Dear Valued Clients and Friends –
The market dropped 60 points today but the S&P and Nasdaq were both up. It was a pretty mixed day across sectors and market categories.
* FactSet, DJIA, August 25, 2020
I am going to write more about it in Friday’s Dividend Cafe but the news today that Secretary Mnuchin and Trade Representative Robert Lighthizer spoke with Chinese Vice Premier Liu He yesterday, and that all commitments of the phase one trade accord were reaffirmed, is substantial (at least for now in containing potential tail risk).
One of the advantages in this new schedule to my missives is that it gives me the chance to better broaden the scope (not ignoring the other categories besides COVID health data). Today we cover all the bases, and they are worth your read.
COVID Health Information
- I have said all along that my primary focus in objectively evaluating the data is to draw conclusions on what it will mean for the economy and the markets. The various forecasts after the initial spread of COVID in March/April (as previously uninfected states saw their case numbers go up in the summer) were proven correct – that hospital resources were not going to become capacity-constrained and that mortalities were not going back to March/April per capita levels. Furthermore, the market and economy outperformed expectations in finding that equilibrium needed to live with COVID cases, and focus on the protection of our most vulnerable. What could not have been predicted, and still defies my ability to forecast, is how Governors (and Mayors) would implement their respective policies, and what that would mean to local economies and sectors.
- Out of the above paragraph, the incredible irony is that where COVID is most contained (if not gone) is where economic activity and policy allowances remain most tight. How that translates to the national economy is a big question in the quarters to come.
- The FDA’s approval for convalescent plasma treatment for coronavirus was published Sunday night, and focuses on the known benefits outweighing the known risks. The Mayo Clinic’s research and studies were invaluable in getting to this point. The removal of bureaucratic delays and barriers will continue to be a vital part of COVID policy if we are to achieve the objectives the scientific community has set.
- In all there were 77 false positives from the NFL lab doing player testing the last few days. Over 100,000 tests have been done on those in the NFL training camps since they began, with a positivity rate well below 1%. Bring on September 10. It’s time to play football.
- The SurfaceWise2 product from Allied BioScience Inc. was given federal approval from the EPA on Monday for use on American Airlines, a surface coating that kills coronaviruses for up to seven days. The product will supplement other anti-viral cleanings and processes already in place, and will take time to be implemented.
* Pantheon Macroeconomics, August 24, 2020
- Today’s testing data shows over 634k tests done today, with a positivity rate of just 5.7%.
* The COVID Tracking Project, August 25, 2020
F.A.C.T. (Florida, Arizona, California, Texas)
- Just 2,673 new cases today, as the daily case average has dropped almost 80% from high levels
- Hospitalizations are officially down 68% from the peak
- Maricopa County Public Information Office yesterday finally confirmed that they were, in fact, counting those who died in car accidents or motorcycle accidents with COVID as COVID mortalities. It was previously denied and denied unequivocally. These “with COVID” but absolutely not “from COVID” deaths are likely not a huge number, but most certainly distorted the summer data.
- Governor Cuomo removed five states from the New York quarantine order. Arizona was on that list of five …
- In addition to Orange County being off the monitoring list, Calaveras, Mono, Napa, Placer, Santa Cruz, San Diego, and Sierra counties are all off the list as well.
- Orange County is now showing three days off the list, and the data is improving further day by day
*Orange County COVID Dashboard, August 25, 2020
I would point out that even Florida did not make the “top three” yesterday (you know Arizona has been long gone from the “FACT” chart). However, Georgia’s inclusion there is due to 778 old cases being reported from an electronic backlog in Bibb County, mostly from the month of June. So I’m glad we’re making progress with that whole thing … (ay yi yi).
* Worldometers.Info, August 25, 2020
Stock Market Today
It may be unhelpful in terms of predictive power, and the events of 2008 that preceded the 2009 rally were very different than the 2020 COVID sell-off that preceded the present 2020 rally. That said, history is always interesting.
* Strategas Research, Daily Technical Strategy Report, August 24, 2020, p. 2
I found it interesting the number of House Republicans who voted for the post office bill put forward by Speaker Pelosi. In order for any stimulative impact of a deal to be felt before the election, which you have to think the White House would be looking for, their runway for getting a deal done is getting shorter. To see checks and funds in people’s hands before September 30, I imagine a deal has to be done before Labor Day weekend.
I hate to sound cynical, but I do not believe there will be a deal at all if the impact of one will not accrue to someone’s political benefit (or both parties). That window for impact is closing.
One of my favorite sources says “the deal is in the tails. It is $0, or $2 trillion+ – not in between.” I tend to agree.
Oil and Energy
Just as last week I showed a chart that Oct/Nov are historically strong months for natural gas prices, this week I will show that Oct/Nov are historically not strong for crude oil.
I extract no predictive value from either.
As for this chart here, I don’t really have any commentary to add here.
*Strategas Research, Daily Macro Brief, August 24, 2020 (both charts)
Oil hit a post-COVID high today ($43.50), as the gulf prepares for the hurricane to hit. Energy stocks, though, dropped, as they are having to close refineries in anticipation of the hurricane hitting.
Further evidence of the pent-up demand after the spring shutdown, the prospective buyers index is making new all-time highs …
*Strategas Research, Charts of the Week, August 21, 2020, p. 2
Additionally single-family residence sales increased +13.9% in July. Inventory continues to drop which has produced a high floor for prices in the mid-price level of housing stock.
Low rates. Movement and shift around post-lockdown considerations. And low inventory of new product. These three things are the major factors in national housing conditions. One of those three is short-term transitory. One is mid-term transitory. And as for low rates, it remains to be seen if “low” is good enough, or “going lower” is needed.
Notes I sent the International Business Times about our Jackson Hole expectations for Chairman Powell:
- We expect Chairman Powell to reiterate that the Fed does not see any inflation on horizon, and that while they will “stay data dependent” their posture is more around growth and credit availability than fear of inflationary forces re-surfacing.
- We expect it will be January when the strategic policy review is due that we will hear this, not in Jackson Hole, but we absolutely believe the Fed will move to a “2% average inflation target,” allowing them to run above the 2% rate into the future (if and when they achieve that)
- There is no part of the Fed monetary framework right now focused on defending against inflation, and Powell is not going to pretend they are focused on it now. He is exceedingly concerned with the disinflationary forces he sees in the economy, and has gone to the Bernanke and Draghi playbook to fight deflation at all costs.
Futures are up a pinch.
Be well, be safe, be free.
David L. Bahnsen
Chief Investment Officer, Managing Partner
The Bahnsen Group
This week’s Dividend Cafe features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet.