After surging to 13,171, the 7D delta fell slightly to 7,216 on Tuesday. Michigan remains the biggest contributor to the 7D delta surge and reported over 5,000 cases on Tuesday (vs. 3,576 7D ago). As, shown below the daily cases (7D avg) in Michigan has surged to the highest level since mid-December.
Despite the problematic developments in cases, US hospitalization is still rolling over. After all this time, we may forget that the reason for lockdowns is to prevent the healthcare system from being overwhelmed. Due to the progress in vaccine penetration this outcome seems less and less likely. The aggregate level of patients who are currently hospitalized has fallen significantly from the wave 3 peak.
Encouragingly, 41 states are now near or above 60% combined penetration (vaccines + infections). SD, ND and RI are now above 80% combined penetration. Collectively, these 41 states are approaching about 80% of the US population. As the below chart highlights the US is seeing impressive and steady progress toward vaccine penetration.
The bottom line is that vaccination progress continues to outpace infections. This should increase when J&J supplies become widely available. The ratio of vaccinations/daily confirmed cases, a particularly important metric in our estimation, continues trending higher. There have been roughly 50 people vaccinated for every new case.
STRATEGY: Look at 2022E EBIT vs 2019 EBIT. Epicenter revealed relative strength and Energy is most attractive of these…
We predicted that stocks would likely rally into the end of the week after the market turmoil caused by a deleveraging event earlier in the week. Several factors made us think the last two trading days before Good Friday would result in a rally and we were proven correct. Wednesday was the last trading day of the month, Thursday is the first day which usually means inflows, massive prime brokerage unwinding just ended, hedge funds have been waiting to buy until the market turmoil cleared, which it did.
While I was encouraged to see the breadth of today’s rally we still think the best risk/reward is in Epicenter, and the best risk/reward in Epicenter is Energy. Let’s do a simple sanity check. Take a look at 2022 EBIT forecast vs the 2019 EBIT. We are using our topline estimates, but consensus margin forecasts. We compared this EBIT level to the stock levels (now vs. 2019).
Anything on or above the diagonal line is discounting a full 2022 EBIT forecast. Since the “% change” in EBIT 2022 vs 2019 is reflected in the current stock price vs. 2019 it shows where upside is. So, anything below this line is attractive as a stock and has upside. Energy, materials and Discretionary (excluding AMZN and TSLA) are the best from a valuation perspective using this method. In other words, stick with Epicenter. These sectors have tailwinds and also have the greatest capacity to surprise on earnings. We’re most constructive on Energy.
We sent out a blast on Wednesday saying that the IWM clearing the level of $220.93 would be an important indicator as to the direction of markets. We believe this leading indicator closing above this level on Thursday is positive. We believe that IWM likely moves toward it’s recent ATH of $235 in the near-term.
It’s been an eventful first quarter of 2021 full of challenges. We’re happy to report that April is typically a strong month. Even more so when there is two positive consecutive closes on 3/31 and 4/1. Since 1945 two positive close on these days portend a stronger performance in April As many are aware, April is the strongest month of the year.
In two other bullish developments the VIX closed at the lowest levels since the pandemic at $17.33 and there was a blowout ISM reading.
BOTTOM LINE: If VIX is pre-COVID-19 levels shouldn’t Epicenter stocks recover? We favor Energy, Industrials, Consumer Discretionary (Ex. AMZN, TSLA) and Small-Caps! Happy Easter Everyone! He is risen indeed!
Figure: Way forward ➜ What changes after COVID-19
Figure: FSInsight Portfolio Strategy Summary – Relative to S&P 500
** Performance is calculated since strategy introduction, 1/10/2019
