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Monday
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SKIP THURSDAY
Friday
STRATEGY: Stocks tread water, but we still expect Feb to be a rally month
Positivity rate is dipping and below 10% within a few days
In the latest sign of the rapid abatement of Omicron, the overall positivity rate in the US is plunging. After surging to a whopping 35% in January, the spot positivity rate is down to under 10%. And while 10% is hardly great, it is a level seen as “contained” — of course, the key is how much further positivity rate will fall.
Another study reinforces role of Vitamin D mitigating COVID-19 — reduces risk of hospitalization by 14X
A study published in PLOS ONE shows the connection between Vitamin D and the risks of COVID-19. This study encompassed 1,100 participants:
– this is the first comprehensive study to look at Vit D levels prior to infection
– those with Vit D deficiency were 14X more likely to be hospitalized
– Vit D deficient group also had a mortality rate of 23.6% vs 2.3% with sufficient Vit D
As many of our clients know, our firm has highlighted multiple studies of Vitamin D sufficiency and its ability to mitigate the risks of COVID-19 and this study further reinforces the importance of Vit D levels. There are multiple ways to get Vit D.
– simplest is to get a lot of sun
– eat salmon
– take supplements
– the majority of Americans are Vit D deficient
– PLEASE GET SOME VITAMIN D
…return to normalcy: NJ governor to end school mask mandate
In another sign of the massive retreat of COVID-19, NJ governor is set to end the mask mandate in schools. While I realize there are many parents anxious about COVID-19 and the risks to their children, this decision has bipartisan support and is the surest sign the pandemic is moving to the endemic era. Moreover, as the risks of transmission diminish, society does need to focus on the damage from pandemic controls and measures. For instance, masks limit the social cues that kids need, and in their formative years, possibly creates issues for social dynamics in the future (not a forecast).
…CDC releases tool for public to monitor COVID-19 in wastewater
The CDC released a new tool for the public. This tracks the prevalence of COVID-19 in the wastewater. Looking at the legend, it looks to measure the % increase in the prevalence of the virus in samples.
– this is not for all 50 states
– as shown below, it is about 20 states
– and selected metro areas within each state
– blue is good
– red is bad
– not a whole lot of red
STRATEGY: Stocks treading water, but our base case is February is a rally month
Of the incoming economic data this week, the most discussed is the January CPI data released this coming Thursday (Feb 10th). I was traveling for the past few weeks, meeting with investors, and inflation and the need for the Fed to “act” are top of mind. In fact, it is so top of mind, many investors and pundits I met with have said that the market is “ignoring” and vastly “underestimating” inflation.
– in other words, expert “consensus” is the market is underestimating inflation badly
– thus, the risk and consequences of a negative surprise is high (meaning stocks go down)
– As a side note, if this is consensus, it makes me wonder if this is baked in.
But if the big event this week is CPI, stocks are stuck in a mini-“buyers strike” as investors want to see the CPI print and the associated market reaction.
– equities could be biding time until Thursday 8:30am ET (CPI released)
A crude proxy for inflation and Fed is 10-year yields. And as shown below, the 10-yr yields rose sharply in the afternoon of each of the last two trading sessions.
– in the afternoon sessions, US 10-yr yields rose
– S&P 500 has weakened in afternoon trading
– so markets remain somewhat skittish in front of CPI data
That said, our base case remains that stocks end February higher.
Equities already experienced a > 10% correction (and small-caps closer to 20%) so a lot of bad news has been priced in (short-term). And we think the risk of a bigger sell-off near term is limited. Financial conditions, for instance, remain relatively good (easy) as shown below:
– the Bloomberg US FCI is +0.6%
– while down from mid-2021 levels
– the absolute level is positive and in our view
– is supportive of risk assets
Of course, this could change quickly if US FCI turns negative. But even the moderating of the VIX is supportive of risk assets.
– the VIX just surged to nearly 40 in Jan
– and now eased back to low 20s
– below 20 would be further risk-on
– but holding in 20s is supportive
The point being the VIX and USFCI are not sending a foreboding signal for markets.
And overall liquidity for consumers and corporates is positive. The latest chart from BofA highlights the high levels of liquidity:
– US households have $19T in cash
– +35% compared to 2019
– Corporates sitting on a record $2T in cash
So, there is plenty of firepower for the economy and to a lesser extent, for financial markets.
…Mark Newton, Head of Technical Strategy, still expects upside for stocks
The liquidity support noted above is also consistent with the technical picture per Mark Newton, FSinsight’s Head of Technical Strategy. As his comment below highlights:
– Technology holding up better than indices suggest, as selloffs in FB and GOOG 1.06% disproportionately hit index
– Energy and Financials strong
– Near term direction for markets is likely higher
Reminder, after waterfall decline, history says +7%/ +13% next 3M/ 6M
Last week, we published some data around waterfall declines in equities. The S&P 500 posted a waterfall decline of 11% peak to trough over 14 days. On a closing basis, it would be a ~9% decline. While many things seem common in this pandemic era, a fall of this velocity is actually rare:
– foremost, it shows the fragility of confidence
– sort of flies in the face of those saying markets are in a bubble and investors are too bullish
In fact, in the past 10 years, this velocity of fall has only happened 5 prior times and these are shown below:
– 5 of 5 times, this was at the end of a sell-off
– not the start
– and markets staged a fierce and violent rally after each of these
Tireless Ken and the data science team compiled forward market returns, following 14D market declines. These are tiered below into deciles:
– the ~9% fall ranks as the “worst decile” since 1938
– the worse the 14D decline, the larger the bounce
– the relationship holds as we move down the deciles
– at the worst decile, forward 1M, 3M and 6M returns are very strong
– forward 3M and 6M returns are 7.1% and 13.0%
– this implies S&P 500 > 4,850 before 1H2022
– hence, this reinforces our view that markets can stage a strong rally from Jan lows into Feb
– but we believe 1H2022 remains treacherous
STRATEGY: 2022 theme –> BEEF –> Bitcoin (B) + Bitcoin equities (E) + Energy (E) + FAANG (F)
Our 2022 themes are shown below. And in not in any order:
– Bitcoin + Bitcoin Equities BITO 4.56% GBTC 4.60% BITW 3.14%
– Energy
– FAANG FNGS 0.41% QQQ 0.80%
Combined, it can be shorted to BEEF.
– Homebuilders (Oct – Apr aka Golden 6 months) XHB 1.95%
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Granny Shot Ideas: We performed our quarterly rebalance on 2/3. Full stock list here –> Click here
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POINT 1: Daily COVID-19 cases 377,131, down -306,795 vs 7D ago…
Current Trends — COVID-19 cases:
– Daily cases 377,131 vs 683,926 7D ago, down -306,795
– 7D positivity rate 16.0% vs 22.0% 7D ago
– Hospitalized patients 98,075, down -22% vs 7D ago
– Daily deaths 2,608, up 8.8% vs 7D ago
The latest COVID-19 daily cases came in at 377,131, down -306,795 vs. 7D ago. The daily new cases and hospitalizations continue their steady downward trend – daily cases almost halve compared to last week. All states reported a lower case figure to ecept VT, PA, FL, and MS. The higher new cases in VT is because VT recently changed its dashboard update schedule and skipped the weekend. What caused the case rises in PA, FL, and MS is still unknown. We believe they are most likely due to some one-time data fluctuations, given there are no signs of case resurge in these states. But we will track their data closely.
Another major development on COVID-19 is the “spot” positivity rate finally fell below 10% today (latest = 9.9%). This is the first time since the Omicron variant hit the US. This is great news as we view below-10% is a sign of “situation under control.” The 7D average of positivity rate is still 16%, but based on current speed of decline, we could see the 7D average falls below 10% within two weeks (or even this week).
7D delta in daily cases has been negative in 18 of past 19 days…
The 7D delta in daily cases remains in the negative regime and the overall trend has been stable. This reflected the steady decline in daily cases. Over the past few days, the 7D delta has shrank slightly, but this is primarily because only a few states report COVID stats, and also the daily cases have fallen so much.
Only 5 states are still seeing a rise in cases while 45 states + DC are seeing cases falling…
*** We’ve split the “Parabolic Case Tracker” into 2 tables: one where cases are falling (or about to fall), 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
Daily deaths are still rising, while positivity rates and hospitalization are falling 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
-Net hospitalization started to roll over. And more importantly, the daily mortality did not follow the same pattern as hospitalization, which shows Omicron is less deadly compared to other variants (at least so far).
– Positivity rate finally started to fall after plateauing for two weeks. It also confirms the recent decline in daily cases.
POINT 2: VACCINE: vaccination pace has slowed recently… Still more than half of eligible people have not received their booster shots…
Current Trends — Vaccinations:
– avg 0.6 million this past week vs 0.8 million last week
– overall, 27.5% received booster doses, 63.9% fully vaccinated, 75.3% 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 2.5x multiplier, all states besides MS, WA, OR, TX, ID, MI, MO, and GA 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
There were a total of 395,293 doses administered, as reported on Monday. The improving COVID case trend across the nation may have influenced people’s desire and sense of urgency to get the booster doses. The vaccination pace has slowed from the recent peak of 2 million doses per day in mid-December to ~600,000 recently. Given the benefits that vaccination provides:
– reduce severity –> reduce hospitalization –> prevent healthcare crisis
– reduce the transmission of virus
– we believe the daily number of vaccines administered remains the most important metric to track.
And as we noted previously, there are still half of booster-eligible people (more than 80 million) who have not yet received their booster dose. Hence. to convince these people remains the key.
This is the state by state data below, showing information for individuals with one dose, two doses, and booster dose.
In total, 544 million vaccine doses have been administered across the country. Specifically, 250 million Americans (75% of US population) have received at least 1 dose of the vaccine. 212 million Americans (64% of US population) are fully vaccinated. And 91 million Americans (27% of US population) received their booster shot.
POINT 3: Tracking the seasonality of COVID-19
***We’ve updated the seasonality tracker to show figures from the last 9 months, from this calendar day, in each of the last two years***
As evidenced by trends in 2020 and 2021, seasonality appears to play an important role in the daily cases, hospitalization, and deaths trends. 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
– Opposite effects hold true in the winter
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.
