Dear Valued Clients and Friends –
The market was down 225 points today (well off of its lows of down 550 points early on), the S&P was down much less, and the Nasdaq was actually up today (and up more still after hours behind strong after-market reports).
* FactSet, DJIA, July 30, 2020
Around the horn we go …
COVID Health Information
- The seven-day average of new tests is now 820,000, a new high (by far). Nationwide, the increase in cases over the summer is practically in line with testing increases. It is the select states where positive cases outpaced increases in testing.
- Add Johnson & Johnson’s Ad26.Cov2-S to the list of vaccine candidates showing very positive results. Their trials thus far were limited to monkeys, though a clinical trial has now begun in Europe and the United States. The full study has been peer-reviewed, and is available upon request. The source of excitement here is that the strong antibody response is coming from a single dose … They are targeting phase 3 trials for September
- A source of mine had been sending me daily updates throughout the last few months on one of New Jersey’s premier hospitals and their COVID exposures, particularly when they were seeing hundreds of patients per day, suffered extraordinary losses, and were having to re-purpose facilities to meet demand. At some point it waned, then they shut down the COVID wing, then the COVID patient load of standard inpatients and ICU steadily declined. Well, today, I got an update. For the first time, this hospital does not have a single COVID patient. Praise the Lord.
- The Ohio Pharmacy Board reversed their decision banning hydroxychloroquine after further review
- Not a lot of change in the general messages of the chart quadrant today. Cases are declining; hospitalizations are declining in the troubled places and flattening elsewhere; a few smaller states are seeing some mild growth in cases off of very low levels. The questions in front of us deal with society’s ability to “live” with this virus, and to continue mitigation against severity and mortality.
* Pantheon Macroeconomics, July 30, 2020
- Today’s testing data shows over 819,000 tests done today, with a positivity rate of 8.5% (a little tick up in the wrong directi0n).
* The COVID Tracking Project, July 30, 2020
F.A.C.T. (Florida, Arizona, California, Texas)
- The case growth may be down 25% from its rolling average of a week or so ago, but it has not been coming down further and that is certainly testing patience.
- The hospitalization levels in Miami-Dade county are down 10% from a week ago and Tampa Bay is down over 20%. Elective surgeries will largely resume on Monday on most of the Gulf Coast.
- Hospitalization (inpatient) data in Arizona should be a continued conversation around what to expect in other states that trail Arizona’s outbreak.
*Arizona Department of Health Services, July 30, 2020
- Those looking at the daily reported death count in Florida and worried that number is increasing may be encouraged to note Arizona, where some days had over 200 reported deaths (and 172 today), yet going all the way back through July and its peak, the actual daily deaths never exceeded 80 …
- San Diego County admitted they had substantially overstated hospitalization data on Monday. Hospital executives had spoken out that their data was improving and hospitalizations were declining, but the reported data (and the press behind that) indicated a dangerous surge in hospitalizations. Media outlets have apologized for the “math error” and the good people of San Diego County are glad to know their hospital capacity is level to where it was in early June (h/t Carl DeMaio).
- Simply huge improvement in Orange County, California continuing (case rate was 40% higher a week ago):
*Orange County COVID Dashboard, July 30, 2020
- Lowest positivity rate in Texas in seven weeks …
* Worldometers.Info, July 30, 2020
Stock Market Today
Market futures were already down 200 points before the GDP and unemployment number, and while both numbers were awful, neither were worse than expected (and in fact, both were actually slightly better than expected). It would be totally dishonest to not at least wonder if President Trump’s tweet suggesting they move the date of the election had something to do with the extra tick-down in the futures (it absolutely did). The market settled later in the day.
All things being equal, after the bipartisan tongue-lashings some of the big tech companies received last night from Congress, the stocks of some of these companies showed incredible resilience today. After market, many appear to be rallying further.
I remain focused on the Emerging Markets story, the technical backdrop, the weaker dollar, the surge in copper prices, and the valuation story. As a contrarian, I always worry if there is too much positive sentiment for something I like, yet the flows have been very much the other way, indicating a constructive setup around sentiment. Credit spreads in EM have tightened. I just like the return on invested capital in selective emerging markets a great deal right now.
* Strategas Research, Daily Technical Strategy Report, July 30, 2020, p. 2
There are on-again, off-again rumors that the Senate and House are talking about a “skinny deal” to get through the next couple of weeks (cover an unemployment package and a few other imminent matters) … My sources tell me no such thing is imminent. Chief-of-Staff Mark Meadows exact words were, “we are nowhere close to a deal.”
With pending home sales up 16.6% month-over-month (in June) and now up year-over-year, it would seem housing as a leading indicator is giving a very positive message. The headwinds include the possibility of the employment picture and economic weakness spilling over into more mid-tier income levels (vs. the less housing-sensitive tiers it has been in), and the unwinding of the forbearance mess brought about from the CARES ACT.
* Strategas Research, Economics Report, July 29, 2020, p. 1
Several of you asked what I think the “forward guidance” the Fed will offer in September will be. I certainly think they will start to more explicitly reiterate that the future of rates will largely depend on inflation data (which is a backdoor way of talking down rates, since inflation levels are collapsing). I also think some indication of a willingness to substantially increase asset purchases will be on the table.
Most of the Fed’s comments these last two days were driven by publicly posturing for a fiscal bill from Congress.
A few responses to one press inquiry today and the following came from it …
Futures are up 200 at the moment. Big tech has another surge yet.
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.