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Dear Valued Clients and Friends –

The markets continued their rally from Tuesday throughout today, with all market indices now up on the week.

There is something for everyone today, so off we go!

Market Action

  • Futures opened up +50 points last evening and increased a bit throughout the night.  They were up +200 points bright and early this morning, and stayed firm into the open.  The market opened up just over +200 points.
  • Throughout the day the market did give up much of its lead early on but then gained it all back before the halfway point and held it for the rest of the day, closing very near highs of the day.
  • The Dow closed up +286 points (+0.83%), with the S&P 500 right there at +0.82%, and the Nasdaq at +0.92% behind a late-day spike up.

*FactSet, DJIA, July 21, 2021

  • The snapback rally yesterday saw 9-to-1 advance-to-decliners in the S&P 500, significant breadth.  That 50-day average has continued to hold.

*Strategas Research, Technical Strategy Report, July 21, 2021

  • I would also point out, small-cap stocks were a huge beneficiary of the rally on Tuesday, with the number of advancing stocks in the Russell 2000 being the highest it has been in fifteen months (93% positive yesterday).
  • What would I say is the real takeaway of this chart?  We can see that large-cap growth, large-cap value, and the overall S&P are all trading at earnings multiples (valuations) above historical averages.  But we can also see that that is (a) barely true of value, (b) more true of the S&P 500, and (c) much, much more true of growth.  That growth would trade at higher multiples than the overall market, and that the market would be at a higher multiple than value, is not uncommon or noteworthy.  What is noteworthy, though, is the ratio of change in historical multiples from one group to another – the relative state of valuation …

*Yardeni Research, July 21, 2021

  • The ten-year bond yield closed today at 1.29%, up eight basis points on the day.  If I didn’t know better, I would think there was a lot of short covering and rotation the last few days that has now stabilized.  Hmmmm …
  • Top-performing sector for the day: Energy (+3.53%) – biggest single day in a long time (for any sector)
  • Bottom-performing sector for the day: Utilities (-1.10%)

Top News Stories

  • Iran’s National Security Council has rejected the initial draft agreement negotiated with the United States to restore the 2015 deal from the Obama administration that the Trump administration pulled the U.S. from.
  • The Milwaukee Bucks won their first NBA championship since 1971 last night, beating the Phoenix Suns and bringing great joy to their city.

Economic Front

  • One week from tomorrow – July 29 – we will get the Q2 GDP figure from the Bureau of Economic Analysis (technically, the advance estimate of it).  I expect the number on an annualized basis will be through the roof.  The question will be what Q3 and Q4 do in the aftermath of the huge “vaccine surge” of activity from Q2.

Public Policy

  • It does appear that Sen. Schumer’s deadline has come and gone, and Republicans have rejected a vote to proceed on the Bipartisan Infrastructure Framework.  That said, the word getting to Senate leadership and the White House is that the pay-fors are agreed to and there are just textual fine-tunings ahead.  This ought to give everyone through the weekend to see if this gets done or not.
  • Senators Romney, Portman, Tester, and Sinema (moderates needed from both parties for this to happen) have all said they are extremely close.


  • The average daily COVID deaths (rolling 7-day daily average) in LA County (population: 10 million), had “spiked” from 2 people up to 3 people last week and then hit 4 people, but now has been cut in half back to 2 people.

*Los Angeles County Daily COVID-19 Data, Public Dept of Health, July 21, 2021

  • For all of the discussion about COVID since the pandemic struck, the disagreements about policy, the failures in response, the excesses in response, the misguided, the careless, the variants, the spikes, the reductions, the new treatments, the failed treatments, through it all (and I have tried my very, very best to never, ever give in to fearmongering sensationalism OR to rank apathy and carelessness), there is ONE expert that seems to have gotten things more right than any media outlet, scientific forecast, politician, or pundit …   Mr. Market

*Strategas Research, Policy Outlook, July 20, 2021, p. 4

Housing & Mortgage

  • Purchase applications for a new mortgage dropped 6.4% week-over-week and re-finance applications dropped 2.8% week-over-week.
  • 62% of re-finances of Fannie/Freddie mortgage loans in the month of May had the appraisal requirement waived.  33% of cash-out re-finances did.  Now, for re-finances, one could argue that the appraisal is less important to the underwriting because you presumably have a payment history with the borrower that matters more than the collateral.  And I have not seen indications that Fannie/Freddie are weakening requirements in Loan-to-Value, credit scores, or Debt-to-Income.  That said, a 29% increase in the use of appraisal waivers, 15 months after the “COVID isolation” excuse has gone away, does speak to some deterioration in loan quality.

Federal Reserve

  • A subject I am studying more and more is that of the huge increase in reverse repurchase agreements between the Fed and the banks whereby the Fed is essentially taking excess cash off the bank’s hands (and neutralizing the impact of their quantitative easing).  The Fed may buy a bond, but by agreeing to sell it back at a future date they offset the asset with a liability.  This pulls the cash out of the banking system.  Over a trillion dollars worth, now.

*Strategas Research, Investment Strategy Report, July 21, 2021, p. 1

  • M2 money supply growth has actually shrunk a great deal in recent months despite Fed QE activity and government deficits not shrinking whatsoever.  The reverse repos are a complicated subject, but one at the heart of what is happening in monetary mechanics right now.

Oil and Energy

  • WTI Crude closed at $70.27, up almost 5% on the day.
  • If I didn’t know better, I would think there was a lot of long covering and rotation the last few days that has now stabilized.  Hmmmm …

On deck

  • One week from tomorrow – July 29 – Q2 GDP figure from the Bureau of Economic Analysis
  • I’ll be on Charles Payne/Fox Business tomorrow and on Varney/Fox Business on Friday

Volatility cuts both ways.  Have a good night.

With regards,

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.

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About the Author


Founder, Managing Partner,
and Chief Investment Officer

David is a frequent guest on CNBC, Bloomberg, and Fox Business and is a regular contributor to National Review and Forbes. David serves on the Board of Directors for the National Review Institute and is a founding Trustee for Pacifica Christian High School of Orange County.

He is the author of the books, Crisis of Responsibility: Our Cultural Addiction to Blame and How You Can Cure It (Post Hill Press), The Case for Dividend Growth: Investing in a Post-Crisis World (Post Hill Press) and his latest, Elizabeth Warren: How Her Presidency Would Destroy the Middle Class and the American Dream (2020).

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