FSI Macro

To me, the "half-full" interpretation is that the Delta variant is considerably further along in the US than many realize. Or more specifically, we believe that Delta surge is further along than many believe: - policymakers already panicking = good - panic almost might motivate non-vaxxed to get vaxxed = good - caution also might reduce gatherings = good In other words, there may be a mismatch between public perception (Delta surge is in the earliest stages) compared to the actual state of the Delta surge. If such, this would represent a positive surprise. ... IHME FORECASTS FLORIDA COVID-19 INFECTIONS TO PEAK ON AUGUST 4TH... YUP, THIS WEEK Among the US states seeing a Delta-driven surge, Florida has garnered a lot of attention. There are multiple reasons for this: - Florida is a top 8 US state measured by population or GDP. - the state was one of the first to see a parabolic Delta surge. - Florida is a tourist destination, both for domestic and international tourists. Since the start of the Delta surge, FL cases are up ~10X from the recent low. The state does not report cases regularly, but the CDC is collecting case data. The IHME forecast for Florida is below: - IHME forecasts FL infections to peak on 8/4 - that is just a few days away - a downturn in FL cases would further alleviate investor anxiety - UK downturn was already encouraging _... While Delta is more creating "breakthrough" infections of vaccinated, vaccines prevent severe illness _And it is worth keeping this in mind. While Delta seems to be able to "breakthrough" vaccinations, leading to those fully vaccinated becoming symptomatic, those breakthrough cases of vaccinated seem to be far less severe than those without vaccines. Hence, the case remains that it is good public policy to see more Americans vaccinated. https://twitter. com/FaceTheNation/status/1421941306541191169 _STRATEGY: WE ARE WARY OF MARKETS IN AUGUST ("JULY CHOP" LINGERS) BUT WE SEE MULTIPLE REASONS FOR STOCKS TO SURPRISE TO UPSIDE_ Monday is the first day of trading for August. And I want to harken back to our observation about July/August --> in my experience, it seems "one never makes money in July/August" --> so many institutional investors take vacation during this time (Europe pretty much off the whole month) and this reduced liquidity creates a "buyer's strike" - in other words, "tape bombs" can roil markets - hence, our advice remains "don't be a hero" That said, our base case for the month is that stocks likely surprise to the upside in August. This is not a high conviction view, so don't view this as a table pounding view. But consider this rationale: - USA COVID-19 cases could peak in next 7-10 days (see IHME, and our prior comparisons to UK) - incremental hospitalization rates seem to be rolling over - Fauci and other policymakers are stating new lockdowns unlikely - Commodities have been quietly strengthening, oil is within spitting distance of two-year highs - Bitcoin has been steadily strengthening, holding above the critical $40,000 for the past 5 days - finally, we think odds are favoring a rise in US interest rates in the coming weeks. On that last point. Yup. There is a possibility that the US 10-year might be marching higher into YE. _... US 10-year DeMark weekly count (combo v1b) generated a "9 sequential buy setup" last week _As many of you are aware, we find the systemic work of Tom DeMark helpful in understanding the technical overlay for markets. There are multiple timeframes that are used in DeMark and we generally stick to 3 timeframes --> 30 minute, daily and weekly. The shorter tactical calls are generated by the 30 minute charts. But the larger fractal and arguably more important fractals are the daily and weekly charts. Below is the weekly chart for the US 10-yr with the DeMark counts shown (combo v1b). - last week, the weekly shows a 9 sequential "buy setup" (green 9) - a possible reversal of trend is indicated - this reversal needs to happen within 4 bars, or within the next 3-4 weeks - this reversal coincides with US 10Y yields touching the 100 week moving average - 100-week mavg = 1.275% Thus, we are watching this DeMark over the next few weeks. Notice how the 10-year seems to have responded well to the prior DeMark inflection points ('9' or '13') as indicated? _... FOMC MEETING SEEMED TO BE A "HAWKISH" SURPRISE AND JPMORGAN SEES POSSIBLE NOVEMBER TAPER_ In fact, the cadence of incoming data also suggests the Fed might be inclined to act sooner. As JPMorgan US Fixed Income strategists note, the Fed FOMC meeting last week was a hawkish surprise. And they even acknowledged the risk of a November taper. - but their base case remains a December taper announcement to begin in January. _... Bonds did so well in July, it makes me wonder if consensus is now "lower rates into YE" _In fact, take a look at the monthly performance of rates and credit during July. Everything rallied. Every bond outperformed. This happened in April 2021. But April was a reversal after a brutal 3-month period where all bonds fell. - while we might be simply making a "mean reversion" statement - we think odds are rising that bonds do poorly in August - this would be bullish for Epicenter/reflation/cyclical stocks. __________________________ Granny Shots: We updated our quarterly stock list --> CLICK HERE ___________________________ POINT 1: DAILY COVID-19 CASES 15,982, UP +3,698 (EX-FL&NE) VS 7D AGO... 7D DELTA IN DAILY CASES SEEMS PEAKING... IF SO, EARLY SIGN OF CASE ROLLOVER... _____________________________ Current Trends -- COVID-19 cases: - Daily cases 15,982 vs 25,057 7D ago, down -9,075 - Daily cases ex-FL&NE 15,982 vs 12,284 7D ago, up +3,698 - 7D positivity rate 7.5% vs 5.6% 7D ago - Hospitalized patients 45,692, up +39% vs 7D ago - Daily deaths 348, up +31% 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._ On Sunday, 12 states and Puerto Rico reported a total of 15,982 new cases. All 12 states and PR reported higher daily cases than 7D ago. The 7D delta in daily cases has climbed to ~21,000, but seems to be peaking now. As we noted last week, in order for the daily cases to roll over, the 7D delta has to turn downwards first - it indicates that the speed of case rise is slowing and that daily cases are apexing. And next, when the 7D delta turns to negative, the daily cases "officially" roll over. Hence, a peaking 7D delta is an early sign of case rollover. And the timing of peaking for 7D delta is also consistent with IHME's forecast as well as the similar patterns we observed in UK and India which implies US case trend could start to roll over in two weeks. However, future is uncertain and we will be watching the relevant data closely. _7D delta in daily cases seems to be peaking... _The 7D delta in daily cases has been rising over the past two weeks. But as shown in the chart below, it seems the speed of case rise has slowed down, and it could be an early sign of case rollover - US cases will continue to rise but will do so at a slower speed until the day that 7D delta turns to negative. _LOW VACCINATED STATES SEEM TO HAVE A LARGER INCREASE IN DAILY CASES COMPARED TO THEIR RECENT LOW..._ Below, we added a new section called "Parabolic Case Surge Tracker" to monitor the possible parabolic surge in daily case figures. In the table, we included both the vaccine penetration and the recent case trend for 50 US states + DC. The table is sorted by the multiple of their current daily cases divided by their recent low in daily cases. - The states with higher ranks are the states that have seen a more significant rise in daily cases - We also calculated the number of days between now and the recent low date; a state with a high multiple but low number of days since its low means the state is facing a relatively rapid surge in daily cases - The US as a whole, UK, and Israel are also shown at the top as a reference   _HOSPITALIZATION AND POSITIVITY RATE CONTINUE RISING... DAILY DEATHS IS ALSO TRENDING UPWARDS 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. As you can see, hospitalization and positivity rate have exceeded the peak level we've seen in April's "mini" wave. Daily deaths have been trending upwards recently, but far less "dramatic" than the cases or hospitalization trends.   POINT 2: VACCINE: VACCINATION PACE HAS BEEN GRADUALLY RISING OVER THE PAST WEEK... ON AVERAGE, ~660,000 DOSES ARE ADMINISTERED EACH DAY... _____________________________ CURRENT TRENDS -- VACCINATIONS: - avg 0.7 million this past week vs 0.6 million last week - overall, 49.3% fully vaccinated, 57.2% 1-dose+ received _____________________________ VACCINATION FRONTIER UPDATE --> ALL STATES NOW NEAR OR ABOVE 80% COMBINED PENETRATION (VACCINES + INFECTIONS) 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 80% combined penetration - RI, MA, SD, CT, NJ, IL, NY, DE, NM, UT, PA, ND, AZ, MN, CA, FL, NE 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 80% combined vaccination + infection. 69.0% of US states (based on state population) have seen combined infection & vaccination >90% and 48.1% of US states have seen 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 811,805 doses administered reported on Sunday. As you can see from the chart below, the vaccination pace apparently has improved over the past week. Perhaps people are becoming more inclined to get vaccinated over growing delta variant concerns. Although the improvement is small, it is still a good sign since vaccination not only could lower the chance and mitigate the severity of getting COVID, but also reduce the virus's transmission and potentially help contain the virus spread.   Currently, over 2/3 (67.5%) of the US population eligible (age 12+) to receive COVID vaccines have already received at least one dose. For some people among the remaining 1/3, vaccine hesitancy concerns might not easily be reversed. But in order to prevent surges in daily cases, hospitalizations, and fatalities, getting more people fully vaccinated remains the key.   _99.1% of the US has seen 1-dose penetration >40%... _ 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 line on the chart. Currently, 88.8% 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 67.8%. And only 44.5% of US (by state population) have seen 50% of its residents fully vaccinated. - While 99.1% of US states have seen vaccine penetration >40%, 93.4% of them have seen 1 dose penetration >45% and 78.1% of them have seen 1 dose penetration > 50%. - 88.8% of the US has at least 40% of its residents fully vaccinated, However, only 67.8% of US has fully vaccinated >45% and 44.5% of US has fully vaccinated >50%. 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 ~10 for the past few days - this means 10 vaccines dosed for every 1 confirmed case In total, 344 million vaccine doses have been administered across the country. Specifically, 190 million Americans (57% of US population) have received at least 1 dose of the vaccine. And 164 million Americans (49% of US population) are fully vaccinated.     POINT 3: Tracking restrictions lifting and subsequent effects in individual states Point #3 focuses primarily on tracking the lifting of restrictions, as states have eased the majority of mandates. Keep in mind, easing/lifting restrictions are contingent upon state of emergency ordinances being renewed. - States in groups 1 and 2 represent states that let their emergency ordinances expire, or that never had one in the first place - Note: IL and HI are not listed. This is because restrictions lifting is determined at the county / island level, and no statewide policy will be established to lift restrictions until a full reopening So there is a spectrum of approaches. Our team is listing 3 tiers of states and these are shown below. - states that eased all restrictions in 2020: AK, OK, MO, FL, TN - states that have eased all restrictions in 2021 to now: ND, SD, NE, ID, IA, MT, MS, AZ, SC, WY, TX, GA, AR, KS, WI, IN, AL, UT, NH, LA, NJ, KY, MN, MA, VT, OH, WV, ME, MI, NY, OR, PA, MD, DE - states that are still easing restrictions in 2021: WA, NC, CA, NM, CO, NV, CT, VA, RI, DC GROUP 1: STATES THAT LIFTED RESTRICTIONS IN 2020... The daily case trends in these states are impressive and it is difficult to say that lifting restrictions has actually caused a new wave of cases because the case trends in these states look like other states. GROUP 2: STATES THAT HAVE LIFTED RESTRICTIONS IN 2021 TO NOW... Similar to the list of states above, the daily case trends in these states are impressive and it seems that lifting restrictions hasn’t caused an increase in cases. GROUP 3: STATES THAT ARE STILL EASING RESTRICTIONS IN 2021... These states have begun to lift restrictions, but have yet to ease all restrictions. The date of each state’s most recent restrictions lifting is indicated on each chart. The case trends in these states have been mostly positive. - Easing restrictions appears to have contributed to an increase in cases in several of these states, most drastically in OR, ME, WA, and MN