Daily vaccinations double in past week to 1.6 million
There has been a sizable jump in Americans getting COVID-19 vaccinations, presumably because of the recent approvals of booster vaccinations for Moderna and Pfizer and also the approval to “mix and match” boosters (versus the original vaccination protocol). Overall, this is a positive for the US effort against COVID-19, as those Americans who have been vaccinated would substantially benefit from a booster shot.
- US daily vaccinations jumped to 1.6 million
- daily vaccinations were 813K a week ago
- daily vaccinations have not been this high since May 2021, when many were getting 1st doses
So, it seems like the approval of boosters, along with approval of vaccinations for children, is driving a surge in Americans getting vaccinated.
Boosters probably contributed to a collapse in cases in Israel
Israel is a great example of how COVID-19 surges eventually lead to a collapse in cases. Take a look at the chart below:
- From 8/1 to 9/15, Israel daily COVID-19 cases surged from 2,000 to >10,000
- From 9/15 to now, daily cases collapsed from >10,000 to 799, or a >90% decline
- Daily cases in Israel surged until booster vaccinations reached 2.5 million, or ~30% of citizens– COVID-19 eventually burns out, to the extent that the vulnerablepopulation shrinks
- But it seems like boosters contributed to a drop in cases
Again, this is a data point that supports the notion that boosters could be contributing to a decline in cases. If this is indeed true, the trajectory of COVID-19 cases in the US over the next few months could surprise to the downside. Meaning, the boosters, which enhance the immune system, might significantly limit the spread and hence, lead to far fewer cases.
In general, this is consistent with our view that US cases could be tracking better than fear, and this reflects the potential benefits of booster shots.
…Fluvoxamine, a widely used antidepressant, might be a useful COVID-19 therapeutic
As COVID-19 is increasingly viewed as an endemic disease, the role of therapeutics will become important. That is, for those infected either because of lack of prior immunity, or a “breakthrough case”, it will be important to provide therapies that mitigate the damage from COVID-19. And today, monoclonal antibodies are the most prevalent and widely used therapeutic.
But it seems like a large clinical trial has shown that Fluvoxamine, an antidepressant prescribed for OCD, might significantly reduce hospitalizations:
- Fluvoxamine is known as Luvox and Luvox CR in the US
- the trial took place in the Brazil from Jan to August, involving 1,500 people at 11 sites
- Avg age 60
- Hospitalizations: 11% for Fluvoxamine vs 16% for placebo
- Among the 750 receiving Fluvoxamine, only 1 died compared to 12 in the Placebo
Fluvoxamine has anti-inflammatory properties. So, this might be a factor in its success.
STRATEGY: Multiple factors suggest Small-caps might be soon breaking to the upside
Over the past 11 months, small-cap stocks, represented by the Russell 2000 below, have been in consolidation. Take a look at the chart below and you can see the IWM -0.03% peaked in February 2021:
- Small-caps peaked on an absolute basis in Feb 2021
- Past 9 months, Small-caps have been rangebound
- Multiple factors have been headwinds
- Among the headwinds –> rising rates (cost of capital), supply chain glitches (margins) and labor shortages (margins)
- Uncertainty around Fed has been a headwind as well –> Tightening = headwind for small-caps
3 Reasons we expect Small-caps might soon break to the upside
Generally, investors lose patience when a stock is in a long consolidation. But when there are 3 reasons we expect small-cap stocks to break to the upside soon:
- Fed timeline for tapering is likely more dovish than consensus
- Bond consensus has been 25bp by Sept 2022
- Core FOMC, as noted by JPMorgan Economists, is more dovish and JPM sees early 2023, +6m later
- 3Q2021 GDP came in at 2.0% versus consensus 2.6% and 6.7% last quarter
- Is GDP really running that “hot”?
- Supply chain glitches could be modestly improving
- Supply chain issues are a margin issue and hurt smaller cos > large cos = small-cap headwinds
- Vessels in LA/LB Ports have fallen from 169 to 153 in the past 10 days = good sign
- Market breadth has improved recently
- Rising market breadth, supported by rising mid-caps and now small-caps
- suggests a small-cap “catch up rally”
Bad news is good news: JPMorgan Economics suggests Fed is more dovish than consensus and weak 3Q2021 is good. Perhaps one of the most incremental developments this week is a possible shift in consensus views on the Fed hike timing. As JPMorgan Economist notes, while the bond market was pricing in a Fed 25bp hike in Sept 2022, Economist Feroli believes the “core of FOMC” leans more dovish (vs median plot) and therefore Feroli sees Fed on hold until 2023:
- this is a setup where “bad economic news” turns into good news
- because it pushes Fed timeline out
- the weak 3Q2021 GDP print of 2.0% sort of qualifies as “bad news”
- pushes Fed timeline out
Pushing out the Fed timeline is positive for small-caps, generally.
Supply chain glitches easing = good for small-caps which have less “negotiating leverage” vs large-cap
Many eyes are on the inbound ports of the US, because this is viewed as the focal point of the supply chain glitches plaguing delivery times. And while there are many reasons ports are seeing delays, the reality is, reducing the number of vessels crowding the ports will be anecdotally positive:
- recently, the number of ships at the Los Angeles and Long Beach (LA/LB) have declined
- 10 days ago it was 169, a record
- it has fallen -16 to 153, or -10%
- that is a large % decline
- falling another 10% would be a welcome development
This is purely anecdotal and could be just a simple variation of traffic, as the chart below highlights, there is daily noise in the number of ships. But given the recent efforts by the White House and policymakers to ease the backup, this might actually be progress.
- we generally believe smaller companies are more vulnerable to supply chain glitches, as they presumably have less negotiating leverage
- thus, easing supply chain issues benefits small-caps disproportionately.
- it is somewhat apparent looking below
Technicals are improving for small-caps
Finally, Technicals are improving for small-caps. Mark Newton, Global Head of Technical Strategy at FSInsight, has noted that he believes small-caps are showing a relatively bullish pattern, emerging from this consolidation:
- higher probability is an upside breakout
And as shown below, the breadth of the market is improving. The equal weight S&P 500 is starting to show relative strength versus the overall index:
- this strengthening of breadth started in July but broke out in October 2021
- Mid-may 2021 to late July 2021, market breadth weakened
This increase in breadth is a positive harbinger for small-caps, in our view.
SECTORS: Energy still favorite sector
Into YE, our recommended strategies are:
- Energy
- Homebuilders (Golden 6 months) XHB -0.45%
- NEW –> Small-caps IWM -0.03%
- Epicenter XLI -0.02% XLF -0.12% XLB -0.10% RCD
- Crypto BITO 2.31% GBTC 2.36% BITW
Figure: Way forward ➜ What changes after COVID-19
Per FSInsight
Figure: FSInsight Portfolio Strategy Summary – Relative to S&P 500
** Performance is calculated since strategy introduction, 1/10/2019
