The Dividend Cafe - Covid and Markets - Thursday September 10

Episode Date: September 10, 2020

The market dropped 400 points today despite opening up over 200 points. The 600-point intra-day reversal was led by the Nasdaq’s almost 400-point intra-day reversal, bringing the recent peak-to-trough drop now to ~9.6%, so not quite 10% correction territory on a closing basis. There was not a particular catalyst to the sell-off. The weekly jobless claims number came an hour before the market opened and the tick down did not begin until ninety minutes after the market opened. The fact that the Democrats blocked the Republican stimulus bill from coming forward for discussion was obviously not a surprise. The selling pressure in big tech just hasn’t settled yet, and that is where we are. Weekly jobless claims stayed around 850,000 on the week, and continuing claims stayed around 13.4 million … Okay – around the horn we go! Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Hello and welcome to today's COVID and markets podcast brought to you by the Dividend Cafe of the Bonson Group. We're going to jump around the horn real quickly, give you today's kind of updated information, to jump around the horn real quickly, give you today's kind of updated information, and also remind you that we have our national video call on Monday where we're going to do a special edition, all things politics, unpacking, everything connected to the election and election implications on the economy and investment markets. That'll be Monday that we'll have that national call. And on Friday, we will be releasing a very extensive white paper that I've written on that very subject. So I'll be on the lookout for that information and look forward to having you on the call on Monday.

And of course, if you're not on the call, we will be releasing the replay as our podcast on Monday. Okay. The market dropped 400 points today. It actually was up a couple hundred points a little while after the open. So you had a 600 point intraday reversal, although the NASDAQ had a 400 point intraday reversal, so on a percentage basis, much bigger. And that does bring the recent peak to trough drop from the high level down to the low level of the NASDAQ to 9.6%, so just not quite yet at 10% correction territory on a closing basis. And there wasn't really a particular catalyst today to the sell-off. The weekly jobless claims number, which, by the way, came in around 850,000 plus change,

that came an hour before the market opened. And the tick down in the market didn't begin until at least an hour and a half after the market had opened. The fact that the Democrats blocked the Republican stimulus bill from coming forward. The Republicans did get the votes they needed. They actually got 52 votes. But then, of course, to go forward in discussion, you would have had a filibuster-proof 60, and the Democrats blocked that. But again, that was completely, totally known. I mean, a 100% confidence level in markets that that was going to happen was already priced in. So I think the selling pressure in big tech just hasn't settled yet,

and that's where we are. But let's jump around the horn, and then if there's anything else you'd like us to cover, please reach out, and we will do so. I have not changed my mind at all, and obviously I've said this so many times, you wouldn't have expected me to. But the severity, I think, is what matters when it comes to COVID and the ICU hospitalizations when they risk overwhelming medical resources and capacity. those two severities, both ICU hospitalization and death, are the two events that I think policy must be centered around, and more and more society is centering its own expectations and understandings around. The mere existence of cases, let alone asymptomatic ones or lightly symptomatic ones, may have contagion implications. Those connections are kind of thin, but I think they're not the key data point from which public policy can be created. So I say this with the caveat that I am not one who's centering a lot of my own analysis and expectations around mere case growth. But if I were, if case growth

were the data point that I was obsessing over, which certainly many have, I would point out the cases themselves are now down 46% from the July 22nd peak. And in every data point we have, that late July date appears to be the peak level at which cases, then hospitalizations and deaths all seem to have reached their high level. As a follow-up to Tuesday night's report that AstraZeneca in their Oxford vaccine trial was going on hold with some of their late stage clinical trials over a potential side effect, as of press time for me, recording time right now, there's not enough info available to know if it represents a challenge or project or not. I've read more than you'd believe on possible medical explanations

and most seem pretty optimistic that this isn't going to derail the broader vaccine project of AstraZeneca's venture with Oxford, but we just need more time to be able to understand the direction of this clinical trial. I did provide the link in COVID markets today to the comorbidity data at the CDC's own website. This is the actual Center for Disease Control's website where a lot of practical information on where the most sensitive vulnerabilities around COVID lie. And I want to be clear too, because you'll see at that

site that there are 5,692 death certificates that are in the COVID count that list intentional and unintentional injury and poisoning as a comorbidity. And I do agree that's kind of shocking and a little bizarre, but I also want to point out that it's a reasonably small percentage of the total deaths in the COVID count. So I think that data needs to be understood in full context. I did provide a chart as well for New York. Hopefully you've heard the news that their restaurants are being allowed to reopen in New York City for indoor dining at the end of the month. We still have three weeks to go till we get there. At just a 25% capacity, obviously a lot of restaurants have already gone out of business and a lot more are planning to go

out of business. But in the meantime, I also provided for you the daily positive test case versus the total test taken. And one can see the sub 1% positivity rate across New York State that's essentially been in place for well over two months now. Pretty staggering. Interesting recording the LA County Public Health Director, not looking good for those schools to reopen, as she stated that they don't expect K-12 schools to open until they are done with the election. So maybe mid-November, they'll get the schools open in LA County. We'll see. As far as stock market goes, yesterday, the market was up 2%, more than 2%, but only 68% of companies were up.

And so it's important to understand that it's pretty light breadth. That advanced decline ratio did not really indicate a broad participation in market rally, so you don't really want to be surprised when you have follow-up days that are weaker. The NASDAQ, by the way, is still 17% above its 200-day moving average. So I'd hardly call the sell-off that's taking place so far oversold yet. But the really most important thing to point out is that bond yields have not moved up or down through any of this that's been going on now for the last week.

So that really does reinforce this doesn't appear to be a real market adjustment. If there was an awful lot of risk off. You would think that you'd see bond yields going down. And as people were shifting from stocks to bonds, so far it just appears to be repositioning around some of the frothy positions. We're not seeing yet in the technical data a full paradigm shift. we're not seeing yet in the technical data a full paradigm shift. So as I mentioned, the Democrats blocked the GOP skinny bill, which would have given $258 billion to PPP, $105 billion to schools, would have done a $300 a week unemployment benefit subsidy from the feds, would have provided liability protection to businesses to reopen. I really do believe,

would have provided liability protection to businesses to reopen. I really do believe, and by the way, this is against the advice or counsel or analysis of some of the sources I trust the most. But my own view is that I think a stimulus bill is dead until after the election. I just think both sides have figured out it's not really harming them to not do it. And to not load stimulus and then go about blaming it on the other side is working. So I would expect that you will not end up getting one after the election. I could be wrong. And then in terms of the Federal Reserve, I'll let you go to COVID markets to look there at the chart. Stunning amount, $1.5 trillion of new investment-grade corporate bond issuance this year. And just kind of laying out what that really means, what the profound impact to other markets and asset classes has been.

By the way, that Fed's Main Street Lending Program, the end of August, they have a $600 billion facility. They've distributed $1.2 billion in loans. It's 118 loans, 11 of which were for less than $1 million. So, so far, not a lot of demand for the Main Street lending program from the Fed. I'll board a stay on that later. Okay. I think that that covers us here for today. If you do have any other questions, obviously, look at the charts, look at the updated data, COVIDMarkets.com, always a good place to be to color in what you get on this podcast. Thanks for listening, and we'll look forward to tomorrow's special Dividend Cafe on the 2020 election and what it means to your portfolio. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities.

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