The Dividend Cafe - Daily Covid and Markets Podcast - Monday, April 27

Episode Date: April 27, 2020

The futures opened yesterday down a pinch and reflected a down 80 or so opening for a couple hours.  By the time I went to bed U.S. futures were pointing up 100, and more interestingly, the Nikkei was up over 400 points (see why below).  I woke up to the futures pointing up 200 points at 3:30am, and the June delivery contract on WTI oil down 17% to just over $14/barrel.  (The disconnect between short term oil futures and equities is a sight to behold). The market opened up ~100 points, and throughout the day traded up about +250 (most of the day).  Oil was down ~20% most of the day even as, once again, most energy stocks were higher.  Financial stocks were the huge leadership names today.  The Dow ended up closing +360 points, just off the highs of the day. Links mentioned in this episode: CovidAndMarkets.com DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, financial food for thought. version of COVID markets. Obviously, feel free to check out COVIDMarkets.com for the written version where there are charts and all sorts of enhancements, but big day in the market today. The futures actually last night were down maybe 80 points or so as I went to bed and getting up early this morning, the market was pointing to 100 point increase. It kind of moved a little higher from there. The Nikkei, in the meantime, last night was up over 400 points. By the time I went to bed, it closed up over 500. I'll talk about that more in a moment. So coming into today, risk on seemed to be more prevalent. And then the future is pointing to a 200-point open at the morning and

stayed above that level throughout the market open uh throughout the market day averaging about 250 points up kind of give or take a few points throughout the day but then rallying above 400 into the end and closing just off the high up about 360 points all this happening with oil down about 20% on the day on the June front contract of WTI. Just over, let's see, as we sit here now, we're back to about $13 a barrel. We closed in the 12. So very low WTI prices for the June contract. Continued contango from month to month in those prices.

So financial stocks with the big leadership names today, we'll talk about that in a moment. From a market technical standpoint, the flows into the NASDAQ, particularly the triple Qs, are just absolutely unbelievable. I think so overdone, you're talking about the top percentile all time for rolling flows into that famous NASDAQ ETF. Look, we're not NASDAQ investors and we're not ETF investors, generally speaking. And so it isn't something I have a lot of skin in the game on. It is just simply something to note that the top five weighted names in the triple Q's are the same top five weighted names in the S&P 500. And so from our vantage point, we're looking at the level some of these mega cap companies play within the big market indices, seeing a really big disconnect forming between the

broad market levels and the individual constituents of that market, sans some of the big mega cap names. Still quite a bit of net short speculators, particularly in the S&P futures, kind of allowing as more shorts get covered for ongoing buying pressure, either in the present tense or the future tense. The technicals are interesting overall have some more data tomorrow on today's action with the breadth and so forth I can see from my screen though that the breadth probably was not super high today as far as up almost 400 point days ago just in the fact that a good portion

of pretty high profile consumer staples names were down but the the financials the energy sector a lot of real estate names today doing quite well um in terms of the economic surprise index which is not necessarily an index we would talk about a lot it is important to note for those who are utilizing as their reason for being very confused by why the market's doing so well, that there's all this bad economic news out there. It's important to understand that the surprise index is at as bad a place as it's been since the financial crisis. So I think that the question we have to ask is not will more bad news come, but will more bad surprises come? And those two economic components are very different and have a lot to do with how markets are pricing.

The health front though is really quite encouraging, particularly over the weekend, confirmed case growth on Sunday of just 2.9%, the lowest to date, very dramatically declining death count by a percentage. The positive ratio, meaning the total number of positive tests divided by the total number of tests being taken, is really collapsing. And that's by far the most encouraging thing because it's happening as testing is going to much higher levels. because it's happening as testing is going to much higher levels.

We basically have seen our averages of new tests. Let's see. Do I put the numbers in? I thought I typed them out. I may not have. Well, forgive me. But anyways, the averages have gone up on a per day basis quite substantially. As far as how many tests were done today, Monday, it's difficult to say because for some reason, every Monday going into the Tuesday reporting cycle,

there's been a disconnect between the two major reporting kind of bureaus or aggregators of data. And remember, they're getting all this from individual states. So it's not necessarily a flaw on their end. It's just kind of the data is only as good as what's being fed to them. But I'm seeing 136,000 tests from one, but 191,000 from another. So we'll get that sorted tomorrow. Across Europe, by the way, really significantly lower death counts in Spain, Italy, the Netherlands, France. So adding to optimism that Western Europe is in a better position. And then New York's death count on Sunday was the lowest it has been in a month. So all of it, any sick people, any mortality is very, very sad.

But in terms of the aggregated data interpretation, there is a lot of positive direction and and we should be celebrating that I mentioned Japan earlier Nikkei closing up over 500 points last night is the Bank of Japan by the way at 500 points they're up within a whisper of hitting 20,000 it was 16,500 and it's March low so over 18 percent increase in about six weeks but the BOJ basically committed to unlimited bond buying that wasn't a huge announcement I think everyone sort of expected they're just gonna kind of buy whatever they have to buy however they tripled the maximum amount of corporate bonds and commercial

paper stipulating up to a hundred and eighty six billion dollars equivalent which by the way is is 20 trillion yen, that they are committed to, or at least allotting, into central bank purchases in the corporate bond market. They're targeting, of course, a 0% rate. And I think that, you know, when you add it all up together, including, by the way, offering to pay financial firms 10 basis points to tap their lending facility to incentivize bank lending, you have

what one could pretty easily call a pretty accommodative central bank here. And then that rhetoric, you know, whatever it takes, stop at nothing. That's kind of what the market wants to hear. As far as with our Fed, which is meeting today, meeting tomorrow, we're going to hear more from them in the middle of the week. The jumbo mortgage market in our country, the non-conforming space, is pretty much dead, frozen. And I would be very surprised if the Fed and Department of Treasury are not addressing it, even if they're not addressing it with the most aggressive tools. I have to think there's some sort of attention to that space coming on the commercial real estate side. It's more and more my view that even if they believe the CMBS space is off limits, that they don't want to come intervene and help unfreeze some

of the frozen credit and commercial mortgage back, they may end up backdooring it or at least backdoor justification for it around the sales tax receipts and property tax receipts that are surely to be threatened by the decline of rent rolls in the retail space in particular. So there's got to be another collapse of those sales tax revenues and soon enough in property tax revenues that are so integral to the funding of states, counties, cities. And I suspect that that represents a good cover both to politicos and central bankers to help intervene in the commercial mortgage market. Negative interest rates have been discussed the last few days. People wondering if the Fed's going to go that route. There was a former Fed governor in Minnesota who made hay last week that they ought to do this. So my writing at covidandmarkets.com today will indicate how I feel about it. Not only that I do not believe they're going to do it now, I can make no predictions about what any central bank will ever do in the future because I've learned not to but as far as why they ought not to it's a rather easy case for me to make primarily it solves a problem that we don't have which is that people

are out wanting to spend money but can't do it because credits too expensive credit is the cost of credit is insanely low. It's just simply that people can't leave their house. So how do businesses go spend money and consumers go spend money when there's a lockdown? To the extent that the lockdown ends and those spirits are re-provoked to some degree, then we will see. But the notion of having to pay people to go invest money is highly distortive, counterproductive, and will do generational damage should they go into the negative interest rate space. That's my kind of summary of things with the Fed. I hope that this podcast has been brief but helpful for you. And please check out covidandmarkets.com. Have a good Monday night.

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