Dear Valued Clients and Friends –
All the health data is in its normal spot, but first a quick market summary of the day and recap of jobless claims …
I’ll save you the play by play of what happened with futures last night and this morning, but it was pretty boring. And the markets moved higher a bit pre-market when the jobs numbers came out (see below). But what moved markets lower during trading today seems to be (and I say “seems” because it really doesn’t seem to be much of a market moving event to me, but it was perfectly time to the release of the news) the announcement that the Supreme Court is allowing the New York DA to get Trump’s tax returns. Anyways, the market went down over 500 points, but closed down 350, and actually the S&P was down less than half what the Dow was, and the Nasdaq was modestly up today. So it was just an odd day all around.
* FactSet, DJIA, July 9, 2020
The weekly initial jobless claims number came in at 1.31 million (vs. 1.38 million expected). The continuous claims dropped to 18 million, down almost a full million from last week (much more than expected). So modestly good and incremental news in both categories …
As for health data, lots to go through today, and there were some really crucial reporting anomalies yesterday to focus on … Bear with me on all of it – I think it will be worth your while.
The number I brought up Monday that remains most intriguing to me is the “deaths as a percentage of hospitalizations.” The deaths divided by total positive cases have collapsed, praise God, and everyone knows that. The reasons they are so indisputable that I really would like to think it is non-controversial (massive amount of more cases that are asymptomatic or barely symptomatic and with younger, healthier people not reaching a level of severity at all). BUT, once a case gets to “hospitalization,” one would think it cannot be anything other than serious, right? By definition, one would think “hospitalization” means “serious.” Yet 7% of hospitalizations were resulting in death three+ months ago, and just 1% are now.
Sure – some of these hospitalizations are “less critical” than they once were. Therapeutics and treatments are better. All that.
But deaths as a % of hospitalizations going from 7% to 1% very likely does not happen unless a LOT of these hospitalizations are not FROM COVID, but rather WITH COVID.
* First Trust, Brian Wesbury, July 8, 2020
As for yesterday’s reporting, I discovered a few things last night in “late-night research” …
- New Jersey added “probable deaths” to its backlog yesterday, and reported the whole backlog as yesterday’s data. Now, even apart from the issue of deaths that took place weeks and months ago hitting yesterday’s data and artificially increasing the number by 59 deaths (6.6% of total deaths reported in the country yesterday), I also am not completely clear what a “probable” death is. But I will leave that one alone …
- California reported 8,500 new cases yesterday, a pretty steep jump higher. But, once again, there were “a couple thousand” cases reported as “backlog from LA County laboratories.”
* Pantheon Macroeconomics, July 9, 2020
I do want to continue addressing the issue of “herd immunity,” which I believe is the greatest unknown in all of this, and yet has perhaps the most relevance to future public policy. The earlier COVID was actually on our shores, the further along we are to herd immunity. The higher positives in antibody testing, the further along we are to herd immunity. Those who have been exposed to previous coronaviruses (I assume you know there were previous ones, which is where COVID-19 got its name) are far more likely to have T-Cell immunity build-up, meaning, closer to a herd immunity. From the Wall Street Journal on Monday:
“SARS-CoV-2-specific memory T cells will likely prove critical for long-term immune protection against COVID-19,” the [Swedish] study concludes. “The observation that most individuals with asymptomatic or mild COVID-19 generated highly functional durable memory T cell responses,” not uncommonly in the absence of antibodies, “further suggested that natural exposure or infection could prevent recurrent episodes of severe COVID-19.”
In short, antibody tests may significantly underestimate the number of people who have already been infected with Covid-19, especially if they had a milder strain. If so, it’s possible that some early hot spots, like New York City and northern Italy, already have a degree of herd immunity. The same may be true of other places soon.”
There is a camp that believes herd immunity is achieved with as low as a 20% penetration (that includes very prominent U.S. and European epidemiologists), and there are others who believe the threshold is closer to 60%.
It is maddening to me that one’s evaluation of Sweden’s policy response and health configuration has become so tribalized and so politicized. My view is to objectively extract data for the purpose of learning from trial and tribulation; it is not to express outrage over a counter-policy etc. It certainly is not political. Right now, there is growing empirical evidence (I provided the chart so you can use your own eyes to evaluate) that maybe, just maybe, Sweden’s approach has succeeded in developing a herd or herd-like immunity. I will continue monitoring this daily. It is not a closed case, but it is leaning …
* Pantheon Macroeconomics, July 9, 2020, p. 2
- Today’s testing data shows an all-time high of over 738,000 tests done today, with a positivity rate of 7.9%, much lower than the last few days.
* The COVID Tracking Project, July 9, 2020
- I think it is worth pointing out how the “second wave” in China and South Korea played out in recent weeks:
FACT (Florida, Arizona, California, Texas):
- I am not sure if any data point is more interesting and relevant than this … Yes, over the last month the daily death average has gone up 54 people in Florida, Texas, Arizona (in aggregate) … Some may argue that a 54 death increase is not exactly the apocalypse we are being told it is, and even that 54 is RIDDLED with backlog reporting … But it is what it is and each death is a tragedy. BUT, the daily death average of ALL OTHER STATES (including California), has DROPPED by 300 people per day over the same last month …
- As for hospitalization capacity, AZ and TX are the two states with concerning data. Arizona today reported a drop in ICU beds being used and another record day of hospital discharges.
- The 3-day hospitalization average in Orange County, CA dropped below 10%, the level California Department of Public Health looks to. OC remains at double the ICU bed capacity of CDPH threshold and nearly triple ventilator capacity. The testing positivity ratio remains elevated, though.
- In Florida, infections are really going up (testing is way up, but so is the % that are testing positive, so it is not just “higher testing picking up higher infections” (which is largely the case in California). But … I think these things matter, a lot ..
I do believe mortalities will rise in Florida and some of the other states, but that a peak is nearby. And I continue to pray for minimal casualties.
** Worldometers.Info, July 9, 2020
In market technicals, this initial chart gets more stunning each time I see it (and each time it re-rates higher). 5 out of 505 stocks right now are 22.5% of the index.
* Strategas Research, Daily Macro Brief, July 9, 2020
But I would add that it is not just five individual stocks which have become excessively concentrated in the broad market index. Within individual sectors, it is even more fascinating (Communications, Consumer Discretionary, Energy, Tech). Industrials, Health Care, and Financials are much less top-heavy.
* Strategas Research, Daily Macro Brief, July 9, 2020
On the public policy front, one of my most-trusted sources still believes Stimulus 4.0 will be done by the end of July, with August 8 as a drop-dead date. The $600/week unemployment supplement expires July 31, so that is one incentive to act (regardless of what they are going to do), but we also know POTUS wants a deal. It is the public sector that is most anxious to get something done, as the revenue hit to states and localities will start to be profoundly felt in the coming weeks and months. I suspect the liability protection businesses want (and need) for re-opening will be a big stimulus going into the fall, as well.
And in Fed news, I know it is wonky and somewhat boring to many people, but I really, really believe the Main Street Lending Program is a huge variable in the economic recovery. the program could truly bomb, or it could be a game-changer in getting capital to flow throughout the economy (actual velocity). The initial list of lenders that have signed up to the program (remember, the banks do the underwriting based on Fed guidelines, and keep 5% of the risk of the loan on their books) was released yesterday by the Federal Reserve Bank of Boston, and the majority of the country’s largest banks are not yet on the list. Some opted to be named, and some opted not to be named. There are more banks registered who, for whatever reason, are not yet in the report (don’t ask me why).
The program is ramping up very slowly, on purpose, and is really just now starting to take applications. Over the next 6-8 weeks, I believe we will see if this program was a dud or a game-changer. I do not think it will be in between.
Futures are up a tad – it’s early …
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.