The Dividend Cafe - Daily Covid and Markets Podcast - Thursday, April 23

Episode Date: April 23, 2020

The week of April 6 was the biggest “up” week in markets on a percentage basis since 1974. Last week (with up and down volatility) was another solid up week, whereas some tempering of the prior week’s rally had been expected. Coming into this week, I certainly figured some tempering of the prior two weeks rally would not be surprising, and we dropped 500-600 points Monday and Tuesday. Wednesday’s 450 point increase cut into that, and now today the Dow ended up a tad, but had been up 300 points before seeing that fade. Futures were basically flat all night last night and stayed as such this morning from 3:15am until 5:30am when the weekly jobless claims number came. The number came in at 4.4 million, down from last week’s 5.5 million but in line with expectations, and futures went from down a bit to up 100. The market hit its high levels in the first couple hours of the day, and just slowly faded throughout the day. Energy and Alternative Asset Managers were the standouts today. Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, financial food for thought. in the markets. The markets did close up today, but barely. They had been up a little over 300 points and gave a lot of that back at the very end of the day, although the energy sector and the alternative asset managers had a very strong day. But the market essentially, after having one of its biggest weeks in 45 years a couple weeks ago, then followed up that big week with another up week last week. And so most were probably expecting a sell off here this week. We sold off about five or six hundred points on Monday and Tuesday, made a lot of that back on Wednesday, and then today kind of puttered around. The futures had been down and then they went up right before the open. Led to a pretty good day of trading throughout the day.

But then, like I said, giving some of that back near the end of the day. From a technical standpoint, the breadth of yesterday's rally or the advance to decline ratio, how many stocks were up versus how many stocks were down, which would, again, indicate what we would call breadth, was about two to one positive. So on really massive high breadth days, you can see that go six to one. And we've had a few of those days here lately. Yesterday's 450 point market was not one of those. The credit spreads in the high yield sector and sector and in the investment-grade sector have inched up this week, which is interesting. Some of it, you could argue, is in line with a little bit of the risk-off trade from equities selling off a bit. But with the Fed engaged in that market, certainly from a couple weeks ago, those spreads had really fallen, and to see them inching up a little is worth watching.

ago, those spreads had really fallen, and to see them inching up a little is worth watching. I will point out, though, that one of the most vulnerable areas in the high-yield credit space is, in fact, energy and the cost of credit default swaps. The insurance one pays on the credit has been declining, which is somewhat interesting. All of these things I just mentioned about spreads and CDSs, there are charts at covidermarkets.com. On the health data today, we did hit a crisis low of case growth again at 3.4%, which affirms Tuesdays move higher as more of an outlier in terms of the growth rate of new cases here in the United States. in terms of the growth rate of new cases here in the United States. I suspect from everything I'm reading that new cases will kind of level out here for the next few days before JASCOC-D decreasing, hopefully, and Lord willing, next week. Big, big increase in testing yesterday. It appears to have all been from California, so there's some question as to what that outlier may be.

But then in today's testing, it looked like we were up, again, very close to 200,000, 193,000 plus change. So really strong numbers of new testing relative to where we had been at around 140,000 average of new tests being conducted per day. The report of Quest Diagnostics being approved for an antibody test that they now have updated to believe they can get 200,000 antibody tests per day processed is quite interesting. And I also, by the way, at COVID and Markets provided a chart because I believe a fair number of people who read the data are from Orange County, California, as the Bonson Group is headquartered. And there is a lot of breakout of Orange County specific data, just absolutely remarkably low amount of coronavirus cases and stunningly low amount of deaths from coronavirus, hospitalizations, and so forth. So interesting data to read if you are following Orange County.

Let's see. I will encourage anyone listening who's interested to email COVID at thebonsongroup.com for a brand new client report on monetization of treatments and vaccines around coronavirus that our own Director of Equity Research, Julian Frazzo, has completed. It might be worth your attention. attention. I do think before I move on from the health data that one of the most important things that has to be pointed out is this focus right now on how many people they believe had coronavirus before we really were paying attention to who had coronavirus. A New York State study now coming out today is indicating the number could be 10 times what they expected or higher. That potentially 3 million people in the state of New York have already had coronavirus based on an extrapolation of data from random testing that they're doing, sample-driven testing.

They need more testing to really kind of verify, but out of a 3,000-person survey, that's how the numbers play out. Santa Clara, California, Los Angeles, California is in early stages of testing that are indicating some of the same types of signs. Why does this matter? First of all, it would indicate an absolutely, uh, minimal mortality rate compared to what had originally been feared, which would be very encouraging. If in fact the fatalities divided by such a vastly higher number of cases does prove to be true. But it also would mean that we have a far more immune society than maybe we had previously expected. So there's a lot riding on those tests.

And so far, there has been no exceptions to the prima facie conclusions some of these studies are indicating. Just by way of update, 2% of the active COVID cases in the United States are deemed serious or critical. 3.3% are deemed serious or critical worldwide. As I'm sitting here talking, the House has not quite finished voting on the Paycheck Protection Program extension, but they are voting. It's expected to be voted into law and then the president signed into law here all by the end of the day today. It's taking a little longer because they're rotating people into vote around some of those sheltering requirements and then they have a proxy process or a quorum issue that is, anyways, the normal methodology and procedures are just a little

funky, so it's taking longer. I'm just going forward assuming, in fact, that there's no last-minute complications coming. Now, one thing on the political sphere that I think you could argue is somewhat interesting in the last few days is Senator Leader Mitch McConnell doing a radio interview yesterday where he actually advocated that states that are going to be in severe financial trouble out of this, rather than pursue federal funds, pursue bankruptcy. And the reason why I say it's interesting is obviously it's not about the political or ideological divide that may exist around that issue. And of course, most states are prohibited in terms of their own state constitutions from pursuing Chapter 9. Not all are. But I think he's putting a shot across the bow that the stimulus 4.0 that is inevitably going to be pursued is not going to be a cakewalk.

Hundreds of billions of dollars to support individual states is not going to happen easily. I don't think that Senator McConnell, you know, you can think he's right on different issues, wrong on issues, including this one. But my point is only that he is reasonably universally known to be quite a tactician. And I think this is more of a communication to the White House that Senate GOP is not going to be easily on board with such a concept. That said, federal reserve interventions in the municipal bond market are likely to reach up to half a trillion dollars,

$35 billion of Treasury Department equity that gets leveraged up to 13 times, at least in terms of support through the municipal market and revenue anticipation notes. least in terms of support through the municipal market and revenue anticipation notes. And I believe that it remains to be seen how much support will really be needed. But I do think that there's something very politically interesting in what Senator McConnell is doing. The economic data was, of course, horrible. A little trivia, by the way. I believe this is five weeks in a row. It's possible it's only four because everything in my life right now is such a blur. I cannot begin to tell you that the market has

gone up, although today it was only up a little bit, although it had been up earlier a few hundred points, as I said. But on the Thursdays of these just god-awful weekly jobless claims numbers coming, each of the last four, if not five Thursdays has seen really big moves up in the market. And even though today the big move became just a small move, the point was each day that the initial jobless claims numbers come reporting literally millions of people in aggregate. We're now up to 25, 26 million people that have gone on the unemployment rolls in the last five weeks. The market has moved higher.

People can speculate why they think it is. So that is the COVID markets kind of bullet points of the day. There's going to be plenty more tomorrow and over the weekend. And then, of course, we have our weekly dividend cafe coming as well. But to keep this short and sweet for you, I will bid adieu. Please reach out to the Bonson Group anytime, any questions. We hope that you are getting some market insights and general economic policy and health information from our COVIDinMarkets.com. Thank you for listening. This is David Bonson saying so long, stay healthy, stay well, and be free.

Thank you for listening to The Dividend Cafe. healthy, stay well, and be free. Thank you. or provided as of the date referenced. Such data and information are subject to change without notice. This document was created for informational purposes only. The opinions expressed are solely those of the team and do not represent those of Hightower Advisors LLC or any of its affiliates.