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STRATEGY: Food for thought on small-caps and EnergyWe have been expecting that small-caps and Epicenter stocks would get rejuvenated once US COVID-19 cases started to roll over.  And this week, we believe we got the leg down in USA COVID-19 cases.  And as the chart below shows, if cases are rolling over, then the epicenter...

Small-caps breakout underway and Oil is +1% above 2019 levels, but XLE/OIH is -21%/ -33% lower...hmmm

COVID-19 UPDATE: Israel daily cases (per 1mm) now 26 vs 952 (Jan). ND and SD could see "obliteration" by June. Oil prices key to direction of Epicenter trade...

Click HERE to access the FSInsight COVID-19 Daily Chartbook. We are shifting to a 4-day a week publication schedule: MondayTuesdayWednesdaySKIP THURSDAYFriday STRATEGY: Oil prices key to direction of Epicenter trade... We want to revisit the progress of Israel in its battle with COVID-19.  That nation now has vaccinated 62% of its population.  And even with mutations in Israel, they have seen a drastic reduction in COVID-19 cases:- latest 7D avg is a mere 26 cases per 1mm residents- it was 952 per 1mm on 1/18/2021, right before cases apexed with 26% vaccinated- as we said before, COVID-19 looks to have been largely obliterated from IsraelThe takeaway, for me, is that Israel's experience does strongly argue support for the effectiveness of vaccines.  That nation solely relied upon Pfizer for its vaccinations. ... North Dakota and South Dakota better daily cases per 1mm vs Israel at this same point and could be obliterated by JuneTireless Ken and his team overlaid Israel's case results compared to North and South Dakota.  Those two states have among the highest vaccination rates in the US and also the highest overall combined infections + vaccinations.  And as our clients know, we have looked to ND and SD as templates for the rest of the US.- SD has 42% vaccine penetration- ND has 37%- SD daily cases are 227 per 1mm, while Israel was 803 at same vaccine point- ND has 196 per 1mm, well below Israel's 760 at the same pointAs the overlay shows, ND and SD could essentially be at zero cases by June 2021. The lag between penetration of vaccines and cases falling is due to a few factors including the fact that vaccines take time to become effective.  And the broader fact, a lot of the population is still exposed and vulnerable. McKinsey estimates that 80-90% of population needs to be vaccinated, but Israel results argue otherwiseAccording to analysis by McKinsey, with the assumption of more transmissible variants, and the associated decreased effectiveness of the vaccines, they estimate the 80%-90% of the population >age 12 needs to be vaccinated. And as their survey shows, there might be a practical challenge to this:- in their March 2021 survey (n=2,724 respondents)- 85% are in the probable vaccine, which is 5% short- 15% said they are unlikely to get vaccinated- thus, 1/3 of the unlikely need to change their mindOf course, all of this is purely theoretical, in the sense that McKinsey cannot look to precedent COVID-19 pandemics to be assured to their analysis accuracy. STRATEGY: Epicenter stocks endured a month-long sell-off, but oil is arguing for an upside breakout aheadOver the past month, Epicenter stocks have underperformed the broader market, evident in the chart below. Economic momentum remains strong and the increase in EPS estimates steadily over the past few weeks shows the Street is still in the process of raising their forecast and outlook. But there are a few reasons, in the midst of this beat and raise environment that Epicenter aka Cyclicals are not rising:- Good news baked in, and thus, Growth stocks will leadcounter: Epicenter/Cyclicals are projected to have 2022 EBIT >50% to 100% above 2019 levels, but stocks are near 2019 levels- Interest rates falling, so Growth stocks leadcounter: interest rates are falling in part to crowded positioning for higher rate (aka buy the rumor, sell the news) but higher growth = higher rates- Cyclicals are just rentals and Growth stocks are the only real equitiescounter: this is very consensus thinking, foremost, but more importantly, cyclicals are already showing substantial operating leverageBut perhaps the most important thing to consider is that Cyclicals have the capacity for positive surprise.  To me, it seems like most investors are more comfortable buying Growth/FANG and find them attractive after their recent pullback.  So, again, anecdotally, consensus is still overweight Growth, and underweight Epicenter. Source: Fundstrat and BloombergOil prices in next few months might be key to direction of Epicenter trade... But I might have a simpler framework.  In many ways, the path of oil could be a key determinant to the leadership of markets over the next few months.  Think of it this way:- WTI is currently $63- if oil rises to $70-$80 by Summer, what groups would lead?- we know there is a tight linkage between oil and Energy stocks (ETFs: XLE and OIH, as proxy)- rising oil likely to be viewed as reflationary for markets- Energy is one of the leading Epicenter sectorsHence, if oil price strengthens meaningfully above $63, we expect investors to rotate into Cyclicals aka Epicenter.... Epicenter stocks stalled when oil prices consolidatedTake a look below and you can actually see this linkage at work. In fact, I might even suggest there is shocking clarity on this linkage:- WTI oil prices peaked $68 on 3/8/2021 and fell to $59 by April 12th- these dates literally align with the peak and trough of Epicenter stocksOver the past two days, WTI has risen from $59 to $63.  And this has coincided with the recent upturn in Epicenter stocks.  So, as strange as this sounds, the price of Oil might be a leading/contemporaneous yardstick for the Epicenter trade. - if this is true, the price of Oil in the next few months is key Source: Fundstrat and BloombergOil fundamentals are forecasted to strengthen, and consensus not expecting oil to rise strongly into SummerThe oil team at Cornerstone Macro (CSM) published a recent report, noting the significantly more bullish outlook from the IEA.  Cornerstone Macro and Goldman Sachs are one of the few macro sell-ide firms bullish on oil prices.  Goldman believes we are in an oil supercycle and WTI prices could reach $80 this Summer. Source: Cornerstone MacroWithin CSM's report, the analysts have a great chart on US petroleum demand: comparing 2021 to the corresponding week in 2019.- Jet fuel demand is already above 2019 levels for the same week- Similarly propane (not surprised, given stay at home)- But most notably, look at total products demand and that looks set to exceed 2019 levels in coming weeks.  In fact, CSM believes the realized demand upside will be sometime this Summer.  In other words, in coming weeks, factors support a strengthening of demand, which in turn, should drive higher prices. If oil strengthens to $80 this Summer, XLE should be $71, or 45% upside... The linkage between WTI and XLE is very close.  In fact, they have moved in tandem.  The only divergence is the last two days, but this is likely a short term divergence, as you can see these divergences have not persisted.- if WTI trades to $80- this implies the price ratio XLE/SPY (energy vs S&P 500) should rise to 0.17- SPY is $417, which implies $71 for XLE- XLE is $49, or 45% upsideIn other words, if the WTI prices do indeed strengthen, we could see a significant rise in Energy equities.  This would add to their current ~30% gains YTD, or take total gains to ~80%.  In other words, Energy seems to be a very good buy here. ... Bigger picture is the Energy might be starting a new bull market... The bigger fractal (zooming out) is that Energy stocks might be finally ending the 12-year bear market in place since 2008.  We have labelled the comparative bull and bear market cycles for Energy stocks since 1933 (~90 years):- Bear markets last an average of 10 years- Bull markets last an average of 9 yearsThis current bear market is the worst ever for Energy.  In fact, in our 2021 Outlook, we noted one had to go back to whale oil days to find a worst stretch of time for Energy stocks.  - Energy stocks normally rebounded after touching the historical inflection (price ratio)- In 2020, the pandemic cause Energy stocks to massively undershoot. We have written about how there appears to be a significant improvement in the supply/demand dynamics of Energy.  The combination of White House restricting the sector and capital scarcity are contributing to supply constraints.  While demand should recover strongly (see above).- moreover, Energy companies are trying to become carbon neutral and ESG friendly- the sector is also underowned given its small index weightBut if Energy is indeed bottoming longer term, the 322% relative outperformance over 9 years (historical average) implies:- CAGR of 30% per year outperformance vs S&P 500- pretty substantial upside STRATEGY: Updating our Power Trifecta, adding net 10 stocks, now Power Trifecta 35 (*)We are updating our Power Trifecta list. In this rebalance, 3 stocks are deleted and 13 stocks are added. Thus, the total number of stocks has risen by 10 to 35. This makes sense given the recent pullback in the Epicenter names (more stocks are attractive). 3 Deletions:$PBCT, $NVT, $VNO 13 Additions:$AZO, $HOG, $GRMN, $MGM, $WH, $GPS, $LB, $VIRT, $AGCO, $OC, $UBER. $EXP, $NUE 35 Power Trifecta Stocks Ideas:Consumer Discretionary:$AZO, $HOG, $GRMN, $RL, $MGM, $NCLH, $RCL, $WH, $GPS, $LB Financials:$NYCB, $VIRT Industrials:$AGCO, $OC, $DAL, $KEX, $UBER Energy:$XOM, $HP, $NOV, $SLB, $COP, $EOG, $MRO, $MUR, $HFC, $PSX Materials:$EXP, $NUE Real Estate:$BXP, $HIW, $JBGS, $UDR, $KIM, $WRI Source: Fundstrat, Bloomberg (*) the 35 Power Epicenter Trifecta stock ideas are the subset of the original 108 Epicenter Trifecta stock list. For the full list of our original Epicenter Trifecta stock list, please click the link below. Please note that the stocks rated OW on this list meet the requirements of our investment theme as of the publication date. We do not monitor this list day by day. A stock taken off this list means it no longer meets our investment criteria, but not necessarily that it is neutral rated or should be sold. Please consult your financial advisor to discuss your risk tolerance and other factors that characterize your unique investment profile. For the full list of the 108 Epicenter Trifecta stock ideas, please click here ADDENDUM: We are attaching the stock lists for our 3 portfolios:We get several requests to give the updated list for our stock portfolios.  We are including the links here: - Granny Shots  -->       core stocks, based on 6 thematic/tactical portfolios- Trifecta epicenter  --> based on the convergence of Quant (tireless Ken), Rauscher (Global strategy), Technicals- Violence in USA --> companies that are involved in some aspect of home or personal security. We are not recommending these stocks, but rather, bringing these stocks to your attention. Granny Shots:Full stock list here --> Click hereTickers: AAPL, CSCO, INTC, MXIM, NVDA, EBAY, KLAC, GRMN, GOOG, MNST, MSFT, AMZN, QCOM, TSLA, PYPL, AXP, BF/B, PM, XLNX, TGT, PG, XOM, VLO, GL, RF, ATVI, BBY, GE, AMAT, LRCX, MU, HPQ Trifecta Epicenter (*):Full stock list here --> Click hereTickers: AAP, AN, AZO, F, GM, HOG, BBY, GRMN, GPC, LEG, TPX, PHM, NWL, MAT, PII, RL, MGM, HLT, MAR, NCLH, RCL, WH, TNL, SIX, FL, GPS, KSS, LB, VFC, WTFC, ASB, FNB, PB, TFC, WBS, PACW, NYCB, MTG, EVR, IBKR, VIRT, BK, STT, BHF, AGCO, OC, ACM, WAB, GNRC, CSL, GE, GGG, IEX, PNR, CFX, DOV, MIDD, SNA, XYL, FLS, EAF, ITT, ALK, DAL, JBLU, LUV, MIC, KEX, JBHT, R, UBER, UHAL, MAN, XOM, HP, BKR, HAL, NOV, SLB, COP, EOG, FANG, HES, MRO, MUR, PXD, XEC, HFC, MPC, PSX, EXP, CF, NEU, NUE, RS, SON, IP, ARE, BXP, HIW, JBGS, ESS, UDR, KIM, NNN, O, WRI, PSA Violence in USA:Full stock list here --> Click here(*) Please note that the stocks rated OW on this list meet the requirements of our investment theme as of the publication date. We do not monitor this list day by day. A stock taken off this list means it no longer meets our investment criteria, but not necessarily that it is neutral rated or should be sold. Please consult your financial advisor to discuss your risk tolerance and other factors that characterize your unique investment profile. POINT 1: Daily COVID-19 cases 68,922, -4,985 vs 7D ago... 7D delta has been negative in the past two days..._____________________________Current Trends -- COVID-19 cases: - Daily cases    68,922 vs 73,907 7D ago, down -4,985- 7D positivity rate   5.5% vs 4.8% 7D ago- Hospitalized patients   40,9993  up +2.7% vs 7D ago- Daily deaths    714,  down -1.1% vs 7D ago_____________________________- The latest COVID-19 daily cases came in at 68,922, down -4,985 vs 7D ago.  - After surging to ~16k on Tuesday, 7D delta in daily cases has turned negative in the past two days. As far as we know, this is not likely a result of data distortion or underreported test results. Hence, if this persists, we could see the case trend resumes its downtrend.- At this stage of pandemic, vaccinations might matter more than daily case trends. As long as vaccinations work, eventually the rollout of the vaccines will lead to a decline in the pervasiveness of the COVID pandemic. Source: Fundstrat and state health departments7D delta in daily cases has turned negative in the past two days... After surging to ~16k on Tuesday, 7D delta in daily cases has turned negative in the past two days. As far as we know, this is not likely a result of data distortion or underreported test results. Hence, if this persists, we could see the case trend resumes its downtrend.   Source: Fundstrat and state health departments   US hospitalization still rolling over ... and even US deaths seem to be rolling over... Below we show the aggregate patients who are currently hospitalized due to COVID. It has fallen significantly from the wave 3 peak. Source: Fundstrat and state health departments Source: Fundstrat and state health departments Source: Fundstrat and state health departments  Source: Fundstrat and state health departments POINT 2: VACCINE: 49 states near ~60% infected + vaccinated..._____________________________Current Trends -- Vaccinations: Vaccinations ramping steadily- avg 3.4 million this past week vs 3.0 million last week- overall, 23.5% fully vaccinated, 37.6% 1-dose+ received_____________________________Vaccination frontier update --> almost all states now near or above 60% combined penetration (vaccines + infections)Below we sorted the states by the combined penetration (vaccinations + infections).  As we commented in the past, the key figure is the combined value >60%, which is presumably near herd immunity.  That is, the combined value of infections + vaccinations as % population > 60%.- Currently, all states except OR and HI (see below) are basically all at this level- SD, ND and RI are now above 90% combined penetration (vaccines + infections)- So slowly, the US is getting to that threshold of presumable herd immunity Source: CDC and Fundstrat Collectively, these 49 states represent about 97.3% of the US population. In fact, 72.7% of US states (based on state population) have seen combined infection and vaccination >70% and 25.2% of US states have seen combined infection and vaccination >80%.  As the chart below highlights, the US is seeing steady forward progress and this figure continues to rise steadily. Source: CDC and Fundstrat There were a total of 3,508,399 doses administered on Thursday, up 3.5% from 7D ago. Overall, the pace is steadily rising, as evidenced by the 7D moving average (see blue line). In fact, the vaccination path (measured by 7D average to eliminate seasonality) just achieved its all time high recently. On average, ~3.4 million doses were administered on each day in the past 7 days. Source: CDC and Fundstrat  ~72.7% of the US has seen 1-dose penetration >35%... 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 20%/25%/30% of its residents fully vaccinated, displayed as the orange line on the chart. Currently, 91.3% of US states have seen 20% of their residents fully vaccinated.   However, when looking at the percentage of the US with at least 25% of its residents fully vaccinated, this figure is 25.6%. And currently 4 states, 1.6% of US by state population, have seen 30% of its residents fully vaccinated.- While 96.6% of US states have seen vaccine penetration >30%, 72.7% of them have seen 1 dose penetration >35% and 39.3% of them have seen 1 dose penetration > 40%.- 91.3% of the US has at least 20% of its residents fully vaccinated, However, only 25.6% of US has fully vaccinated >25%- This is still a small figure but this figure is rising sharply now. Source: CDC and Fundstrat This is the state by state data below, showing information for states with one dose and for those with two doses. Source: CDC and Fundstrat The ratio of vaccinations/ daily confirmed cases is generally trending higher (red line is 7D moving avg) and this is the most encouraging statistic. - the 7D moving average is about ~50 for the past few days- this means 50 vaccines dosed for every 1 confirmed caseThis figure is rising nicely and likely surges in the coming weeks Source: CD and Fundstrat In total, about 125 million Americans have received at least 1 dose of a vaccine.  This is a good pace and as we noted previously, implies 50% of the population by May.   Source: CDC and Fundstrat POINT 3: Tracking un-restricted and restriction-lifted statesWe are changing Point #3 to focus primarily on tracking the lifting of restrictions, as states begin to ease various mandates.  Keep in mind, easing/lifting restrictions can take multiple forms:- easing indoor capacity- opening theaters, gyms, salons, saloons- eliminating capacity restrictions- eliminating mask mandatesSo there is a spectrum of approaches.  Our team is listing 3 tiers of states and these are shown below.  - states that eased in 2020: AK, OK, MO, FL, TN- states that eased start 2021 to now: SD, ND, NB, ID, MT, IA, NC, MS, SC, AZ, TX, MD- states that announced future easing dates: GA, NY, WI, AR, CA, AL, CT GROUP 1:  States that eased restrictions in 2020... The daily case trends in these states is impressive and it is difficult to say that lifting restrictions has actually caused a new wave of cases.  Rather, the case trends in these states look like other states. GROUP 2: States that eased restrictions in 2021 to now... Similar to the list of states above, 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.  - we have previously written about how ND and SD, in particular, have seen an utter obliteration of COVID-19 cases in those states- that seems to be a function of vaccine penetration + infection penetration, leading to something akin to herd immunity GROUP 3: States that announced plans ease restrictions in 2021... These states have upcoming dates to ease restrictions.  The dates are indicated on each chart.  The cases trends in these states have been mostly positive, with perhaps the exception of NY state:- NY state case levels seem awfully stubborn at these high levels- weather is improving in NY area, so if weather has any effect on virus transmission, it should slow cases

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