to reduce –> XLK 1.02% QQQ 0.80%
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
Trifecta Epicenter (*):
Full stock list here –> Click here
Power Epicenter Trifecta 35 (*):
Full stock list here –> Click here
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 16,219, -4,155 vs 7D ago…Case data slightly distorted due to the Memorial Day holiday…
_____________________________
Current Trends — COVID-19 cases:
– Daily cases 16,219 vs 20,374 7D ago, down -4,155
– 7D positivity rate 2.0% vs 2.5% 7D ago
– Hospitalized patients 19,653 down -16.3% vs 7D ago
– Daily deaths 451, down 12.0% vs 7D ago
_____________________________
– The latest COVID-19 daily cases came in only at 16,219, down -4,155 vs 7D ago. The daily case figures are distorted due to the Memorial Day holiday. Several states reported unusual low new cases – i.e. Texas reported 94 new cases and Arizona reported 4 new cases on Tuesday. Hence, we expect this data distortion could last a few more days and we could have a clearer view on the case trend next week. That said, we do not expect the holiday gatherings and other related activities would cause a resurgence in daily cases similar to what we’ve seen in 2020. Especially given the high combined penetration of infection + vaccinations, the current situation in US is way better than last May/June. However, the future is uncertain and COVID remains somehow mysterious.
– The 7D delta chart below shows the steady trend of decline in daily cases. Monday’s big decline is due to the Memorial Day holiday. Therefore, the 7D delta could jump to positive regime in the next few days as a result of the “true-up”. However, we believe the steady decline in daily cases will persist and US is still on its road to fully reopen this summer.
7D delta in daily cases has turned negative in the past 7 weeks…
The 7D delta chart below shows the steady trend of decline in daily cases. Monday’s big decline is due to the Memorial Day holiday. Therefore, the 7D delta could jump to positive regime in the next few days as a result of the “true-up”. However, we believe the steady decline in daily cases will persist and US is still on its road to fully reopen this summer.
Current hospitalization, daily deaths and positivity rate are at all time low…
Below we show the aggregate patients who are currently hospitalized due to COVID. After a mini-surge in March, the number of patients currently hospitalized rolls over again. Positivity rate is also following the similar pattern. Currently, all three metrics – current hospitalization, daily deaths and positivity rate – are at their all time lows since the start of the pandemic.
POINT 2: VACCINE: More than half of Americans have received at least one vaccine dose and over 40% of Americans are fully vaccinated…
_____________________________
Current Trends — Vaccinations:
– avg 1.2 million this past week vs 1.7 million last week
– overall, 40.7% fully vaccinated, 50.4% 1-dose+ received
_____________________________
Vaccination frontier update –> all states now near or above 70% 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. Several times, we have overlaid our case progress with that of Israel to demonstrate what should happen to cases once immunity reaches a certain critical level in the population. That is, the combined value of infections + vaccinations as % population > 60%. The persistent and rapid decline in cases suggest that the US is following a similar path to Israel (see our prior notes) while nations with less penetration continue to struggle more.
– Currently, all states are near or above 70% combined penetration
– RI, SD, MA, ND, CT, NJ, DE, NY, IL, UT, MN, NM, NE, AZ, PA are now above 90% combined penetration (vaccines + infections)
– So gradually, the US is getting to that threshold of presumable herd immunity. So long as a vaccine resistant variant doesn’t spread widely, the continued retreat of cases should continue.
Below is a diffusion chart that shows the % of US states (based on state population) that reach the combined penetration >60%/70%/80%/90%. As you can see, all states have reached 60% and 70% combined vaccination + infection. 76.5% of US states (based on state population) have seen combined infection & vaccination >80% and 48.9% of US states have seen combined infection & vaccination >90%. As the chart below highlights, the US is seeing steady forward progress and this figure continues to rise steadily.
Over the past two days, there were a total of 1,472,814 doses administered, down 28% compared to 7D ago. We assumed the removal of restrictions for the fully vaccinated could encourage more people to seek getting vaccinated. However, the vaccination pace is slowing down. That said, we believe the current speed of vaccination is still acceptable given in many states, the levels of immunity are quite high when added to those previously infected.
89.3% of the US has seen 1-dose penetration >40%…
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 35%/40%/45% of its residents fully vaccinated, displayed as the orange line on the chart. Currently, 83.2% of US states have seen 35% of their residents fully vaccinated. However, when looking at the percentage of the US with at least 40% of its residents fully vaccinated, this figure is 55.7%. And only 25.7% of US (by state population) have seen 45% of its residents fully vaccinated.
– While 89.3% of US states have seen vaccine penetration >40%, 70.0% of them have seen 1 dose penetration >45% and 48.3% of them have seen 1 dose penetration > 50%.
– 83.2% of the US has at least 35% of its residents fully vaccinated, However, only 55.7% of US has fully vaccinated >40% and 25.7% of US has fully vaccinated >45%.
– 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. Due to the recent collapse of daily cases, the ratio surged to 86x at one point.
– the 7D moving average is about ~70 for the past few days
– this means 70 vaccines dosed for every 1 confirmed case
In total, half of Americans have received at least 1 dose of a vaccine. This is a good pace and as we noted previously, implies 70% of the population by Independence Day.
POINT 3: Tracking restrictions lifting and subsequent effects in individual states
Point #3 focuses primarily on tracking the lifting of restrictions, as states have eased the majority of mandates. Keep in mind, easing/lifting restrictions are contingent upon state of emergency ordinances being renewed.
– States in groups 1 and 2 represent states that let their emergency ordinances expire, or that never had one in the first place
– Note: IL and HI are not listed. This is because restrictions lifting is determined at the county / island level, and no statewide policy will be established to lift restrictions until a full reopening
So there is a spectrum of approaches. Our team is listing 3 tiers of states and these are shown below.
– states that eased all restrictions in 2020: AK, OK, MO, FL, TN
– states that have eased all restrictions in 2021 to now: ND, SD, NE, ID, IA, MT, MS, AZ, SC, WY, TX, GA, AR, KS, WI, IN, AL, UT, NH
– states that are still easing restrictions in 2021: OR, ME, WV, WA, MN, MA, NC, KY, LA, CA, DE, PA, NM, OH, CO, NJ, VT, MD, NV, NY, CT, VA, MI, RI, DC
GROUP 1: States that lifted restrictions in 2020…
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 because the case trends in these states look like other states.
GROUP 2: States that have lifted restrictions in 2021 to now…
Similar to the list of states above, the daily case trends in these states are impressive and it seems that lifting restrictions hasn’t caused an increase in cases.
GROUP 3: States that are still easing restrictions in 2021…
These states have begun to lift restrictions, but have yet to ease all restrictions. The date of each state’s most recent restrictions lifting is indicated on each chart. The case trends in these states have been mostly positive.
– Easing restrictions appears to have contributed to an increase in cases in several of these states, most drastically in OR, ME, WA, and MN
