Dear Valued Clients and Friends –
The market stayed in a reasonably tight trading range today, up most of the day, with the Nasdaq leading the way and the Dow up 115 points on the day.
* FactSet, DJIA, July 27, 2020
The replay of today’s national video call (we do these every two weeks, in case you are wondering)
A trip around the horn …
COVID Health Information
- Even apart from the reporting anomalies sometimes seen on weekends, on an apples-to-apples basis, the Sunday cases reported yesterday were down 11.1% from the Sunday cases of a week ago.
- The 55 million tests the U.S. has now done and 166k per 1mm population puts it near the top of all major world countries (UK, Singapore, Israel, Russia are ahead, but Australia, Spain, Italy, Canada, Germany, China are all well behind now).
- It is interesting how little press the various outbreaks in certain European countries have gotten, as I would think they would help feed the narrative of a permanent pandemonium that some media outlets have become fond of. I can only speculate why some of these outbreaks have not gotten more attention. What Germany, France, and Spain have all experienced (and are experiencing) is select spots (generally not their big cities that already had heavy exposure back in March/April) seeing case growth, but limited increase if any at all in mortalities etc. (sound familiar?). The UK and Italy have not seen much case increase, either, thus far.
* Pantheon Macroeconomics, July 27, 2020
- Today’s testing data shows nearly 761,000 tests done today, with a positivity rate of 7.2% (again, really dropping).
* The COVID Tracking Project, July 27, 2020
F.A.C.T. (Florida, Arizona, California, Texas)
- I think Florida’s case level going down will be the first marker of this COVID phase coming to an end (if Arizona’s case decline was not). The new positive cases dropped below 9,000 today, lowest in over three weeks
- The mortality count is being heavily scrutinized in many counties throughout Florida, apparently for diagnosing a COVID causation when that wasn’t exactly the case, a lot.
- I really do think this chart each week provides an incredibly holistic view of Arizona’s hospitalization tale, and various nuances within it. The inpatients at AZ hospitals with a Covid-like illness have fallen a lot, and the trajectories of all categories are encouraging.
* Source Data: Arizona Department of Health, July 26, 2020
- It will be interesting to see if some of California’s numbers (case growth, certain counties tighter on hospitalizations, etc.) persist, and if so, what sort of press coverage that earns. It is a big and complicated state, and it wouldn’t be surprising for some numbers to last longer there (and frankly, their positivity rate and other metrics never did get to the point other FACT states did) … yet if – if – the other FACT states go in a positive direction sooner, I will be curious how that impacts coverage of California for a number of reasons.
- Still waiting on LA County to update their medical metrics (four days now)
- Encouraging news from the Texas Medical Center on hospitalizations … A negative 1.5% growth rate for seven days! The ICU numbers have NOT declined as much – just leveled and flat – but ICU stays last longer (for obvious reasons), so the experts I am reading in the region are not surprised by it.
* Worldometers.Info, July 27, 2020
Stock Market Today
Two themes I will stay focused on:
(1) The health of the “average stock” vs. the overall market, which is really a way of evaluating how the market holds up if the “big tech” names that have been such a big part of its boost do continue softening. Look at the last two weeks in this exact regard – bodes pretty well for health in the average stock of the market.
* Strategas Research, Daily Technical Strategy Report, July 27, 2020, p. 1
(2) The U.S. dollar, which reached a 52-week low on Friday (may I just say something that I never, ever say because I don’t use this missive as a marketing tool, but if you are not a client of The Bahnsen Group and your financial advisor is not deeply entrenched in the current state of the U.S. dollar, consider if your financial advisor is enjoying his or her summer too much; no one will accuse me of doing such). There is a good amount of speculative short positioning around the dollar, which could create a trading rally in the greenback when those shorts cover, but we believe the trend and fundamentals point to a continued correction of what has been a very over-valued currency for quite some time.
- The Senate GOP released their first draft wish list today, but with no vote – just an announcement – it likely means they do not even have majority support yet for their own proposal. They basically are proposing an extension of federal supplement to unemployment, capped at 70% of prior wages (instead of $600/week). That would take effect in October, whereas $200/week would pay out until then. They also would do another $1,200/$2,400 direct payment to taxpayers with $500 extra for dependents, subject to same income thresholds as were done in the Cares Act.
- What I would point out politically is that the more Republicans in the Senate who oppose a White House or GOP Senate constructed version, the more control over the final bill Speaker Pelosi and Senate Dems will have.
- I understand that the Senate is intimating a $1 trillion package, and others are saying $1.2-$1.5 trillion. I have sources telling me it will absolutely get to $2 trillion, and then some. All I feel comfortable predicting is that the first number thrown out, will not be the last …
- Where do I expect the bulk of the new relief package to be focused? Leisure & Hospitality seems to make a lot of sense, one would think …
I believe my thesis of a couple months ago has proven extremely accurate, so far, and that is that the impact to unemployment from the lockdowns and COVID pandemic was highly, highly concentrated in the lowest income segments of the work force, where people were most likely to be purchasing a new home, meaning the demand levels for new home purchases were not impacted by the rising unemployment levels. New purchase appetite has stayed strong and low interest rates have fed the demand and ability to execute on that demand throughout this bizarre period of time. I stand behind the thesis, but certainly believe that now, going forward, it is highly unlikely housing will maintain its demand and positive growth if the unemployment challenges begin to structurally creep in to higher income segments. For now there is significant pent-up demand and historically low interest rates serving as tailwinds. But if the headwind of collapsing jobs and wages hits the middle class or upper middle class segments, it strikes me as completely impossible that housing will not be affected.
I believe it is worth noting that the Fed’s “slowdown” of asset purchases is not, at this time, any indication of the Fed believing the economy is out of the woods. Rather, the heavy level of buying in March/April was largely driven by flooding the markets with short term liquidity, particularly in funding markets (repo, money market, dollar swap lines, etc.), and those various “broken” mechanisms from March/April are simply not broken at this time. There remains a plethora of facilities the Fed is committed to supporting (corporate bonds, municipal bonds, Main Street Lending, TALF 2.0), and there will be another trillion dollars or more of Treasury and MBS purchases before all is said and done. Tightening the belt, they are not.
Okay. Time to call it a night. Futures are up about 30 points. Earnings season is about to get heavy.
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.