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Tom Lee's Equity Strategy

Tom Lee's Equity Strategy

The Delta variant is essentially correctly viewed as “pandemic of the unvaccinated”For the most part, we continue to view the COVID-19 Delta variant as more “bark than bite” in USA.  Meaning, while there may be short-term hysteria about the surge in USA cases due to Delta variant, we do not think policymakers will “close” the...

Delta Variant Spreading Quickly, Key Metrics Reversing
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Bear Arrives; Markets Want to See U.S COVID-19 Case Peak

I asked for a sanity check last week since the S&P 500 index was selling at a 16 P/E and Treasuries at over a 100 P/E but the response was simple panic. Indeed, in the frenzied and sharply downward trading last week in reaction to the spread of coronavirus, or...

Delta Variant Spreading Quickly, Key Metrics Reversing

Current Trends — COVID-19 cases: – Daily cases 28,517 vs 23,058 7D ago, up +5,459 – Daily cases ex-FL 28,517 vs 18,218 7D ago, up +10,299 – 7D positivity rate 5.1% vs 3.3% 7D ago – Hospitalized patients 19,327, up +20% vs 7D ago – Daily deaths 266, up +22% vs 7D ago _____________________________ (See this morning’s flash for charts and more details) _*** 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._ The latest COVID daily cases (ex-FL) came in at 28,517, up +10,299. As shown in the chart below, cases have been rapidly surging over the past 4 weeks, and it seems like the rate of this increase is accelerating. Currently, the 7D delta in daily cases is approximately 10,000, which means the case figure could exceed 50,000 in two weeks. Although there has not been any comprehensive study on the composition of the recent new infections, quite a few media sources have reported that the vast majority of recent new cases has been amongst unvaccinated individuals (i.e. LA County and Mississippi). Therefore, the effort to push more people to get vaccinated remains key. The good news is that according to the CDC, 88.9% of age 65+ population received at least one dose of the vaccine, and 79.3% are fully vaccinated. And we know the elder population is more vulnerable to the disease compared to younger individuals. Hence, even though cases are surging, the death toll might not follow the case trend. Currently, TN, OK, AR, AL, MO, SC, and, NV are the states with the largest increases in daily cases compared to their recent lows (as shown in the “parabolic” tracker below), while all 7 states except NV have less than 50% of their populations vaccinated with at least one dose. This is consistent with what we mentioned above regarding the majority of new cases being amongst unvaccinated individuals, and with what we noted previously, vaccination penetration appears to have some causal relationship with the case trend. Therefore, the COVID developments (both the case and vaccination trends) in these states along with the other low vaccinated states (such as MS, LA, GA, ID, WY, ND, IN) are worth watching. _7D delta in daily cases has been about 10,000, flat-lined over the past few days… _The 7D delta in daily cases now rose to approximately 10,000, but it has flat-lined over the past few days. Current speed of case increase implies that the case figure could exceed 50,000 in two weeks. _LOW VACCINATED STATES SEEM TO HAVE A LARGER INCREASE IN DAILY CASES COMPARED TO THEIR RECENT LOW…_ In our daily COVID update flash we provided a “Parabolic Case Surge Tracker” to monitor the possible parabolic surge in daily case figures. We have 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 _CURRENT HOSPITALIZATION AND POSITIVITY RATES ARE RISING… DAILY DEATHS ALSO SEEM TO BE TURNING UPWARDS NOW…_ Hospitalization and daily deaths are relatively low compared to the prior waves. However, with the recent increase in daily cases, current hospitalization is clearly turning upwards, while daily deaths also appear to be turning. Regarding positivity rate, it recently exceeded 5%, which is higher than the positivity rate we observed during the “mini” wave this April and significantly higher than the recent low of <2%. POINT 2: VACCINE: VACCINATION PACE IS NOT IMPROVING AMID THE RISING CASE FIGURE… CURRENTLY HALF MILLION DOSES ARE ADMINISTERED DAILY… ____________________________ CURRENT TRENDS — VACCINATIONS: – avg 0.5 million this past week vs 0.6 million last week – overall, 48.0% fully vaccinated, 55.3% 1-dose+ received _____________________________ VACCINATION FRONTIER UPDATE –> ALL STATES NOW NEAR OR ABOVE 80% COMBINED PENETRATION (VACCINES + 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 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. All states have reached 60% and 70% combined vaccination + infection. 95.5% of US states (based on state population) have seen combined infection & vaccination >80% and 65.6% of US states have seen combined infection & vaccination >90%. There were a total of 563,632 doses administered reported on Thursday. Over the past 7 days, 526,174 doses were administered per day on average, down 12% from 7D ago. The vaccination speed has not improved even though cases are surging and vaccination seems to help against the variant. The overall vaccination trend has been sliding down over the past 3 months. As the more transmissible Delta variant gradually becomes the dominant strain in the US, vaccinations could not only provide some degree of protection against the virus but are also likely to reduce virus transmission. As many media sources have reported, the majority of new infections in some regions (LA County, Mississippi) are amongst the unvaccinated people. Therefore, it would be a good sign if we start to see the number of vaccines administered rise. However, we understand that vaccine hesitancy concerns might not easily be reversed. More studies on the vaccine’s side-effects and its efficiency against the variant, as well as government efforts, are key. We will be closely watching the relevant data. _97.7% of the US has seen 1-dose penetration >40%… _Currently, 83.9% 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 63.1%. And only 44.5% of US (by state population) have seen 50% of its residents fully vaccinated. – While 97.7% of US states have seen vaccine penetration >40%, 89.1% of them have seen 1 dose penetration >45% and 66.2% of them have seen 1 dose penetration > 50%. – 83.09% of the US has at least 40% of its residents fully vaccinated, However, only 63.1% of US has fully vaccinated >45% and 44.5% of US has fully vaccinated >50%. 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 ~30 for the past few days – this means 30 vaccines dosed for every 1 confirmed case In total, 333 million vaccine doses have been administered across the country. Specifically, 184 million Americans (55% of US population) have received at least 1 dose of the vaccine. And 159 million Americans (48% of US population) are fully vaccinated. 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

Delta Variant Growth Scare Likely Near Peak, Epicenter Likely To Lead If Rates Rise

Summary – We are making a significant reversal concerning the direction of Interest Rates. – Importantly, we are not changing any of our sector calls. We are still OW FAANG and N Financials. The healthcare situation may continue to deteriorate, but we continue to see strong protection from vaccines and...

Delta Variant Likely Gives Market Transitory Panic, YE Target Increased to 4,600

Summary – COVID-19 case trends have deteriorated as the Delta variant rises proportionally to existing strains. – Our central case is now that 10-15 states (those with lowest vaccination rates) will see another parabolic rise in cases in the next few weeks. – Importantly, we do not see a high...

Eye on COVID-19, Trifecta of Positive Catalysts Suggest Rally

Summary – COVID-19 case trends have appeared to tick up and the 7D delta has been positive for two consecutive days, we will watch very closely for market implications. – 16 out of 50 states are showing a rise in cases vs. 7D ago. This could be noise or ‘true-up’...

Generational Factors to Drive Inflation? Throwaway Week Paves Way for Move Higher

Summary – COVID-19 case, hospitalization, death, and positivity rate trend remains positive in US, UK showing problematic developments. – The events this week caused turmoil but ultimately they increase the level of our bullishness with regard to equities. Hyper-inflation fears receding is a good thing. – We do believe inflation will rise and that generally […]

Course Correcting: Financials UW to N, FAANG from UW to OW

– COVID-19 case, hospitalization, death, and positivity rate trend remains positive – The strength of markets in the face of hot inflation market sends us a key signal about what will fuel rally to 4,400 by mid-2021 higher – We believe the market’s reaction to inflation numbers will benefit tech...

Asset Heavy Benefits from Demographic Destiny, COVID Trends Remain Positive in US

The global picture for COVID-19 is improving as daily cases are falling across the US, Western Europe and much of Asia. However, India and Pakistan cases are at alarming levels despite being significantly down from their heights. Latin American cases have also been creeping up and are now at 150,000...

Energy Stocks Have Major Implied Upside, Sideline Cash Grows

Vaccine “lotteries” appear to be incentivizing vaccinations and are gaining favor in several states. States have been trying to boost vaccine adoption after a recent slow-down. Given that vaccines are being shown to be effective, increasing vaccine penetration boosts the overall immunity of a community. Ohio was the first when...

Leading Econ. Data Accelerating, COVID-19 Decline Continues

Yesterday, the major cruise lines announced plans to resume Alaska cruises this summer. This a major positive development for Epicenter stocks and the economy as a whole. There are two factors that supported the resumptions. The US Senate passed the “Alaska Tourism Restoration Act” which allowed US cruises to skip...

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