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Friday
STRATEGY: Buyers’ Strike takes a pause, as investors “buy the invasion”. VIX reversal is a short-term positive signal
Hong Kong COVID-19 surge matching US surge…
While COVID-19 is on a very visible retreat in the US, COVID-19 is surging in parts of Asia. Hong Kong’s population is 7.8 million, compared to 330 million in the US, or US is 40X larger. Thus, the case figures and even hospitalized need to be compared to equivalent US figures.
– Daily cases in USA is 70k per day vs HK at 1,800
– Adjusted for population
– Daily cases per 1mm, closer at 217 vs 241, USA vs HK
So the surge in HK is far greater than one might realize. And hence, HK is testing every citizen.
Curiously, hospitalizations are high in HK both absolute and relative to the US. Take a look below:
– US hospitalized 50,000 versus 34,300 in HK
– The figures on an absolute basis are pretty close
– Despite USA being 40X larger
– on per 1mm residents
– US is 153 versus 4,566 in HK
– starting difference
STRATEGY: Buyers’ Strike takes a pause, as investors “buy the invasion”
Stocks have suffered terribly over the past few weeks under the cumulative pressures of inflation fears, Fed hawkishness and now the dramatic escalation of tensions with Russia-Ukraine. This has taken a large toll on stocks YTD:
– at the lows yesterday
– S&P 500 was -15%
– deep in correction territory
But as we can see below, the market had a “buy the invasion” moment:
– opened down -2.63%, meeting overnight futures lows
– close up +1.63%
This is a massive 426bp reversal and about 174 handles (points) on the S&P 500. A major reversal. Is this the end of the selling? The future is uncertain. But as Fundstrat has outlined both fundamentally and technically (see Mark Newton), there are reasons to have been expecting markets to bottom around here. It would be helpful to see follow through Friday, and at this time, this is our expectation.
Fortunate to see that prior war analogs provided proper framework
And it was fortunate to see that prior war analogs were applicable to the current environment. While the Russia-Ukraine escalation is a terrible tragedy, the market reaction to this, is similar to prior periods:
– markets sell off into the buildup
– but rally on the day of the invasion
Again, the “buy the invasion” seems to have happened.
…Russia’s stock index has a historic selloff
Russia stock market fell sharply yesterday declining > 38% and this is consistent with the pattern of 2014 (Crimea). The aggressor has seen its stock index fall.
– US and Europe announced painful sanctions
– these will be amplified in coming days with new sanctions
– hence, Russia economy will suffer a toll
VIX reversal was encouraging and often points to further gains 1M and 3M later
It looks like the VIX might have signaled an upside capitulation yesterday. That is, the seeking of protection got to a level yesterday that could be a sign of exhaustion.
– The VIX opened at > 38 yesterday
– and closed lower for the day at 30
– VIX delta was -8 points lower
Our data science team, led by tireless Ken, compiled data around large VIX point swings. And it turns out that this VIX reversal is signal.
Based on looking a deciles, the -8 delta on VIX is a 10th decile event. And the forward returns for S&P 500 1M and 3M are positive and strong. Take a look below:
– 1M forward returns +1.3%
– 3M forward returns +3.4%
High-yield is above 2/14 lows, while equities are lower = opportunity
One of the more positive incremental developments is that interest rates are not rising any longer. The interesting divergence is the fact that long-term bonds started rallying on 2/16. As shown below, the TLT (long-bond ETF) has risen even as S&P 500 has fallen sharply since 2/16.
– two reasons bonds rally
– “risk-off” and this is plausible given war risk
– inflation risks are falling = bonds rally
So, bond vigilantes are winning this battle as rates are falling.
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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33 Granny Shot Ideas: We performed our quarterly rebalance on 2/3. Full stock list here –> Click here _____________________________
POINT 1: Daily COVID-19 cases 58,379, down -39,159 vs 7D ago…
Current Trends — COVID-19 cases:
- Daily cases 58,379 vs 97,538 7D ago, down -39,159
- 7D positivity rate 7.1% vs 9.5% 7D ago
- Hospitalized patients 47,762, down -28% vs 7D ago
- Daily deaths 1,866, down -15% vs 7D ago
The latest COVID-19 daily cases came in at 58,379, down -39,159 vs 7D ago. After being positive for one day (due to holiday data distortion), the 7D delta in daily cases has been back to negative over the past two days. The steady decline in daily cases persists. In fact, the 7D average of daily cases has dropped over 90% since the peak in mid-January. Besides the daily cases, other metrics — daily deaths, hospitalizations, positivity rate — are also continuing to fall. As a result, several state and local governments have lifted or announced plans to lift their COVID-19 restrictions. And yesterday, many media outlets also reported that the CDC is expected to relax its indoor masking guidance Friday (2/25). With all these positive developments, the absence of a new variant, and the relatively high level of immunity (from both infection and vaccination), it feels like now is the closest we have been to “back to normal” in the past two years.
7D delta in daily cases has been negative for a month…
7D delta in daily cases turned negative again after the jump due to holiday data distortion. It shows the decline in daily cases persists. And at least so far, we have not seen any post-holiday case rise.
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 and positivity rates have plunged – both have fallen significantly from the Omicron peak
- Daily death finally started to decline after the daily cases peaked for a month. And as you can see below, daily deaths have also dropped rapidly, consistent with we have seen in other metrics.
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 0.4 million this past week vs 0.5 million last week
- overall, 28.6% received booster doses, 64.6% fully vaccinated, 76.0% 1-dose+ received
Vaccination frontier update –> all states now above 100% 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 above 100% combined penetration
– 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 483,620 doses administered, as reported on Thursday. The vaccination pace has slowed from the recent peak of 2 million doses per day in mid-December to ~500,000 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, 551 million vaccine doses have been administered across the country. Specifically, 252 million Americans (76% of US population) have received at least 1 dose of the vaccine. 214 million Americans (64% of US population) are fully vaccinated. And 95 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.
