Dear Valued Clients and Friends –
The market dropped 200 points today, most of it coming in the last hour of trading (no real reason why that I can surmise).
* FactSet, DJIA, July 28, 2020
200+ companies from the S&P 500 release Q2 results in the next five days, so there will be plenty in the headlines. Our headlines in this missive are the same as always …
COVID Health Information
- Cases were down 8.3% from the same day last week, and these two consecutive days of week-over-week decline represent the first two days of such in about eight weeks.
- Testing is up, case growth is dropping, so positivity rate is dropping. All data points have more room to go, though.
- The vaccine candidate from Pfizer/BioNTech have begun stage three trials and are targeting a regulatory review by October. Moderna is also in a large, final-stage trial for their candidate.
- Dr. Francis Collins, the Director of the National Institutes of Health (Dr. Fauci’s boss), has provided some stunningly useful insights in understanding the greater resistance to COVID embedded in the society than we previously thought. T cell resistance based on past exposure to other coronaviruses (sometimes the cause of colds we have all had) is explaining a larger immunity and resistance than previously understood.
* Pantheon Macroeconomics, July 28, 2020
I have no fear at all that you are being inundated with stories about all of this in the news:
* Pantheon Macroeconomics, July 28, 2020
- Today’s testing data shows over 733,000 tests done today, with a positivity rate of 7.29% (again).
* The COVID Tracking Project, July 28, 2020
F.A.C.T. (Florida, Arizona, California, Texas)
- The positivity rate in Florida is down to 11.6%; it had been 15.4% three weeks ago (both on 7-day average basis). Cases now around 9,000/day for three days in a row. All data for Florida can pretty much be summarized this way: Getting much better; but not yet good enough. Plenty of work to do, still.
- Hospitalizations, ICU’s, and medical resource use continue their really impressive downward trajectory, down 30% from their peak two weeks ago.
- In Orange County, a trend in new cases (down) is becoming rather evident:
* Orange County COVID Dashboard, July 28, 2020
- The hospital data has been all over the map, and there are enough reporting anomalies now that I need a day or two to get it sorted. The Texas COVID website is showing some counties having 400 less COVID patients one day and 500 more hospital beds the next and vice versa the day after, etc.
* Worldometers.Info, July 28, 2020
Stock Market Today
The breakdown of the U.S. dollar in the last two months has brought us back to mid-2018 levels. Inverse correlation between oil and the dollar is at a multi-year high.
All eyes are on the stimulus bill talks, and the ~$1 trillion bill Senate Republicans have put out (in concert with the White House). Some bullet points of their plan:
- $1,200 payments to taxpayers ($2,400 to married couples), under $150-200k income thresholds (with $500 extra for dependent children)
- Incentives to manufacture PPE in the U.S. vs. China
- 70% of wages in unemployment benefits come October ($200/week until then)
- Extension of the PPP program whereby companies can get a second [potentially forgivable] loan at certain revenue drop thresholds, etc.
- Liability protections for schools and businesses to re-open
- $105 billion for schools to re-open
- Grants for parents who end up having to elect private school or home school options
- 100% deductibility for meals and entertainment (to “incent” support of restaurants and hotels – because I can’t tell you how many times I skipped lunch since I could only deduct half of it … ay yi yi).
- Additional funds for virus testing and vaccine development
Senate Minority Leader, Chuck Schumer, called the GOP plan “totally inadequate.” Speaker Pelosi called it “pathetic.” Secretary Mnuchin and Chief-of-Staff, Mark Meadows, said the meeting they all had was “a very good meeting.” Senator Ted Cruz suggested that the bill was too big as is, and that maybe just a smaller bill addressing unemployment and school should be discussed. McConnell has rejected that view and wants something comprehensive, now.
Oil and Energy
$41 – still. Really, really holding in this very tight range of $40-42 …
The percentage of mortgages in forbearance has dropped from a peak of 8.6% to current 7.8% (which is a roughly 9% reduction). It is especially encouraging because it indicates a fairly high amount of mortgages that went into Cares Act forbearance were worked out or resolved even before a new stimulus bill, or a full economic recovery, etc. I am not celebrating prematurely – that number has a long way to go. But to see it declining before the economy is out of the woods is encouraging.
One interesting thing to watch in the political stimulus battle is potential leeway given to the Fed to relax capital standards for banks. Frankly, the legislation being pursued by Senator Crapo who chairs the Senate Banking Committee is pretty benign, simply excluded some items from consideration when calculating capital requirements. The change would enable greater flow of lending and represents a non-event in terms of the real risk of impairment on bank balance sheets. What the stimulus bill might do is give the authority to the Fed, and then the Fed may just use it on a temporary and discretionary basis.
In other Fed news, Senators Susan Collins and Mitt Romney have announced they will be opposing Judy Shelton as a Fed Governor, so only one more Republican can defect assuming all Democrats will vote against her. If two more Republicans defect and all Democrats vote against her, her nomination would die.
Futures are up 30 points or so.
One of the most important lessons I have ever learned as a professional investment manager is that most people are not looking for safety, they are looking for the illusion of safety. Long after COVID and Markets lose their justifiable integration, the way in which this painful reality of human nature applies to both our health and our wealth will be continually present. If nothing else, this behavioral reality itself joins COVID and Markets at the hip.
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.