Dear Valued Clients and Friends –
Covering all the bases each and every day … And a big letter after market today from Secretary Mnuchin to Fed Chair Powell (see below).
- Futures were flat last night and down modestly early this morning. The market opened down over 100 points but then zigged and zagged throughout the day, heading higher in the last 90 minutes of trading. The Dow closed up +44 points on the day, with the S&P 500 up +0.39% and the Nasdaq up +0.87%
*FactSet, DJIA, Nov. 19, 2020
- One of the things even an Emerging Markets bullish optimist like myself is most surprised by in recent market activity is how EM earnings per share have recovered above and beyond that of the developed markets. EM has recently surpassed the S&P 500 and left the MSCI EAFE in its dust. EM Currency as a blended basket is positive on the year (largely thanks to dollar weakness). Rising commodity prices are helping EM, as is the post-COVID recovery in global manufacturing. Not all Emerging Markets approaches are created equal, but to the extent, there is such thing as an EM space, it is enjoying extremely favorable conditions right now.
*Strategas Research, Daily Technical Strategy Report, Nov. 19, 2020, p. 1
Top New Stories
- The weekly jobless claims came in at 742,000, up about 31,000 from last week (breaking a five-week streak of lower claims). The continuing claims, though, dropped by 429,000, down to 6.37 million, better than expected.
- Treasury Secretary Mnuchin sent a key letter to the Fed after market today (see Federal Reserve section below)
- The Philly manufacturing index fell but much less than anticipated for the month. Inventories were positive for the first time since May, and while new orders fell, that comes from a big spike the month prior. The forward-looking business outlook is the challenge.
- Sen. Schumer shared that Sen. McConnell and Speaker Pelosi did agree to sit down together and speak further about a new COVID relief bill.
- Sally Yates is said to be Joe Biden’s leading candidate for Attorney General.
- Now the third vaccine candidate company has come out with positive news, this time the University of Oxford treatment in partnership with AstraZeneca. Unlike the BioNtech/Pfizer and Moderna results, we do not yet have the comprehensive study and the specific data behind it, but the early announcement in the Lancet medical journal on the preliminary data was hugely positive. Primarily, it focused on the high efficacy of their single-shot treatment in elderly participants. We will get the final data and conclusions once there are 53 positive cases in the study, presumably from those receiving a placebo.
- I think it is very safe to say that any and all efforts by state Governors to impose further restrictions and lockdowns and draconian measures where their positivity rates are as low as they are in New York and California is a very calculated and self-conscious effort to position things in such a way as to ask for more federal fiscal help. The whole thing is painful to watch where there is an actual empathy for the less privileged.
Housing & Mortgage
- One of the most significant stories in the country yesterday barely got any attention, and that was the determination by the FHFA (Federal Housing Finance Agency) that Fannie and Freddie should hold $280 billion of capital to protect against losses. On one hand, this would set the stage for being able to pull them from government conservatorship; on the other hand, they have a long, long way to go (currently at $35 billion in capital). The only way to accumulate that additional capital is through retained earnings and the sale of new stock to the public. I expect that the government will continue allowing Fannie and Freddie to retain earnings and accumulate this capital, and hopefully, the FHFA will see this hand-off teed up in a productive manner as we prepare for a new administration. It is long, long overdue.
- Existing home sales were 6.85 million in October, higher than last month (+4.3%) and higher than estimates. The increase applied to all four regions and is nearing the 2005 highs. Does anyone remember what happened after 2005?
- Secretary Mnuchin sent a letter to Fed Chair Powell after market today, requesting an extension of the Commercial Paper facility, the Money Market Liquidity facility, the Primary Dealer Credit facility, and the PPP Liquidity facility (all emergency vehicles set under the CARES Act as emergency vehicles for the COVID moment). However, the unused funds in the corporate credit facility, municipal facility, Main Street Lending facility, and TALF (totaling $455 billion in aggregate) were requested to be returned to the Treasury by the end of the year. In the letter (the link to which I provided above) Secretary Mnuchin shows what spreads were in March compared to what they are now, and makes the inarguable point that these facilities have served their purpose.
- Christina Lagarde at the European Central Bank (ECB) has signaled rather clearly that additional stimulus and recalibration of monetary policy in the EU is coming at the next December meeting.
Oil and Energy
- WTI Crude oil closed just above $42/barrel today
- Dividend Cafe coming your way tomorrow!
- I’ll be on Varney/Fox Business as the market opens tomorrow …
Have a wonderful night. The weekend is drawing closer!
David L. Bahnsen
Chief Investment Officer, Managing Partner
The Bahnsen Group
The DC Today features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet. those of HighTower Advisors, LLC or any of its affiliates.