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STRATEGY: Retail raised cash 3 weeks in a row, first time in 2021 = panic = bottom
COVID-19 rolling over in 18 states vs 6 last week
The best news is that COVID-19 now appears to be rolling over in 18 US states. This is up from 6 last week. And it is not just FL which is showing definitive signs of rolling over.
– India delta surge lasted 45 days
– UK delta surge lasted 45 days
– FL delta surge lasted ~40 days
– states delta surge lasted median 45 days
These are the 9 states where the 7D average of new cases seems to be rolling over:
– CA, NV, FL, LA, AR, ME, RI, ID, ME
– range of days to peak is 34 to 60 days
These are the 9 states where it looks tentative. These states look tentatively flattening:
– NH, SD, WA, CT, DC, NC, MA, KS, HI
– these are earlier but promising trends
– we will have a better sense for these states in the coming days
But the key takeaway, to me, is that even with the Delta-variant, states are not going to see cases surge indefinitely. There is a peak.
Not everyone catches COVID-19 –> surprisingly large number of ‘resistant’
There has been little research published, as far as we can find, regarding those who ‘do not catch’ COVID-19. That is:
– are some naturally ‘resistant’ to COVID-19?
– what is the risk of transmission within a household?
– what is the impact of the delta variant?
This article in STAT (website for health-related info) caught my eye because it cites several studies on those people who are potentially proving to be ‘resistant’ to COVID-19. It is an interesting read, if you get a chance. But some highlights:
– the first ‘disease-resistance’ gene was discovered in 1905, for resistance to fungus P. in wheat
– the resistance to viruses is a bit trickier
– scientists are using CRISPR (genome-editing) and other tools to identify gene(s) that protect those ‘resistant’
– COVID Human Genetic Effort has identified several potential sites in the genome
– even identifying key gene doesn’t guarantee success though
– HIV-resistant gene/mutations identified, yet no treatment has been created
Source: https://www.statnews.com/2021/08/23/lucky-few-seem-resistant-to-covid19-scientists-want-to-know-why/
And as delta-variant surge remains in place, we also should not feel the situation is entirely hopeless. The University of Utah, HERO Project, published a study earlier this year. And a few things jumped out:
– per their Phase I study, transmission of COVID-19 in schools was positively mitigated by masks
– transmission rate of COVID-19 in a household is 12%
– not everyone catches COVID-19 even if exposed
– Delta-variant, however, can change the magnitude
Source: https://d30i16bbj53pdg.cloudfront.net/utah-hero/wp-content/uploads/2021/03/HERO-Report-11_24-edition.pdf
STRATEGY: Investors panicked far more than is apparent in the S&P 500 index prices
There was far more damage to equities in the past 4 weeks than is apparent from looking at the indices. Many of our clients have noted that this summer was among the most challenging stretches they have experienced. And the divergence and sector rotations have been absolutely bloody.
In fact, by two measures, we can see there was a significantly greater level of investor anxiety than is apparent in the shallow price moves. FYI, this also corroborates the jumpy moves in the VIX — that is, if you agree with the next few points, investors panicked last week. And history says it makes sense to buy panic if the larger fractal remains positive.
– retail investors liquidated equities 3 consecutive weeks, the longest stretch since before 2021
– institutional investors have been liquidating risk assets for 5 weeks, clearly de-risking during July/Aug chop
– AAII sentiment (% bulls less % bears) fell to its lowest levels since October 2020
– yup, worse than anytime in a year
So, the key is that investors, last week, became far more negative about the outlook for risk assets than almost anytime in the past year. Does this make sense? Is the Delta variant risk so dire that we should be more pessimistic than anytime in the past year?
…Investors liquidate risk assets at a pace not seen in more than a year
Take a look at weekly flows into money market assets. This data is provided by ICI and is showing institutional (left) and retail. For the most part, retail investors have been steadily taking cash off the sidelines for most of 2021 (negative weekly change), but:
– in past 3 weeks, retail has raised cash on sidelines
– longest stretch since before 2021
– institutions have been raising cash for the last 5 weeks
– reversing previously putting cash to work for 6 weeks
In other words, a lot of dry powder has been raised.
…AAII diffusion, or % bulls less % bears, is lowest since October 2020
Retail investor sentiment, using the AAII (American Association of Individual Investors), fell to the lowest since October 2020. This is a surprise:
– why is sentiment worse Monday than anytime in the past year?
– Delta-variant + taper talk clearly raised anxiety
– notice how equities have bottomed whenever AAII shows “panic”?
BOTTOM LINE: Half-full or half-empty –> are headwinds structural or transitory? –> our view, transitory
As this relates to markets, we think the key question is whether the headwinds identified Monday are transitory or structural:
– Delta variant effect on consumer travel –> cancelled plans, permanent or transitory
– Collapse in soft survey such as consumer confidence –> permanent or transitory
– Demand for oil, commodities –> permanent or transitory
– Corporate uncertainty –> permanent or transitory
– Questions of vaccine ability to neutralize COVID-19 –> permanent or transitory
– Negative fallout for Afghanistan –> Global economy impact permanent or transitory
– Collapse in investor confidence due to Delta variant risks –> permanent or transitory
If one thinks these are transitory, then one’s reaction to the market fallout would vary. Based on our conversations, many investors seem to think these issues have become permanent, and thus are reducing their outlook for markets and upside potential.On the other hand, if these are transitory, then investors are simply going on a buyer’s strike now. This is why trading volumes have been light, but markets have fallen sharply.
I am in the camp these are transitory headwinds.
END OF PANIC = EMBRACE OF EPICENTER –> Energy stocks tip of spear
Given the panic and the dire views around the global recovery, Epicenter stocks were hammered over the past 6-8 weeks. But given the inflection in the Delta variant in the USA and the panic, we think it makes sense to see this reverse. That is why our central case remains the “everything rally” into YE.
Economic resilience and demand (pent-up) remain strong and thus, the case for reflation remains in place. This is also true for oil and other commodities. While there was some modest downtick in demand forecasts, the supply of commodities and oil remains below demand. In fact, the interview by Jeff Currie, Head of Commodities for Goldman Sachs (GS -0.02% ), was very insightful.
– Currie still sees > $80 oil before YE
– if true, this is positive for Energy equities XLE 0.32% OIH -0.10%
– Epicenter broadly XLF 0.77% XLK 1.35% FNGS 1.35% RCD XLB 1.09% QQQ 1.15%
Source: https://twitter.com/CNBCClosingBell/status/1429900198483054592
…Energy stocks regained 200D moving average = good sign
We continue to see Energy leading into YE. There has been a lot of weakness in the past few weeks, and as shown below, XLE 0.32% fell below its 200D moving average. But the bounce Monday brought it back to the 200D. Given the positive underlying fundamentals of oil, we expect Energy stocks to resume their uptrend.
In fact, when AAII bottoms (panic readings), we see that it is also associated with bottoms in Energy stocks (vs S&P 500). Thus, if we think investor sentiment has bottomed, then Energy stocks will see a strong resumption of gains:
– AAII panics = Energy bottoms
– Energy then rallies dramatically
– we think Delta improving = AAII sentiment should improve
– this helps OIH -0.10% XLE 0.32% to strengthen
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26 Granny Shot Ideas: We performed our quarterly rebalance on 07/30. Full stock list here –> Click here
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POINT 1: Daily COVID-19 cases 222,721, up +20,407 vs 7D ago…
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Current Trends — COVID-19 cases:
– Daily cases 222,721 vs 202,314 7D ago, up +20,407
– Daily cases ex-FL&NE 208,100 vs 184,649 7D ago, up +23,451
– 7D positivity rate 9.0% vs 9.0% 7D ago
– Hospitalized patients 91,512, up +11% vs 7D ago
– Daily deaths 1,068, up +59% vs 7D ago
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*** Florida and Nebraska stopped publishing daily COVID stats updates on 6/4 and 6/30, respectively. We switched to use CDC surveillance data as the substitute. However, since CDC surveillance data is subject to a one-to-two day lag, we added a “US ex-FL&NE” in our daily cases and 7D delta sections in order to demonstrate a more comparable COVID development.
The latest COVID daily cases came in at 222,721, up +20,407 vs. 7D ago.
– As shown in the chart below, daily cases are rising at a slower rate.
– The decline in 7D delta persists. But the speed of decline has relatively slowed compared to two weeks ago.
Currently, we are at the critical stage of case rollover for many states. As noted above, many states have already peaked while the daily cases in some other states are about to peak (see the above section for the 9 “peaked” states and 9 “peaking” states). We could have a more clear view on the case trend in the next few days. Hopefully we could see the daily cases in those “apexing” states start to fall. Anyhow, as long as the 7D delta continues to fall, the case rollover is just a matter of time.
7D delta in daily cases fell to ~15,000 now…
As shown in the chart below, the 7D delta in daily cases has been on a downtrend – down from ~26,000 two weeks ago to a current level of about 15,000. However, the decline appears to have slowed down recently. We could have a more clear view on the trend in the next few days as the daily cases in many states seem to be peaking now. And if the case counts truly start to roll over in those states, the decline in the 7D delta could accelerate again.
Low vaccinated states seem to have a larger increase in daily cases compared to their recent low…
Below, we added a new section called “Parabolic Case Surge Tracker” to monitor the possible parabolic surge in daily case figures. In the table, we included both the vaccine penetration and the recent case trend for 50 US states + DC. The table is sorted by the multiple of their recent peak daily cases divided by the daily cases when their case surges started.
– The states with higher ranks are the states that have seen a more significant rise in daily cases
– We also calculated the number of days during the recent case surge; a state with a high multiple but low number of days since its low means the state is facing a relatively rapid surge in daily cases
– The US as a whole, UK, and Israel are also shown at the top as a reference
Hospitalization continues rising, while positivity rate has plateaued… Daily deaths also start to surge now…
Below we show the aggregate number of patients hospitalized due to COVID, daily mortality associated with COVID, and the daily positivity rate for COVID.
– Hospitalization has exceeded the peak level we’ve seen in Wave 1 and 2 in 2020 and continues surging.
– With the increasing number of daily tests, positivity rate has plateaued over the past week. As daily cases have already start to roll over in some states, the positivity rate could roll over soon.
– Daily deaths have been surging recently, but less “dramatic” than the cases or hospitalization trends. Currently, daily death has surpassed the peak we have seen in Wave 2.
POINT 2: VACCINE: vaccination pace has accelerated over the past week…
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Current Trends — Vaccinations:
– avg 0.8 million this past week vs 0.8 million last week
– overall, 51.2% fully vaccinated, 60.3% 1-dose+ received
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Vaccination frontier update –> all states now near or above 80% combined penetration (vaccines + infections)
Below we sorted the states by the combined penetration (vaccinations + infections). The assumption is that a state with higher combined penetration is likely to be closer to herd immunity, and therefore, less likely to see a parabolic surge in daily cases and deaths. Please note that this “combined penetration” metric can be over 100%, as infected people could also be vaccinated (actually recommended by CDC).
– Currently, all states are near or above 80% combined penetration
– RI, MA, FL, CT, SD, NJ, IL, NY, DE, NM, UT, PA, ND, NV, CO, KS, TN, OK, WI, SC, AZ, MN, CA, and NE are now above 100% combined penetration (vaccines + infections). Again, this metric can be over 100%, as infected people could also be vaccinated. But 100% combined penetration does not mean that the entire population within each state is either infected or vaccinated.
Below is a diffusion chart that shows the % of US states (based on state population) that have reached the combined penetration > 60%/70%/80%/90%/100%. As you can see, all states have reached 80% combined vaccination + infection. 94.5% of US states (based on state population) have seen combined infection & vaccination > 90% and 61.7% of US states have seen combined infection & vaccination > 100% (Reminder: this metric can be over 100%, as infected people could also be vaccinated. But 100% combined penetration does not mean that the entire population within the state is either infected or vaccinated).
There were a total of 599,331 doses administered reported on Monday. Although the number of vaccine doses administered on Monday is down vs. 7D ago, the overall vaccination trend has been steadily increasing recently. We believe many catalysts could push the vaccination pace even higher.
– Proof of vaccination required by many US cities and venues
– Booster shots
– Full FDA approval of Pfizer COVID vaccines (hopefully it could help overcome vaccine hesitancy)
The daily number of vaccines administered remains the most important metric to track this progress and we will be closely watching the relevant data.
53.1% of the US has seen 1-dose penetration > 60%…
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 45%/45%/50% of its residents fully vaccinated, displayed as the orange line on the chart. Currently, 96.3% of US states have seen 40% of their residents fully vaccinated. However, when looking at the percentage of the US with at least 45% of its residents fully vaccinated, this figure is 83.9%. And only 56.3% of US (by state population) have seen 50% of its residents fully vaccinated.
– While 87.4% of US states have seen vaccine penetration > 50%, 71.7% of them have seen 1 dose penetration > 55% and 53.1% of them have seen 1 dose penetration > 60%.
– 96.3% of the US has at least 40% of its residents fully vaccinated, However, only 83.9% of US has fully vaccinated > 45% and 56.3% of US has fully vaccinated > 50%.
This is the state by state data below, showing information for individuals with one dose and two doses.
The ratio of vaccinations/ daily confirmed cases has been falling significantly (red line is 7D moving avg). Both the surge in daily cases and decrease in daily vaccines administered contributed to this.
– the 7D moving average is about ~5 for the past few days
– this means 5 vaccines dosed for every 1 confirmed case
In total, 370 million vaccine doses have been administered across the country. Specifically, 200 million Americans (60% of US population) have received at least 1 dose of the vaccine. And 170 million Americans (51% of US population) are fully vaccinated.
POINT 3: Tracking the seasonality of COVID-19
In July, we noted that many states experienced similar case surges in 2021 to the ones they experienced in 2020. As such, along with the introduction of the more transmissible Delta variant, seasonality also appears to play an important role in the recent surge in daily cases, hospitalization, and deaths. Therefore, we think there might be a strong argument that COVID-19 is poised to become a seasonal virus.
The possible explanations for the seasonality we observed are:
– Outdoor Temperature: increasing indoor activities in the South vs increasing outdoor activities in the northeast during the Summer
– “Air Conditioning” Season: similar to “outdoor temperature”, more “AC” usage might facilitate the spread of the virus indoors
If this holds true, seasonal analysis suggests that the Delta spike could roll over by following a similar pattern to 2020.
We created this new section within our COVID update which tracks and compare the case, hospitalization, and death trends in both 2020 and 2021 at the state level. We grouped states geographically as they tend to trend similarly.
CASES
It seems as if the main factor contributing to current case trends right now is outdoor temperature. During the Summer, outdoor activities are generally increased in the northern states as the weather becomes nicer. In southern states, on the other hand, it becomes too hot and indoor activities are increased. As such, northern state cases didn’t spike much during Summer 2020 while southern state cases did. Currently, northern state cases are showing a slight spike, especially when compared to Summer 2020. This could be attributed to the introduction of the more transmissible Delta variant and the lifting of restrictions combined with pent up demand for indoor activities.
HOSPITALIZATION
Current hospitalizations appear to be similar or less than Summer 2020 rates in most states. This is likely due to increased vaccination rates and the vaccine’s ability to reduce the severity of the virus.
DEATHS
Current death rates appear to be scattered compared to 2020 rates. This is likely due to varying vaccination rates in each state. States with higher vaccination rates seem to have lower death rates given the vaccine’s ability to reduce the severity of the virus; states with lower vaccination rates seem to have higher death rates.
For further information, please contact sales.
Fundstrat Global Advisors
sales@fundstrat.com
212-293-7140
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