Dear Valued Clients and Friends –
Market futures were pretty much flat all of last evening, and I awoke at 3:15am to a down 250 level. By the open, futures were pointing to down ~700. It opened there, got as down as -850, and closed down 700 points on the day.
* FactSet, DJIA, June 24, 2020
COVID case growth and coverage of it is a fine explanation for market volatility today, but again the performance in structured credit today – mortgages, loans, etc. – paints a different picture. Threats of tariffs with Europe probably did not help, and neither did ongoing polls showing Biden’s lead over Trump continuing to grow.
Today’s missive is shorter than I like as we had extraordinary amounts of portfolio activity and considerations today, and an abnormally high volume of client meetings. I hope it scratches your itches, and tomorrow’s will make up for today’s brevity.
As for health data, roughly half of the country saw case growth decline yesterday (week-over-week), and the vast majority of the other half saw case growth that was relatively small. Where there is statistically meaningful case growth week-over-week is in the select states we have been focusing on (see below).
The percentage of cases in the U.S. classified as “serious/critical” has declined to an all-time low of 1.28%
Dr. Scott Gottlieb pointed out that while the “case growth” was reported as ~37,000 per day back in April’s peak, we were then diagnosing just 1-in-10 if not 1-in-20 infections, so the actual daily cases then probably closer to 500,000 at that time.
* Pantheon Macroeconomics, June 23, 2020
- Today’s testing data shows over 502,000 tests done today, with a positivity rate of 7.7%
* The COVID Tracking Project, June 23, 2020
FACT (Florida, Arizona, California, Texas):
Arizona’s hospitalization rate is the highest in the country, but is only 293 people per 1 million of population. Their utilization of hospital beds over the last week has not increased, but has not yet declined either. Texas is presently utilizing less than half of that level of hospital beds per 1 million of population (as Arizona is). In Arizona, where the data is the worst, the ventilators in use has ticked down from 43% to 41% (of ventilators available) over the last couple days.
“To be clear, in Houston, the percentage of beds occupied by COVID patients is currently 12.9%. In Austin, the percentage of beds occupied by COVID patients is 10.2%,” Carrie Williams, Texas Hospital Association.
* Worldometers.Info, June 23, 2020
In market technicals, this chart would indicate a lower resistance needing to be found for the S&P 500 if things continue to the downside … It appears that we saw a second “lower high” last week, which could lead to further consolidation per the technicians that talk about such things.
* The Market Ear, Thomson Reuters, June 24, 2020
In the Oil and Energy world, WTI crude dropped ~5% today behind overall “risk off” in markets, and a third straight weekly increase in domestic inventories.
As for Housing, total mortgage applications fell 8.7% last week versus the huge surge of the week before, but was 18% higher than this week a year ago, reflecting yet again the pent-up demand coming out of the COVID lockdowns. Re-finance applications were down 12% vs. the week prior, but are 76% higher than this week a year ago (reflecting the substantial reduction in interest rates versus one year ago).
It is becoming clear that what happens with pricing in the months ahead is largely going to be inventory-driven.
One thing to note for those looking to re-finance – the volume is so high as demand is so high in the re-finance world, that the easiest way for lenders to manage their volume is to hold rates at a level less competitive than they otherwise would be (to slow the work load). Re-finance originations will take time to optimally work through the whole system.
Please reach out if you’d like a copy of the weekly AEI Housing Market Report. I consider it some of the best mortgage and housing data metrics money can buy.
* Pantheon Macroeconomics, U.S. Economic Monitor, June 24, 2020, p. 2
I wouldn’t rule anything out in the coming days for where markets may go. Certainly a stabilization of the states seeing COVID increases would help, as would F.A.C.T. following the lead of a group of southern states that recently saw an actual reversal in case growth. There are plenty of negative data points out there and while I am not one to overreact to them, I certainly understand that markets have a heavy “sentiment” component to them!
Futures are up about 75 points or so – pretty flat and unhelpful thus far. Tomorrow is a new day.
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.