The Dividend Cafe - Daily Covid and Markets - Monday July 20

Episode Date: July 20, 2020

The market was flat today in the Dow, but both the Nasdaq and the S&P were up (the Nasdaq meaningfully so after last week’s travails). Today’s missive really, truly does go all around the horn – lots and lots of up to date health info, and some useful info with the stimulus bill, housing, the Fed, and more. 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 missive. We hope you had a wonderful weekend. Today's missive, as always, is brought to you by the Dividend Cafe of the Bonson Group. Again, today's missive, as always, is brought to you by the Dividend Cafe of the Bonson Group. For those who are listening to COVID and Markets each day and have never really understood what in the world Dividend Cafe is, or for that matter, who the Bonson Group is, it's never occurred to me that there may be people who are not Bonson Group clients and familiar with us, you know, Dividend cafe readers that have stumbled upon COVID markets

and are hearing these other terms and don't know what in the world I'm talking about. So dividend cafe is my weekly investment commentary. By mine, I mean I, David Bonson, Chief Investment Officer, private wealth management firm, The Bonson Group. COVID markets has become a daily missive we've done in response to the ad hoc realities in the market for investors around the coronavirus COVID-19 health pandemic. And so hopefully if this is your first time hearing all this, you now have a better understanding of who all the characters and moving parts are and so forth. And for those of you that, of course, know all this, I apologize for wasting this minute of your life. Real quickly, the situation today, as far as markets, first of all, is kind of odd. We've had a few odd days

lately. Dow was up a tad, kind of flattish, but technically a little bit up. But then the S&P was up rather nicely and the Dow up quite big, particularly after last week's travails. The Nasdaq really struggled last week. So you had flat Dow, up S&P, really up Nasdaq. Just strange divergence amongst the market indices. But in what I'm going to go through here today, it's really much more of a broad-based coverage of things. There is plenty of our normal health data, but then I am going to go ahead and cover Fed and all the other good stuff that we normally do, public policy and so forth. You know, I do think this morning, as I began kind of reading through a handful of commentary and pundits and whatnot on the health pandemic, I think it was the first time in quite a while that a handful of the analysts who I know to be on a very day-by-day hyper consistent basis very pessimistic

um were I think kind of conceding optimistic news from over the weekend the the the pundits I refer to are not necessarily saying some sort of message like we're completely out of the woods and everything is great I'm more just saying there was this undeniable change in their interpretation of some of the various data points to go from rather negative to rather positive, some more begrudgingly than others. You know, a lot of the shift into some more positive interpretation of things is subtle. a lot of the shift into some more positive interpretation of things is subtle. It's marginal, but nevertheless important. It's the trajectory, not the present absolute numbers in some cases are encouraging.

But there is no question. It's a collapsing rate of growth in new cases. There was a 14.5% increase in testing last week. There was a decline in the positivity rate from 9% to 8.5%. Hospitalization data is definitely improving, and there's some specifics in some of our fact states. We're going to go through with that here in a moment. New cases themselves on absolute basis are declining in Arizona. They seem to be peaking in several other key states, including Texas and California. I think Florida case growth is likely peaking, but it's been lumpy and sporadic enough that I'm going to hold back from total Florida optimism until we get a couple more days like today with it dropping.

But definitely, I think the biggest optimistic news for today came again on the treatment front and on the vaccine front, in addition to the overall theme, which has been so consistent for some time, which is that case growth is not the cataclysmic data point that it could seem to be unless it is followed by a surge in mortalities and mortalities that surge come from surges in ICU and severe hospitalization type cases. And that theme has continued to not play out and looks to right now be improving. I'm going to go through some of that data in a little bit. But there is this tiny little company, very few people have heard of, called Synergen.

It trades in the London Exchange. It has a nebulizer treatment in trials where it uses a naturally occurring antiviral protein called interferon beta. It's inhaled. And the study that came out today was at a 79% reduced risk of needing ICU when this treatment was used, was determined versus those given a placebo. Patients were more than twice as likely to recover. There were no limitation in their activities. So there's still a peer review pending and full data needing to be released. But this initial trial finding on a nebulizer treatment to, again, help avoid cases that are kind of serious from becoming critical, hugely positive news if that continues

to go in the way that the initial trial has gone. And then on the vaccine positivity, we got initial data from the phase one German clinical trial on the Pfizer-BioNTech joint venture. The United Kingdom has agreed to buy 90 million doses of the vaccine. And again, the initial data was extremely positive. And then that announcement was followed up by by far the biggest announcement of the day, which was the specifics of this initial phase one trial in the Oxford University Jenner Institute AstraZeneca joint venture, clinical trial results, 1,077 patients in the phase one trial. Email us at covid at thebonsongroup.com if you want the actual Lancet journal published results. But it demonstrated

both production of antibodies against COVID and a T-cell response that basically avoids infection. Two different kind of immune responses that are both overwhelmingly positive. Now, they're in the middle of doing a trial with 10,000 participants now, and then they have a 30,000 person test in the U.S. that will begin shortly. This first trial was just under 1,100 people, though, no serious side effects. I do have a bit more info, different perspectives, different papers, a joint venture out of the Finnish Institute for Wealth and the Public Health Agency of Sweden on their findings regarding the two countries' different responses to the medical aspect of kids back in school and what the risks to teachers and what the risks to parents and what

the risks to students proved to be in both scenarios. In addition to that Nordic study, there was a French study that I also have available that concluded much of the same. University of Vermont put out a new paper on it that I've provided. And then there's even an op-ed, some scientific input from the Boston Globe. So a lot more on the medical scientific side around U.S. school choices. scientific side around U.S. school choices. But in the medical, scientific health data side, there's definitely been a bend in the new daily cases on a national basis. There's been a flat out turndown in Arizona, which was the first state to kind of be going the wrong direction. The growth rate slowing quite a bit and hospitalizations beginning to fall. And as of the time I am recording here, I don't have the final data for the day in terms of what

testing and then positivity rate we have for Monday, but that will be at covidamarkets.com later on. In Florida, cases were down 2,100 today versus yesterday. But like I said, you definitely need a few days of consistent data. And then I did provide a chart that shows the deaths from the day of death, not from the day of reporting. So you can kind of get an idea of seeing how far back some of these deaths that are being reported come from and how therefore it is not really a true indication of where things have actually been. They have not had a day with over 100 deaths. There was one day with 99 as far as the deaths that took place on that day so far, and that was back in early July a couple weeks ago. Obviously, any death is a tragedy, but we want to be able to

provide the right perspective so that the way in which our understanding of this is formed is based on properly contextualized data. Definitely, Arizona remains the standout state of the four fact states today. You see a decline of inpatients, keeping about a week-long trend now, a decline of ICU bed use, a decline of ventilators used, a decline of COVID patients in emergency departments, and a decline in intubations. And all of that is not just today versus yesterday. It's a multi-day trend down in all those statistical categories. The California COVID page has been providing mortality info in their site for months, and they took down the mortality breakdown by age group recently. It was showing up until when they took it down that there were no deaths

in California for anyone under the age of 18. And then in concert with the time that they announced that they are doing a statewide injunction against schools opening in a couple months, they took down that mortality breakdown by age group. So what I do have for you at COVIDMarkets.com is updated Orange County, California data, just simply my own intuition that there are more Orange County readers and listeners than some of the other prevalent counties statewide. But of course, I'm providing the whole state data and Orange County data pretty much every day, just can't provide every county in the state. But in Orange County, a 4.3% decline in hospitalized patients on a three-day average, by far the largest improvement, meaning that's how many less people over a three-day

average period have been hospitalized for COVID in the last several days. And then you have right now 41% of ICU beds are available and almost 62% of ventilators are available. Very happy to see that and pray for continued improvement in Orange County. And then two really important charts for Texas to get an idea of where they stand on the hospitalization side. And it is one of those things we're seeing is believing the visual will be very useful. But the hospitalizations for COVID-like illnesses in the state of Texas appear to have peaked about two weeks ago. And then you see an increase for hospitalized people testing positive for COVID, but with no COVID-like illness. So I'd like to think that this means the overall hospitalization number

is headed down as well. And the other chart, you see a kind of announcement from ProPublica, which has been really quite alarmist about everything in Texas, announcing good news data from Texas Medical Center in Houston showing it's past the peak, looking for continued and gradual decreases in hospitalized COVID patients. So we hope they're right and glad to see a spurt of optimism there on the Texas hospitalization side. Market technicals, the breadth in the S&P 500 now above its February high, the equal weighted index last week outperformed the cap weighted by 2.5%. Small cap outperformed large cap by almost 2.5%.

Those are both ways of measuring company performance versus the blended index performance because of the massive size of four or five or six technology names in the blended index that gives a disproportionate impact on the cap-weighted. The advanced decline ratio is a positive indicator of more breadth and basically a more diversified strength in the underlying market. So, you know, last week you had the largest e-commerce company in the world down 12%, largest software company in the world down 6%, largest video streaming company down 12%, and yet the S&P 500 was flat. Now, by the way, some of those companies may have had a big move back today, but last week I'm commenting on that breadth we saw in the market. Public policy, everyone's back in D.C. now.

Nice to see Congress go back to work. And the White House is preparing for their beginning negotiations that will be led by Secretary Mnuchin at Treasury and then Chief of Staff in the White House, Mark Meadows. I'm not really all that concerned, actually, that the Democrats in Congress and the White House will not end up getting aligned. I'm more skeptical that it will be the Senate Republicans and the House Democrats that get aligned. But, you know, and when I say concerned, I'm just saying to the reality of a deal getting done, it's very possible a deal gets done and we should be more concerned about that.

But certainly markets and the media narrative and obviously a lot of people who would be impacted depending on the efficacy of what they do, you know, the general consensus I can understand public sentiment around wanting to believe a deal is done. I'm more saying I don't want anyone to take for granted that what deal does get done will be universally efficacious. I suspect it will be filled with some good things and some bad things. Major announcement in the oil and energy world, something that I've been predicting since oil collapsed back in March, that out of the decimation to the American energy infrastructure, particularly less capitalized and more levered players, that you would see the strong get stronger and the weak get consolidated. And today you saw the second largest integrated energy company in the world doing a $5 billion acquisition of a smaller energy producer

in Houston, Texas, doing so at an 8% premium. That Houston company was down nearly 70% on the year. So again, this becomes a big part of the resolution that comes out of America's energy sector, whether it comes from big public integrated companies or private equity, but you're going to see consolidation taking place and people can debate where they think that's good, where they think that's bad. There's a bit of both in all of it. For housing, builder confidence in the market, better than expected in July, a big jump from the June reading. Builders are definitely seeing strong traffic. There's a lot of interest in new construction. We continue to think there

will be a tailwind for housing, particularly medium price suburban housing in the second half of 2020, largely led by record low mortgage rates. And then in Fed news, I feel like it's been a million years, partially because of the COVID lockdown, and also because there's so much stuff in the news cycle, and just a kind of preposterous delay that took place in the Senate Banking Committee. But it looks like Fed nominee Judy Shelton should be getting her Senate Banking Committee approval this week and be one step closer to the Fed Board of Governors. She's a diversified intellectual for the Federal Board of Governors, more of a sound money advocate, a bit less interventionist than some of the other current governors. And so it'll be interesting to

see if this helps facilitate broader discussions. I'm going to leave it there. Futures aren't even open yet, so I can't even tell you what they're doing. I just happen to be recording about 15 minutes earlier than normal right now. But thank you, as always, for listening to the COVID and Markets podcast. Please reach out to us with any questions. And as always, we'll be back to you again tomorrow on Tuesday with the latest and greatest in all things markets and what we hope will soon be a post-COVID world. Thank you so much for listening to the Dividend Cafe of the Bonson Group. so much for listening to the Dividend Cafe of the Bonson Group. This is not an offer to buy or sell securities. No investment process is free of risk. There is no guarantee that the investment process or investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee.

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