COVID Markets Missive – Tuesday Sept. 1

Dear Valued Clients and Friends –

The market started September up over 200 points, with the Dow and S&P up the same percentage.

* FactSet, DJIA, September 1, 2020

Around the horn we go …

COVID Health Information

  • The extraordinary drop in new cases has slowed down, as expected.  New cases seem to have flat-lined even as hospitalizations and mortalities continue declining, pointing to the increasingly less symptomatic and lethal nature of COVID cases currently being tested.
  • Color me confused by analysts and experts who are confused by the low mortality metrics coming out of European countries in their late summer increase of new cases.  I would think everyone would have expected the low mortality rates Europe is seeing based on the experience of the U.S. this summer (better treatment, healthier infections, less severe virus, etc.).
  • The CFA Institute published a provocative article last week from Laurence Siegel (Director of Research at the CFA Institute Research Foundation) and Stephen Sexauer (CIO at the San Diego Employees Retirement Pension) looking at the dangers of COVID that are not specific to COVID (Bastiat’s law of the unseen versus the seen).  This chart in particular grabbed me.

*CFA Institute, Living with Risk: The COVID-19 Iceberg, August 20, 2020

*The Morning Dispatch, September 1, 2020

  • I fully expect the rhetoric around “cases spiking” and college campuses to get a lot of play in the weeks ahead.  I would be surprised if the systemic ramifications of that impact hospitalizations, medical resources, or mortality.

* Pantheon Macroeconomics, August 31, 2020 

  • Monday saw 692,000 tests and 31,000 positives (just a 4.4% positivity rate, first time in the 4’s in a long time and lowest since very early summer).

The standard COVID Tracking Chart I have used for months is suddenly not working at the website from which I get it (since this weekend).

F.A.C.T. (Florida, Arizona, California, Texas)

I thought this map might give a little context to the degree of improvement in these summer states as far as decline in cases … (7-day average vs. last week)

* LLC, COVID-19 Dashboard, August 31, 2020

  • California
    • Orange County’s positive cases per 100,000 has gone from over 200 to 5 (no typo) in the last month.  5.6 cases per 100,000 population right now.  The positivity rate is 5%.  One COVID death today.  Orange County’s reward for this stupefying improvement in public health?  Another two-week delay from Sacramento in partial normalization for schools and businesses.

* Worldometers.Info, September 1, 2020

Markets Today

Strength in the market of a sustainable variety requires more breadth and less reliance on big tech/market leadership.  The “even weight” S&P index is a good way to judge that.  Note that the S&P 500 with each position equally weighted remains down on the year and from its all-time highs in February, unlike the cap-weighted, but it did spend August reclaiming its June high.  If this equal weight index makes new highs, that will say a lot more about the market than what 2 or 3 companies do.

* Strategas Research, Daily Technical Strategy Report, September 1, 2020, p. 1

  • The dollar dropped to a 2-year low today.
  • It is important to continue monitoring this story here.  If the cyclical signals are pointing up, it means continued economic improvement and a re-surge in economic activity.  The weak dollar is partially to blame/credit for this reflation, but it could not be happening to this magnitude without pro-cyclical conditions.

*Strategas Research, Daily Macro Brief, September 1, 2020

  • A general rule of thumb (right now) – something north of 55 bps is where things are tolerable for financials, REIT’s, MLP’s, etc.  Something north of 70 bps would be rally time.  Something south of 50 is where those yield spread sectors struggle  (note: a bp is a basis point, and a basis point is 1/100th of a percent, and the spread is what we measure here – the difference between the 10-year yield and 2-year yield)

*Strategas Research, Daily Macro Brief, September 1, 2020

Housing Market

I noticed an interesting chart from the person who has become my favorite housing analyst in the country, Edward Pinto of the American Enterprise Institute Housing Center.  Note how the % increase in housing appreciation – again, the percentage – is BY FAR most significant in low-priced housing (the dollar gains are always so much more noteworthy in more expensive homes that people generally fail to recognize the largest % gains in a period of home price appreciation come from the lower-priced segment of the market).

*The Fed’s Spike Punch Bowl, Ad Infinitum, AEI, Edward Pinto, August 31, 2020

But why do I bring this up now?  It is the low-priced segment of the market where owners are most likely to be who are feeling the economic hit of this particular recession and this particular COVID moment.  And at the same time, it is that segment who has seen affordability reach troubling levels.

Reach out if you are interested in more of what Pinto/AEI are noting in the current housing market, both as a result of current Fed activity.  Mortgage rates are down significantly from January, yet monthly payments for new buyers are not, as the rising prices have offset the benefit of a lower rate.  The suggestion that housing prices are not a reflection of monthly payments (i.e. driven by interest rates) is just pure fantasy and delusion.

Pinto’s conclusion – we are in the midst of the strongest SELLER’S market since 2005.  It is hard to disagree with the conclusion.

Federal Reserve

I do expect that the September Fed meeting (FOMC) will now be a tad different than what I have guessed three months ago, just in the sense that I now doubt Yield Curve Control will be front and center (they have successfully gotten the market to do that for them, for now), and I do believe they will actually show their projection of staying at zero through 2023 (whereas before they were showing 2022, and my view was they really thought 2023 but wouldn’t say so; now I think they will say so).

Oh by the way, the Fed has bought $1 trillion of mortgage bonds, since March!  They own 30% of the agency mortgage bonds in the country.  The Fed. Owns.  30%.  Of the mortgage market.


Futures are up 40 points plus change.  Strange times.

Be well, be safe, be free.

With regards,

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.


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About the Author

David L. Bahnsen


David is a frequent guest on CNBC, Bloomberg, and Fox Business and is a regular contributor to National Review and Forbes. David serves on the Board of Directors for the National Review Institute and is a founding Trustee for Pacifica Christian High School of Orange County.

He is the author of the books, Crisis of Responsibility: Our Cultural Addiction to Blame and How You Can Cure It (Post Hill Press), The Case for Dividend Growth: Investing in a Post-Crisis World (Post Hill Press) and his latest, Elizabeth Warren: How Her Presidency Would Destroy the Middle Class and the American Dream (2020).


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