Dear Valued Clients and Friends –
The S&P was flat today, the Nasdaq was up, and the Dow was down 100 points, so let’s call it a flat day overall. We will cover our normal categories and take a few detours as well as we launch another market week in the midst of this COVID pandemic …
As for health data, the 1.5% case growth over the weekend is what we have been waiting for – the smallest case growth in the U.S. since all of this began. And all analysis indicates we will see new cases and case growth % really decline from here. If the new cases had declined with a substantially lower weekend testing number that would be less noteworthy, but the testing stayed quite elevated all weekend. The positive ratio to total tests was just 7.8% yesterday, and our trend level for total tests is right around 300,000 per day now.
* Pantheon Macroeconomics, May 11. 2020
- And we hit a new high in testing today, Monday, with a really, really low positive ratio (4.4%) – lowest on any day so far by a long shot. Deaths are also way less than a thousand today, as they were yesterday, meaning we are going to see a lag effect in reporting from the weekend, or we are really, really headed in the right direction.
* The COVID Tracking Project, May 11. 2020
- I am in the camp that not only wants to see our sports leagues resume play and activity (in whatever that modified format and situation is going to be), but believes it will carry huge cultural and economic significance when they do. The basic recap of where the major leagues stand is:
- The NBA is still working on a plan to have their 2020 season salvaged with completion/playoffs over the summer, basically all in one or two locations
- MLB is planning to pitch their proposal to their player’s union early this week, but it calls for a 50% reduced season to begin in early July, and focus on regional league games only – not inter-league or cross-country.
- And the NFL is planning to go business as usual (at least as far as schedule, not necessarily fans) with a September 10 launch to the season.
- The first announced PGA golf tournament is right now scheduled for June 11 in Texas
In market technicals, the continued persistence of short positioning has helped extend this market rally, which certainly feels a little long in the tooth. The pessimistic sentiment provides contrarian bullishness, and short covering provides forced buying.
* Strategas Research, Daily Technical Strategy Report, May 11, 2020, pp. 3-4
- I will add that the steepening of the 2/10 curve remains an important bellwether for risk appetite, and while 50 basis points is hardly wide, it does reflect a better environment than the 35bps we were seeing even in the April rally. Look, the 2’s ought to be pretty anchored to the Fed Funds rate (but if they trade below,the FF rate, that is really not good). We know the FF rate should stay between zero and 10bps. Seeing the 10=year break higher than 60bps would reflect greater risk-taking and be a bullish technical indicator for equities.
* Strategas Research, Daily Technical Strategy Report, May 11, 2020, p. 5
- The other technical factor to note is that Utilities are trading at an 18-month low to the S&P 500, reinforcing that the equity rally is not a “flight to safety” but is in fact a pretty solid move for higher beta.
On the public policy front, House Democrats are bringing to the floor (soon) a $1.2 trillion Stimulus 4.0 bill. At the risk of sounding partisan (which is, in this case, not my intent), they are not serious in it becoming law, as it was done with no consult at all with the White House, Treasury Department, or House Republicans. Their objective is more “to set the table” for what they are going to want, and it apparently includes large additional funding for states, localities, and even the U.S. post office. There is more funding to Medicaid, unemployment insurance, and another round of direct payments to taxpayers. They do not have liability protection or a payroll tax cut in their bill. So, this isn’t meant to be a serious swipe at legislation, but is meant as positioning in the eventual negotiations.
DOT said today through Secretary Mnuchin they believe formal negotiations on 4.0 will not take place until late May, so much of the jockeying taking place right now should be interpreted as such.
In looking at the Oil and Energy world, the announcement came this morning that Saudi Aramco was making additional production cuts immediately, and the price of WTI reversed from down 1-2% to up 1-2% … It’s sitting now flattish to where it has been most of the day.
It is also noteworthy that $4 billion of debt got issued last week in the midstream energy space (mostly MLP’s but some corps, too). Granted some of the yields were wider than where they had been two months ago, but not by a crazy amount. That there would be this massive of an appetite for midstream debt in this environment seems extremely encouraging.
As for Housing, it is way too early to be calling a bottom or assuming things are about to turn. Frankly, the data lags so much here we haven’t really even seen the bad data yet. And as I have been prone to highlight lately, there continues to be a mostly broken mortgage market not allowing for optimal market conditions with anything other than the sub-600k space. That said, the mortgage applications for new purchase data and home purchase confidence data show a little pick-me-up …
No news in Fed news, today, but more coming tomorrow.
I was intrigued this morning to see this delta between consumer confidence in present circumstances vs. near term expectations … Not only do we see that even in the peak levels of shutdown, consumer confidence has not dipped anywhere near financial crisis levels, but we see right now a true delta between how consumers feel now and how they expect to feel in the near future …
* Strategas Research, The Daily Macro Brief, May 11, 2020
I am watching the fight in Alameda County with the country’s largest electric vehicle manufacturer and the county/state/etc. over re-opening very carefully. Very, very carefully.
And I was on Maria Bartiromo this morning talking, lo and behold, companies growing their dividends in this COVID period …
Be well, be safe, and 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