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FL cases peaked? Maybe. July/August "chop" creating more "noise than signal" --> REVISING VIEW --> expect full "risk on" into month-end --> led by Cyclicals
Array ( [current_usage] => 2 [current_usage_crypto] => 2 [max_usage] => 2 [max_usage_crypto] => 2 [method] => [reason] => | FSI-3229: Email required to access article ) 1 and can accesssClick HERE to access the FSInsight COVID-19 Daily Chartbook.
We are shifting to a 4-day a week publication schedule:
Monday
Tuesday
Wednesday
SKIP THURSDAY
Friday
STRATEGY: July/August "chop" morphing into full Missouri (aka "show me state") --> tilting us further into "risk-on" view --> multiple risk-on signs
Wednesday sell-off was capitulation...
The sell-off seen in markets Wednesday, in our view, had a capitulatory feel to it. The ostensible trigger was a combination of the soft ADP jobs report and seeming hysteria over lambda variant of COVID-19. But despite all that hysteria and broad-based selling, I was struck by a few things (anecdotes):
- dozens of inbound inquiries about lambda variant causing a new wave (see below why we think this is a nothing burger)
- US 10-year crashed to 1.126% but has since flipped higher (now 1.227%)
- several cited DeMark predictions of a 1929-style crash = more panic
- lots of angry investors = shouting at the market = ultimate capitulation signal, SERIOUSLY!!!
July/ August chop morphing into full Missouri
For those uninitiated, Missouri's slogan is the "show me state" -- so, in my days as a Technology analyst, when investors became so skeptical of a stock, we would call that stock a "show me" stock, or a Missouri.
The July/August "chop" is fanning investor anxiety about multiple scenarios that end in disaster:
- falling 10-year rates = double-dip/ disinflation coming
- weak ADP jobs report = fears US "peaked"
- media reports about lambda variant now sparks fears of another deadly wave behind the Delta variant
To us, this just shows how a thinner than usual market (July/August = revenge travel = buyers strike) and the resulting chop is fueling hysteria. While COVID-19 remains mysterious and the path remains uncertain, we think this set up is pretty ideal for a massive risk-on rally, assuming the right positive catalysts emerge.
- we discuss the 5 likely positive catalysts/signs that set stage for a full-risk on
- this likely lasts 5-6 weeks, or well into September
Source: Google
Lambda why now? Lambda variant in USA since September 2020, 6 months before Delta variant
We received multiple questions about the lambda variant, as investors are concerned this may become the next big variant sweeping across the US. We are not scientists, but we are doubtful lambda will create a new wave of infections in the US:
- Lambda was first detected in USA on 9/22/2020 in California
- Delta first detected in USA on 3/27/2021 in California
- Lambda has been circulating for 11 months, Delta for 4 months
- Why should we suddenly worry Lambda will resurge?
- Lambda was first detected in Peru and has swept through Latin America
- Investors are fearful of Lambda because it can potentially evade vaccines
...IHME forecast on Florida might be pinpoint accurate --> have FL cases peaked?
Earlier this week, we highlighted the IHME forecast that FL infections would apex on 8/4 (Wednesday this week). And this is a key pivot. FL is seasonally seeing another COVID-19 wave and this fueled by the highly transmissible Delta variant.
- the latest CDC FL case data (lower half of chart) seems to corroborate that FL peaked?
- if FL delta variant peaked, with zero mitigation = very positive outcome
We are watching this closely, but for now, it looks like FL might have peaked. Wow.
STRATEGY: REVISED VIEW --> Full "risk on" into month-end, maybe into September
We have been progressively becoming more constructive on the prospects for equity markets into August.
- For the past 6 weeks, we have warned of July/August chop.
- But the chop is leading to mounting panic by investors
- Wednesday looked like a full on capitulation day
Thus, we are revising our view. We now expect equity markets to rally into month-end, and possibly into September. Yes, we see "chop" but this chop is likely turning into a strengthening rally into the end of the month.
- WARNING: this is very counter-seasonal
- August is normally more "chop" than July
But let me explain this rationale below.
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