Fri September 11, 2020

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Tom Lee's Equity Strategy

Exceptionally Positive Week for COVID-19 Daily Case Data

Name: FS Insight
Price range: $$$

Tom Lee ^AC

Head of Research

This week has been an exceptionally positive week in COVID-19 daily case data. For each of the last four weekdays, cases have been down vs 7 days ago and despite some expected backlog for the long weekend, we did not see any “payback.” At this pace, daily cases will likely fall below 20,000 next week even with back to school and other headwinds.

At a high level, our research this week shows that daily cases are falling sustainably in 73% of the US while only about 27% of the country is seeing stubborn trends. And while headlines continue to point to rising case figures, this is primarily attributable to seasonality, as the underlying data points to a rapid retreat in cases.

Exceptionally Positive Week for COVID-19 Daily Case Data

– This week we highlighted 21 states where cases have remained stubbornly high. Going forward, the trend in these states is the most important one to watch.

– I have been looking for a day of “payback” where the long holiday weekend would have resulted in a backlog of cases. Instead we have seen the daily cases change vs 7 days ago, the key leading indicator that we track, continue to drop. See chart on left.

Strategy: I view the AAII survey, or American Association of Individual Investors, as one of the standard bearers of retail investor sentiment. The members are now much older, typically representing Baby Boomers, but as we all know, Baby Boomers also happen to control 76% of the $100 trillion of US household net worth.

This Thursday’s print represents a very good snapshot of retail investor sentiment and affirms that Baby Boomers have been persistently bearish since the start of the Feb/March crash and have never turned bullish. Thus, while equity markets have risen to new highs, the typical retail investor remains cautious. And this caution can also be seen through stubbornly high money market balances. Total money market assets are around $4.6 trillion, which is above the $3.6 trillion at the start of 2020. Do you wonder why pullbacks remain shallow?

Source: FSInsight, Bloomberg

Over the last two weeks, it has become evident that mega cap Tech stocks are no longer invincible. And although the stock market and the tech sector (currently about 11% below its all-time high) in particular have seen a pullback over the last few days, I think it is important to keep a couple of things in mind: (i) stocks soared in August, so a bit of payback is not entirely surprising, (ii) the market was overbought based on many technical indicators.

Overall, with the exception of rising election uncertainty, I think drivers of stocks returns remain largely constructive. On the COVID-19 recovery font the US economy is gaining momentum, the COVID-19 virus is organically retreating, vaccine/cure developments remain positive with good momentum, and Americans are becoming less fearful. Bonds are giving strong relative value argument for investing in stocks (TINA), stocks are seasonally strong into year end, and the Fed remains dovish.

This week, we asked our global macro strategy team to identify attractive stocks that are positively levered to the economy re-opening and found 45 stocks that meet the criteria. I encourage you to refer to our most recent COVID-19 note for the detailed list. As both Brian Rauscher, Global Portfolio Strategist, and Rob Sluymer, Head of Technicals still like Growth stocks, this is list comes in addition to their Growth recommendations.

Bottom Line: Epicenter stocks represent an attractive risk/reward. While these companies do not have earnings visibility and are not obvious winners from COVID-19, they are going to be the primary contributors to EPS growth in 2021.

Figure Comparative matrix of risk/reward drivers in 2020
Per FSInsight

Figure: FSInsight Portfolio Strategy Summary – Relative to S&P 500
** Performance is calculated since strategy introduction, 1/10/2019

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Tom Lee ^AC

Head of Research

Disclosures (show)

This research is for the clients of FS Insight only. FSI Subscription entitles the subscriber to 1 user, research cannot be shared or redistributed. For additional information, please contact your sales representative or FS Insight at fsinsight.com.

Analyst Certification (Reg AC)

Tom Lee, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships. Neither I, nor a member of my household is an officer, director, or advisory board member of the issuer(s) or has another significant affiliation with the issuer(s) that is/are the subject of this research report. There is a possibility that we will from time to time have long or short positions in, and buy or sell, the securities or derivatives, if any, referred to in this research.

Conflicts of Interest

This research contains the views, opinions and recommendations of FS Insight. At the time of publication of this report, FS Insight does not know of, or have reason to know of any material conflicts of interest.

General Disclosures

FS Insight is an independent research company and is not a registered investment advisor and is not acting as a broker dealer under any federal or state securities laws.

FS Insight is a member of IRC Securities’ Research Prime Services Platform. IRC Securities is a FINRA registered broker-dealer that is focused on supporting the independent research industry. Certain personnel of FS Insight (i.e. Research Analysts) are registered representatives of IRC Securities, a FINRA member firm registered as a broker-dealer with the Securities and Exchange Commission and certain state securities regulators. As registered representatives and independent contractors of IRC Securities, such personnel may receive commissions paid to or shared with IRC Securities for transactions placed by FS Insight clients directly with IRC Securities or with securities firms that may share commissions with IRC Securities in accordance with applicable SEC and FINRA requirements. IRC Securities does not distribute the research of FS Insight, which is available to select institutional clients that have engaged FS Insight.

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FS Insight does not have the same conflicts that traditional sell-side research organizations have because FS Insight (1) does not conduct any investment banking activities, and (2) does not manage any investment funds.

This communication is issued by FS Insight and/or affiliates of FS Insight. This is not a personal recommendation, nor an offer to buy or sell nor a solicitation to buy or sell any securities, investment products or other financial instruments or services. This material is distributed for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice.
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This research is for the clients of FS Insight only. Additional information is available upon request. Information has been obtained from sources believed to be reliable, but FS Insight does not warrant its completeness or accuracy except with respect to any disclosures relative to FS Insight and the analyst’s involvement (if any) with any of the subject companies of the research. All pricing is as of the market close for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, risk tolerance, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies. The recipient of this report must make its own independent decision regarding any securities or financial instruments mentioned herein. Except in circumstances where FS Insight expressly agrees otherwise in writing, FS Insight is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice, including within the meaning of Section 15B of the Securities Exchange Act of 1934. All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client website, fsinsight.com. Not all research content is redistributed to our clients or made available to third-party aggregators or the media. Please contact your sales representative if you would like to receive any of our research publications.

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Tom Lee's Equity Strategy

Exceptionally Positive Week for COVID-19 Daily Case Data

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