Click HERE to access the FSInsight COVID-19 Daily Chartbook.
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Monday
Tuesday
SKIP WEDNESDAY –> Traveling
SKIP THURSDAY
Friday
STRATEGY: Financial markets are fretting over inflation + rising rates = uncertainty = BUT equity TINA matters
COVID-19 is retreating rapidly in the US
I am in Arizona this week for a conference. I am still marveling at how near perfect the weather is in Scottsdale in February. Temperature is in the 80s, low humidity, cloudless azure blue skies and gorgeous landscapes. And the timing for this visit is good as well. As shown below, if this visit was only a few weeks earlier, Arizona would be in the midst of a COVID-19 Omicron surge. But fortunately, cases are collapsing here.
In fact, cases are disappearing across the US. Take a look at some charts posted by @jason (Jason Calacanis) showing prevalence of COVID-19 in various sewage samples of the Bay area. Same story, an utter collapse in cases.
– Omicron was so infectious, that it reached more Americans than any other wave
– but its rapid appearance has been followed by its equal rapid disappearance
– the best case scenario is Omicron is the last major wave of COVID-19
– and the US will see a gradual return to normal for the remainder of 2022
But we have to be mindful that variants have appeared about every 130-150 days or so. And if there is to be a future variant, it might emerge around April 2022.
– this coincides with the seasonal change in the Southern hemisphere
– thus, immune systems would be weakening there
And not to be adding any alarm, but merely an observation, but scientists warn that the next variant may not be spawning from Omicron. It might be a variant of a previous version of COVID-19. As they point out, Omicron did not emerge from Delta. But it replaced Delta.
STRATEGY: Financial markets are fretting over inflation + rising rates = uncertainty = BUT equity TINA matters
Equity markets were under intense selling pressure late last week, a combination of factors that drastically undermined investor confidence:
– Facebook earnings miss exposed a weakness in the juggernaut earnings power of FANG
– Strong January CPI print (Thursday) raised cries of the Fed “behind the ball”
– Heightened concerns of Russia/Ukraine escalate concerns of geopolitical instability
In short, when visibility and certainty is reduced, investors derisk. A chart by JPMorgan’s fixed income research highlights the hawkish tone taken by the Fed. This is looks at how yields respond to Fed comments in the 15 minutes following the appearance of headlines on Bloomberg. While there is still a downward bias, it is far less than previously.
– so equity markets are trying to reprice risk premia in this context
– but we know investors tend to overreact
– hence, equity markets likely overshoot this repricing
– this is where investors need to exercise patience
– while inflation data was strong in Jan (CPI print), this does not mean future inflation readings are similarly strong
But the key question is how much further damage can we see for equity markets. Foremost, there is considerable valuation support for US equities.
– in fact, US equities are still cheaper than the rest of the world
– the correct proxy, in our view, is total cash return yield
– this is dividend yield + stock buyback yield
– S&P 500 is 3% currently
– 10-yr is yielding 2%
– equities have a yield surpassing that of bonds, so stocks are still attractive
– using same sector weighting as S&P 500
– Europe yield is 1.3%
– Japan 2.6%
– EM 2.8%
So why do investors recommend allocating away from the US? The S&P 500 is still the cheapest equity market on this measure. Yup. Keep in mind:
– bonds are guaranteed to lose money
– if Fed is raising rates
– bond market is suffering
– most attractive equity market is S&P 500
…We still see a February rally, but in the context of a treacherous 1H
Our base for 2022 has been that 1H2022 would be treacherous, as we explained in early December. The factors are obvious now, but our view was that markets would face several headwinds that turn into tailwinds in 2H2022. In fact, history also suggests 1H markets would be flat:
– look at mid-term markets analysis, 1H is flat when Dems control White House, Senate and House
– markets are flat 1H when January is a down month
– see below
That said, we still see a case for a rally in February. The rationale has been explained in previous notes, but the key factors are the rapid raise of cash, the plunge in sentiment, the water decline in stocks and the general bearishness of markets.
We can see the cumulative de-risking taken by investors over the past few weeks. For instance, look at the equity beta of balanced funds and risk parity funds. This is data compiled by JPMorgan and we can see that balanced funds have the lowest relative beta to equity funds since early 2021. Again, while there are multiple factors that explain why investors are cautious, this is pretty heavy de-risking.
While all eyes are on the Fed over the next month, until the March FOMC meeting, we are entering a relative dead spot for communications. There will be selected comments from Fed members over the next few weeks.
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 GBTC BITW
– Energy
– FAANG FNGS QQQ
Combined, it can be shorted to BEEF.
– Homebuilders (Oct – Apr aka Golden 6 months) XHB
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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 26,853, down -18,094 vs 7D ago…
Current Trends — COVID-19 cases:
- Daily cases 26,853 vs 44,947 7D ago, down -18,094
- 7D positivity rate 11.4% vs 16.5% 7D ago
- Hospitalized patients 81,076, down -23% vs 7D ago
- Daily deaths 2,397, down -3.5% vs 7D ago
On Sunday, 13 states + PR reported a total of 26,853 new cases, down -18,094 vs. 7D ago. All of them reported a lower case figure except Alabama which did not report COVID cases 7D ago due to a dashboard system upgrade. The decline in daily cases persists as the 7D average of daily cases has plunged nearly 80% from the peak to ~176,000. In fact, the COVID-19 cases have been falling so rapidly that 4 weeks ago, the 7D average daily cases was still over 700,000. The chart below shows the symmetry of the speed of case rise and case decline for the recent wave. Another major development on COVID-19 over the weekend was the long due rollover in daily deaths seems to finally happen. It has been nearly a month since the daily cases peaked. That said, this is good news as all COVID metrics — daily cases, positivity rates, currently hospitalizations, daily mortalities — are falling now.
7D delta in daily cases has been negative in 24 of past 25 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 the daily cases have fallen so much.
All US states are seeing decline in daily cases now…
*** 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 0.6 million last week
- overall, 28.0% received booster doses, 64.2% fully vaccinated, 75.6% 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 481,617 doses administered, as reported on Sunday. The vaccination pace has slowed from the recent peak of 2 million doses per day in mid-December to ~600,000 recently. The improving COVID case trend across the nation may have influenced people’s desire and sense of urgency to get the booster doses. That said, as more and more states lift their COVID-19 restrictions, we believe vaccination remains a key to support us to smoothly transition back to “Normal”. Therefore, the daily number of vaccines administered is still one of the most important metrics to watch.
This is the state by state data below, showing information for individuals with one dose, two doses, and booster dose.
In total, 547 million vaccine doses have been administered across the country. Specifically, 251 million Americans (76% of US population) have received at least 1 dose of the vaccine. 213 million Americans (64% of US population) are fully vaccinated. And 93 million Americans (28% 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 evident 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.
