The Dividend Cafe - Covid and Markets - Tuesday September 22

Episode Date: September 22, 2020

The market dropped 500 points yesterday but today rallied back ~140 points. One big tech name today was a huge part of the S&P/Nasdaq rally … The market drop yesterday (at one point down nearly a thousand points, but closed down ~500) allegedly started with a report that a number of global banks had “moved illicit funds” over a 20-year period from 1997-2017. No doubt, this was but one factor with talk of another lock-down in the UK being another, and concern about greater political (and societal) drama (in the aftermath of the Justice Ginsburg passing) being another. Let’s go around the horn today with ample COVID information and perspective, and plenty on the public policy front, housing, and Fed as well … 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. It is Tuesday, September 22nd, and we have had another eventful day in the markets. The market action on Monday had dropped 500 points, and that came after being down about 1,000. So we rallied back about half of that on Monday. But then today the market was up 140 points in the Dow. It was up higher than that on a percentage basis. With the S&P and the NASDAQ, there was one particular big tech stock that was largely behind that movement today.

So I think there's a lot of uncertainty, volatility, and unknowns in the market. I think there's a lot of uncertainty, volatility, and unknowns in the market. Allegedly, a big catalyst in the drop-off in markets yesterday, and you see the continued pressure in financials today, even as the market was higher, is a report that had come out Sunday night, Monday morning, allegedly referring to a bunch of global banks, large ones, that over a 20-year period of investigation from 1997 to 2017 had numerous incidents of moving illicit funds and not following anti-money laundering procedures and things like that. So look, this may all seem kind of in the weeds,

but when you get like tape saying things about potential financial regulatory issues and then the talk of another lockdown in the United Kingdom, which strikes me as utterly insane, but who knows. And then in terms of the ongoing political and societal drama in the U.S., particularly in the aftermath of Justice Ginsburg's passing over the weekend, then, you know, there's not really any need at all for market having excuse, especially after the several thousand points of movement. So I wouldn't read too much into it at this point. And after I go through kind of the COVID news of the day, we'll come back with a couple other comments on market metrics. But let's go ahead and go around the horn and take it from there. Look, there is on the COVID health side, I don't really know what to tell you.

If you're reading reports or headlines about confirmed cases growing, it's kind of absurd. There's a reduction in cases. The growth of that reduction has most definitely slowed, largely because of the very, very heavy student testing that is currently being done that is largely pushing that positivity rate lower because so many are testing negative. And then as we've talked about over and over and over again, where there are positive tests with students, the vast, vast, vast majority of those numbers are very asymptomatic or light symptomatic or mild symptomatic, but ultimately non-severe. There also is a change in methodology in both Arizona and Texas's technical reporting, which would have created an even lower positivity ratio in terms of how their data is calculated.

in terms of how their data is calculated. But my general feeling is that I do sense a new round of media hysteria coming. And I could be being pessimistic or cynical, but as far as the data that a lot of people are really focused on, which is saving lives, less people being severely sick, that kind of stuff, everything is definitely moving in the right direction. Hopefully, with ongoing preventative measures and improved therapeutics and immunity thresholds and things like that, hopefully those numbers go even lower. By the way, speaking of lower numbers, Center for Disease Control updated on their website today, the infection mortality rate estimates. They did it by age group. And it is much lower than previously been thought,

the survival rate. And their current best estimate for people ages 20 to 49 is 99.98%. is 99.98%. For those 0 to 19, it's, you know, the fatality ratio is 0.00003. So I think that's a survival rate of very, very close to 100%. But look, the reality is on the, you know, the specific numbers are updated and helpful and sure would have been, you know, nice if everyone could have gotten that right six months ago, but you couldn't have expected anyone to get it right six months ago. You know, I'm not critical of the experts for having some of these things wrong six months ago because they were modeling based on what they knew or feared at the time. And while those things turned out to be different, but right now I do think most people would probably be encouraged.

Obviously, there's still mortality that takes place. There's about an estimated 5% fatality rate for those over the age of 70. And so obviously, it's around 95% of a survival rate. That's good. But 5% of seven-year-olds who are infected is a high number. And so I don't really say any of this at all to make light of that. But I do think the overall context of total infections and where that mortality rate is, particularly with really young people,

it's very encouraging. And I'm grateful to the CDC for continuing to update their website data. Not a lot of attention in the U.S. press for the surge of cases throughout Europe. There's a number of reasons that may be. I'll let everyone else kind of think through all that. Maybe the press, though, has just decided because Europe is not seeing an increase in hospitalizations and deaths that the mere existence of cases is not so significant, so they're not reporting it as heavily. I'm not sure. Health Center put together showing week by week by week over the last 10 or 11 weeks, the total number of tests conducted in Sweden and the positive rate.

And it's pretty amazing to see a positivity rate down around 1% multiple weeks in a row, even as a lot of their European neighbors are moving much higher in that positivity rate. And I think a lot of scientists are of the opinion that may reflect some degree of herd immunity, but I'll just keep doing my research every day and seeing what we come up with there. Okay, what else do we got here? Okay, what else do we got here? You do have daily cases that with higher testing have not moved a lot, and that's why the positivity rate has dropped. By the way, and specifically in California, for Orange County listeners,

the positivity rate seven-day average is now down to 3.1%. The cases per 100,000 people is now 3.6 per day. So that would be moving Orange County to a lower tier of risk in the eyes of the state of California. But it has to stay there for 14 days before they'll do that. So we'll keep you posted. You can be assured that I'll be watching it every day. In New York, I did put a chart at covidamarkets.com today that fascinates me. It was put together by Bloomberg and it kind of aggregates on top of each other a chart of the largest office landlord stock in New York, the daily open table reservations for dining in New York City, and the total turnstile entries

at the MTA, the New York subway system. And what you see is just this obvious ghastly drop of all that economic activity and back in March. And then you just see this really slow, but really steady diagonal move up higher where the subway use has tripled from its bottom, but it is still down, you know, 70%. has tripled from its bottom, but it is still down, you know, 70%. And you see about a, you know, the restaurants were obviously down a hundred percent and they're still down about 79%, but that's with no inside of restaurants open yet. That starts next week. So I kind of like this,

these three different metrics put together. And I expect to see a lot of correlation there as a way of just sort of tracking economic activity in New York City. I'm here, I fly back to California tomorrow, but I mean, I've been here for a month, I can tell you, no question, things were so desolate and then we're just less desolate and less desolate and each day picking up a little bit and I'm looking forward to where that story goes. Okay, well, outside COVID world into the world of stocks, definitely a spike in companies that are below their 20-day low and yet still overall market and uptrend well above its 200-day moving average. So, you know, from a technical standpoint, those technician types of which I am not one tend to really like that kind of thing.

What I am more interested in, though, is the breadth of the market, that equal weight S&P, if it can kind of hold its levels of support. I think that bodes well for a broader market strength. of support, I think that bodes well for a broader market strength. Most of the month, what you had seen in weakness in the market was reserved in big technology. And in the last couple of days, that definitely democratized out into other sectors a bit. Now, the overall market is still far outperformed NASDAQ and big tech on the month. But we want to see if indeed this spills over further or if it stays contained. Public policy front, I really don't know. I would not be paying any attention to any of the pundits on the news on this because I don't think any of them know either, but is the obviously significant

noise and heat and disagreement and all the whatever, you can use any nouns or adjectives or verbs you want, around the Supreme Court opening brought on by the passing of Justice Ginsburg, will that have a factor, will that be a factor in getting the fourth round of stimulus relief bill done? You make an argument either way, my view continues to be I'm skeptical when it's going to get done. I'm adamant when it's not going to get done unless Speaker Pelosi believes it is in her best interest for the House Democrats politically, and that the White House will not do it unless they believe it's in their best interest politically. And right now, both parties, as best I can tell, believe it's in their best interest to not do a deal. So therefore, I don't think a deal will get done.

Whether or not different things around the Ginsburg side play into it, I really can't say. By the way, oil and energy, WTI crude has really bucked the trend. You had the market sell off yesterday. Oil is still sitting at right around $40 a barrel. I think that is interesting. I also would point out, in addition to oil prices, structured credit in the last couple of days of enhanced equity volatility has performed well. So that, again, it's not ever foolproof,

but it's another indicator that it doesn't seem to be as fully macrocentric in what we're seeing with the equity side. Some good information on housing in COVID markets today. A chart on the Google searches for new homes, it's definitely dipped. You still have mortgage applications up 20% year over year, but it was up 30% year over year. You still have a very high optimism figure for the NEHB Builder Survey Index. Existing home sales were even higher in August than July.

The inventories are very lean, low level since about 1999, which I think you're going to need new housing supply to balance prices. That's a fact. New housing supply to balance prices. That's a fact. And finally, I am going to be repeating some of this section in Dividend Cafe this week or elaborating on it. But some comments on the Federal Reserve that I think are important around the clarity of what they're doing in quantitative easing. And they assist that they're giving implicitly and explicitly to asset markets, capital markets, asset prices, and what that looks like.

I would pay attention to it. I'm going to leave it there for the night. Reach out with any questions. And thank you, as always, for listening to the COVID and Markets Podcast of the Dividend Cafe. always for listening to the COVID and Markets Podcast of the Dividend Cafe. Thank you. All data and information referenced herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary and does not constitute investment advice. The Bonser Group and Hightower shall not in any way be liable for claims and make no express or implied representations or warranties as to the accuracy or completeness of the data and other information,

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