The Dividend Cafe - Covid and Markets - Thursday September 17

Episode Date: September 17, 2020

The market dropped 130 points today (Dow). Futures were down 300 when I woke up this morning and the market opened down 300, then actually went up on the day, then fell over 300 again, then zigged and zagged into the close before closing down 130 (-0.47%). The Nasdaq was down 1.25%, and it remains off right around 10% from its high. The weekly jobless claims came in at 860,000, as expected, but continuing claims dropped by almost a million, landing at 12.6 million (now half of that 25 million high we had early on). There is a lot today – from Housing to the Fed to policy to oil – the way I like these missives to go – but starting off with all the COVID news that is fit to print … 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. Kind of a lot of action today, a little less on the COVID side, more on the market side, but I'll try to give you everything you came here to get. The Dow was down 130 points today. Futures were down about 300 in the middle of the night when I woke up. And then the market opened 300 points down about six hours later. So the futures kind of projected where we would go.

But then the market rallied all the way up. And then it zigged and zagged throughout the day and into the close before it ended up closing 130. So it's kind of a crazy chart of the ups and downs of the market today at COVIDMarkets.com. But the NASDAQ was actually down 1.25% on the day, a little more than double what the Dow was down. And this does maintain still that kind of down 10% position that the NASDAQ finds itself in. So we continue to have kind of a volatile market, although really a high concentration of volatility in technology and much less downside on the month in some of the non-tech sectors. Now, the weekly jobless claims came in this morning. They're the lowest level that they've been on a weekly number since March and the COVID kind of lockdown beginning, although it's still a very high number, but 860,000 in the weekly jobless claims. However, the continuing claims dropped by almost a million,

landing at 12.6 million. So that's about half of the 25 million high, give or take, that we had been. So, you know, kind of a mixed bag, I guess, net-net, probably a little bit of good news, but still a precarious situation. On the COVID front, first of all, just kind of some more cultural phenomena that I happen to think is very pertinent economically and medically, but some of you may not agree. The Big Ten Football Conference, which, of course, had canceled fall football, reversed course yesterday, has now authorized football to take place, I believe,

starting off on the 24th of October. We're over a month away. That will, as of right now, leave just the West Coast-based Pac-12 Conference as the only major conference holdout that is determined not to have a fall college football season. However, even the PAC-12 is suddenly taking steps to reconsider, so got to hand it to their leadership. Let me see. In terms of some of the more pertinent medical side of things. Eli Lilly today announced successful results from a trial for their viral treatment that indicated a 72% reduction in hospitalizations

for their patients taking it. This is an interesting treatment because, first of all, it's not vaccine-oriented. This is a therapeutic to someone who is positive with COVID. And it's also not like remdesivir from Gilead intended for real severe cases. It's primarily been tested. Their trial was on 800 mildly, you know, moderately symptomatic. They were not asymptomatic. They were not light symptomatic, but they were not heavy, severe cases. And again, a 72% reduction. And this was the full placebo deal. I mean, this was a pretty exhaustive test. So I really like seeing this kind of ongoing improvement in the treatment side, because while obviously everyone's focused on the immunity dimension. There are a lot who don't seem to

be really confident in the herd immunity side. I'm not one of them. I'm incredibly confident in that direction. But then of course, we know there's some that are not confident or happy about the concept of a vaccine whereby you receive an immunity through vaccination. I'm also very excited about vaccine treatments, but to the extent that there will be people who get coronavirus and need treatment, I think that things like remdesivir and things like various approved treatments are really going to facilitate a society that can get back to normal. And so we're optimistic about this treatment, or at least we're hopeful, I should say. In terms of, you got to get the link at cobermarkets.com. Big, big, big story out of Nashville. I don't know what will come of it,

but I think it's very important, not because I have any evidence whatsoever that it's happened to other places, but I don't really need evidence to happen to other places. It happened in this place. And to me, it's just stunning to see elected officials, a bunch of emails that have leaked out from elected officials and public health officials saying we don't really have cases at bars and restaurants. It's really not that much. The numbers are very light. What do we do? Should we not leak these numbers? Because we don't want people to know that that's not where the cases are.

And I'm not actually paraphrasing. This is kind of really, you can read the piece for yourself. I think it kind of just speaks to what is really, you know, frustrating for those that are trying to fully assess COVID-19. And when information is being distorted or withheld or lied about. And of course, it doesn't seem that very often that information is being withheld to make us feel like it's better. It's really primarily being withheld to make us feel like it's worse and that impacts economic activity, and which is the

reason I bring it up. We have our fair share of charts for you about the test positivity rate and where hospitalizations lie. Things have kind of flattened in terms of where we are on cases. So we'll see if those numbers continue to go lower. Right now, they've kind of paused in their decrease. I mean, they're still going lower, but the pace is certainly paused. California, though, by the way, has a positivity rate down to 3.6%. Their target was to get it below 8%. So they're well beyond that. And yet they continue to have significant amount of shutdown. beyond that and yet they continue to have significant amount of shutdown. They also, by the way, are a pretty big investigation going on on a lot of fraud and I don't mean isolated cases, millions of cases on that unemployment assistance fund I spoke about

earlier that again, it is right now California-specific, but California is the leading state for unemployment claims, and there seems to be some real distortion of that data. I think that's significant because, as I've pointed out with some of the COVID and medical and health data, and then now on this unemployment, it is very difficult for an analyst to do data assessment when the data is unreliable or wrong. to do data assessment when the data is unreliable or wrong. So the standard charts of COVID markets, including an update on Orange County, which has seen its hospitalizations just really, really collapse, down to 67 total patients in ICU in Orange County for COVID,

and again, a population of 3.5 million people. On the market front, yesterday on rally day, you had another one of these days of real strong mean reversion and leadership change, where a lot of the leaders from the past few months dramatically underperformed the things that had been underperforming. And so I think that that speaks to a breadth and a very healthy transformation within the market, as does the high yield CDX, which, of course, is the spreads that exist in the high yield corporate credit market. And seeing these hit new lows speaks to very healthy appetite for risk in capital markets. If you were having a broad-based risk off, you would see spreads widen, not tighten. And it does add a little bit more fuel to the fire.

I've brought up the same argument a week ago that what we're maybe experiencing in equity volatility right now is tech-centric and not broad market-centric. No new news of specificity or finality on public policy, but a lot of new news on re-engaged conversation, posturing, barking and biting, this potential for another stimulus bill.

They still appear to be a trillion dollars apart, but now the White House is sort of coming out saying that they want the same size of a bill that Speaker Pelosi wants. And what I think is really kind of interesting is that if Speaker Pelosi and Donald Trump want the same thing, you would think it could be done immediately. And most certainly, no matter what you read or think or hear, I would argue that President Trump would end up getting Republican senators to do what he wanted to do if he used his bully pulpit. It's the House. So two people both saying they want the same thing and they can't get it done speaks to the era out of fear of giving the other side a victory, speaks to the weirdness of where

we're in. But it does look like there's a little momentum. I don't want to get ahead of myself here, but a little momentum for a PPP extension, a relaunch that will allow businesses who already took a PPP loan to get a second loan. It was part of all the different stimulus bills that have not gone anywhere so far, but there could be a standalone bill just for that. It would take a lot of guts for people to vote against it

if it does get forward. So there's both some Democratic efforts and Republican efforts to bring that together. Oil rallied today, by the way, even in the market sell-off. OPEC Plus is meeting and supposedly talking about their production cut plans and compliance with the plans they've already had. In the housing market, I swear to you this is not a typo or a misspeak, The housing market, I swear to you, this is not a typo or a misspeak, but Fannie and Freddie issued $322 billion of new mortgage securities in August. A big, big portion are refinancing loans.

So that means that this volume is taking out pre-existing mortgage securities, and that enhances that prepayment risk that exists in this asset class. But you have a kind of cycle here, okay? Low rates creates a high demand for mortgages. That creates more volume of mortgage securities. The demand for that comes out of low treasury yields, which in turn basically forms more capital for more mortgages, rinse and repeat. And so you just kind of get this self-fulfilling prophecy out of low rates and mortgage fodder. And we have to watch that. The Fed now owns over 30% of the mortgage bonds in existence. And Fannie and Freddie's contribution to

the mortgage-backed securities, the agency versus non-agency is just absolutely massive. By the way, new housing starts declined 5.1% in August. So that's one of the first data points that might seem somewhat negative in housing in quite some time. But as I looked under the hood, the single-family housing starts were actually up again. It was the aggregate number that multifamily brought down. All in all, though, builder confidence has definitely been hot. And I think it would not be a bad thing to see it cool down a little bit. So I'm going to leave it there. There's plenty of links and charts and things at covidmarkets.com.

And we have, again, our weekly dividend cafe coming to you tomorrow. So enjoy COVID markets. Enjoy your evening. And reach out to us at the Bonson Group with any questions you have, any time. Take care. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, and with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC.

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