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STRATEGY: Powell re-nomination strengthens the case for stocks into YE and into 2022
COVID-19 has essentially disappeared from Japan, despite virtually no restrictions
While all eyes have been on the parabolic rise in cases in Europe and the US, the utter collapse in cases in Japan has barely registered.
– over the past 90 days
– Japan has gone from 25,000 cases per day
– currently 200 per day
– there has been no mass booster vaccination effort
– the vaccination rate of 76% is high, but hardly better than many US states
Why have COVID-19 cases collapsed in Japan? There is not a single or even multiple factors that explain this. I have gone through many articles and analyses and here are some considerations:
– Japan never really closed its border
– Japan never imposed lockdowns
– Japanese people used masks already
– Japan vaccination rates are not that high
– Japan is crowded
Some Japanese scientists think the Delta-variant self-destructed in Japan
There are some researchers in Japan that think the Delta-variant, which was driving the summer surge in Japan, self-destructed:
– the mutation of this virus
– strained the virus to the point
– it self-destructed
If this is the case, it is promising news for the rest of the world. COVID-19 has been mysterious and unpredictable. So this explanation, while somewhat bizarre, might be true.
And simply to contrast Japan and Germany, by the way, take a look below. Japan had a tremendous rise in cases over the summer, worsened by the Olympics. And then suddenly, this surged burned itself out completely.
STRATEGY: Powell re-nomination strengthens the case for stocks into YE and into 2022
Fed Chair Powell was nominated for a second term yesterday. This is a positive development, for multiple reasons:
– removes uncertainty –> market does not like “uncertainty”
– removes risk of a bond market test –> bond market likes to test the Fed
– removes risk of a policy error –> market will worry how new Fed chief handles a crisis
– a repudiation of Democratic Progressives –> biggest deal, in my view
– as fervor to replace Powell stems more squabbles over non-Fed matters
Thus, the bigger story is a pushback by Washington against Progressives.
…Stock market returns have been among the strongest under Fed Chair Powell — could they top 20% annualized
Barron’s had a great chart showing annualized stock returns by various Fed chairs. There have been 9 shown below:
– worst is Burns 1970-1978 +0.6% annualized return
– best Volcker 1979-1987 +15.6% annualized
– Powell is 15.1% annualized, nearly matching Volcker
Below the annual return of the S&P 500 since Powell’s appointment and as you can see, the returns have been impressive. And from this perspective, it would be a head scratcher to have Powell replaced.
– replacing Powell after such a successful rise in equities would be an adverse development
– and he would have had an exceptionally short tenure
In other words, a replacement of Powell would have been ultimately viewed as a concession to Progressives and thus would have been viewed as a policy error.
SECTORS: Leadership still Cyclicals/Early-cycle aka Epicenter
Relative sector performance is shown below and as we can see, 5 sectors are showing positive relative trend:
– Energy
– Basic Materials
– Technology
– Transports
– Discretionary
– sort of Financials/Banks
These are all cyclical groups. And also have general positive exposure to reflationary trends. Inflation, incidentally, in isolation is not a bad word. The real risk to markets is:
– too much inflation hurting consumer confidence
– or unanchored inflation expectations, fear of uncontained inflation
This is not necessarily what markets seem to be pricing. If markets were worried about either of the above, Defensive stocks or Growth stocks would be leading. Instead, we are seeing Cyclicals lead.
Into YE, our recommended strategies are:
– Energy
– Homebuilders (Golden 6 months) XHB
– Small-caps IWM
– Epicenter XLI XLF XLB RCD
– Crypto equities BITO GBTC BITW
Into 2022…
– Industrials
30 Granny Shot Ideas: We performed our quarterly rebalance on 10/25. Full stock list here –> Click here
POINT 1: Daily COVID-19 cases 170,981, down -384 vs 7D ago…
Current Trends — COVID-19 cases:
- Daily cases 170,981 vs 171,365 7D ago, down -384
- Daily cases ex-FL&NE 169,325 vs 169,373 down -48
- 7D positivity rate 7.0% vs 5.9% 7D ago
- Hospitalized patients 46,877, up +7.4% vs 7D ago
- Daily deaths 1,126, down -0.7% vs 7D ago
*** 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 170,981, down -384 vs 7D ago. Wave 4 is clearly underway; this is not surprising, and is our base case. We expect this surge to peak below the wave 3 peak of 300,000 cases per day. Case roll over will likely resume in the near future as booster vaccine rates are increasing.
Rolling 7D delta distorted due to observance of Veteran’s Day…
The rolling 7D delta is currently distorted due to the underreporting resulting from the observance of Veteran’s Day.
30 states are seeing a rise in cases while cases continue to decline in the remaining states…
*** We’ve split the “Parabolic Case Tracker” into 2 tables: one where cases are falling, and the other where cases are rising
In these tables, we’ve included the vaccine penetration, case peak information, and the current case trend for 50 US states + DC. The table for states where cases are declining is sorted by case % off of their recent peak, while the table for states where cases are rising is sorted by the current daily cases to pre-surge daily cases multiple.
- The states with higher ranks are the states that have seen a more significant decline / rise in daily cases
- We also calculated the number of days during the recent case surge
- The US as a whole, UK, and Israel are also shown at the top as a reference
Hospitalizations, deaths, and positivity rates are rolling over amidst case rollover…
Below we show the aggregate number of patients hospitalized due to COVID, daily mortality associated with COVID, and the daily positivity rate for COVID.
– Net hospitalizations peaked below the Wave 3 peak and are currently rolling over
– Daily death peaked slightly above the Wave 2 peak and are currently rolling over
– As per the decline in daily cases, the positivity rate is currently rolling over
POINT 2: VACCINE: vaccination pace accelerates as boosters become more widely available…
Current Trends — Vaccinations:
- avg 1.5 million this past week vs 1.4 million last week
- overall, 58.7% fully vaccinated, 68.9% 1-dose+ received
Vaccination frontier update –> all states now near or above 80% combined penetration (vaccines + infections)
*** We’ve updated the total detected infections multiplier from 4.0x to 2.5x. The CDC changed the estimate multiplier because testing has become much better and more prevalent.
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 90% combined penetration
– Given the new multiplier. only RI, FL, MA, CT, NM, NY, NJ, IL, CA, PA, DE, SD, KY, UT, OK, ND, NH, AZ, SC, TN, AK, NC, CO, KS, MN, VA, DC, NE, and NV 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 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 1,197,741 doses administered reported on Monday, down 17% vs. 7D ago. We are seeing the vaccination pace accelerate as booster shots are becoming more widely available. Also, the same catalysts remain in place:
- 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)
- Biden’s vaccination plan
The daily number of vaccines administered remains the most important metric to track this progress and we will be closely watching the relevant data.
77.9% 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 lines on the chart. Currently, 100% 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 98.9%. And only 88.5% of US (by state population) have seen 50% of its residents fully vaccinated.
We have done similarly for residents with at least 1-dose of the vaccination, denoted by the purple lines on the chart. While 100% of US states have seen 1 dose penetration > 50%, 97.8% of them have seen 1 dose penetration > 55% and 77.9% of them have seen 1 dose penetration > 60%.
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 ~20 for the past few days
– this means 20 vaccines dosed for every 1 confirmed case
In total, 424 million vaccine doses have been administered across the country. Specifically, 229 million Americans (70% of US population) have received at least 1 dose of the vaccine. And 195 million Americans (59% 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 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.
