The Dividend Cafe - Daily Covid and Markets Podcast - Thursday, April 30

Episode Date: April 30, 2020

After the big move up the last two days, we closed the extraordinary month of April with a down-300 point day. Weekly jobless claims came in at 3.8 million, bringing the aggregate new unemployment claims since the COVID crisis began to ~30 million. Oil prices for the June contract were up ~$4 today (+25%), and are up ~$8 since Monday. April ends up being the biggest month up in the stock market since January 1987 (+11.1% for the Dow and +12.7% for the S&P). Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, financial food for thought. Just 10 minutes or less, our daily missive on all things markets. We do close the month of April today. And so even though it's only Thursday and May 1st will be a Friday, we do have a closing, so to speak, today, which represents the closing of the month. And the month being the best month in 33 years from a percentage basis in both the Dow and the S&P 500, the Dow being up 11.1% for the month of April and the S&P being up 12.7%. Now, in terms of saying that something was the best month since January 1987, the 33-year factoid is accurate. Now, of course, coming off of the month of March and the first quarter, really the kind of six weeks that ended the first quarter from the middle of February through the end of March, the recovery percentages can be a little deceiving. But math is math, and it's very much worth sharing. And as we sit here, the Dow is down about 15% and the S&P about 10% on the year. Both numbers that don't seem to suggest the same level of just extreme fear and paranoia and panic and extreme conditions,

unprecedented conditions that we experienced in the month of March. And so obviously there is, even if not yet reflected economically, and even as we still continue to climb out of the health pandemic itself, from a markets standpoint, really almost a different universe from where things were a month ago. And we shall see where things are going to be in another month. But on the day-to-day the Dow was down 280 points it had been up quite a bit on the week and did not give anywhere near all that back but a little bit given back today largely by the way around the European Central Bank maybe having been expected to do a bit more.

I can't find another reason to really rationalize it, other than the fact that markets do not need a reason to rationalize a modest drop. The fact of the matter is that it was not earnings season related. The big high-profile companies that announced earnings results last night and this morning actually were up today for the most part. There were really kind of positive results from some of these bigger companies. So the news really seems to me to be very coincident with the ECB's announcement. And they did say they stand ready to potentially add to their bond buying facility, but they didn't add to it.

They had last month announced an emergency 750 billion euro let's call it quantitative easing program because that's what it is it's what we call it here in the States and I suppose it's possible that there are some market actors hoping for maybe a little more juice out of that and so whether it's the interest rate side of things or the bond buying the the ECB certainly being very very aggressive but maybe there were some market actors that wanted them to be very very very very aggressive. With that said on the technical standpoint for the market the 400 basis points of outperformance

coming into today just three calendar days this week with the even weighted S&P 500 versus the normal market cap weighted is the most in history and it's really a big deal it speaks that reversion trade and it speaks to the disconnect right now between what we would call a market measuring by the index and the stocks in the market and the reason why it's so important is that there is two different narratives one is there's still a lot of disconnected dislocated opportunities out there of underpriced securities when the average stock in the market is still somewhere around 25% off its highs the other is the market itself looking at the cap weighted measurement of the market saying it's only down 10%.

So both things are true, but you can draw your own conclusions that mean reversion trade does speak to the possibility of there being significant opportunity in active management. In terms of the breadth yesterday, 7 to 1 advanced to client ratio, Again, another sign of acceleration, a lot of forward momentum, providing technicians reasonable confidence in the health of this market rally. 50% of the stocks in the S&P 500 reached a 20-day high yesterday, and a remarkable 62% of the small cap stocks, the Russell 2000 names, were at a 20-day high. So you just have a real historically bullish marker in that type of broad-based momentum. The short interest in the S&P remains over 25% of the total float of SPY, the major index ETF.

This does not mean the index is going to go up. It just simply means that one of the theories that, oh, all the shorts have had to cover, that explains why the market's gone up, is not true. There remains multi-multi-year record highs of short interest at this time, giving a possible future forced buyer in short covering should we get to that situation. Let's move to the health front. I do think that the case growth was frustratingly slow this week as far as the decline of case growth, excuse me. We did see cases decline, but to see them decline at a higher rate would be nice. I have, I think it's three different analysts now this morning, totally independent of one another, that had said,

okay, we're probably going to kind of stay flat here as case growth continues to drop and then next week really see it totally collapse. Now, I think one or two of those analysts were forecasting the same thing for this week, so who knows. But, you know, the data that I think sticks out is just the continually really really improving figures in New York City around hospitalizations deaths new cases all collapsing precipitously obviously most of the European data being incredibly positive and then the new testing data looks like today we tested over two hundred six thousand yesterday

two hundred thirty thousand so you know you're talking about thirty five percent increase week over week but getting to that you know three hundred thousand a day level I don't know if we need to be there not I do know that some have said three million a week and we're nowhere near there so we'll see um let's see here i don't want to pour any water on the excitement around remdesivir the treatment from gillard sciences that's getting a lot of attention certainly seems to be the most promising therapeutic in the marketplace right now and both dr fachi himself and Dr. Gottlieb yesterday speaking to the idea of FDA acceleration behind the reality that it served as a blocker of the virus. Nothing else has done that to this date. Now, there's catches.

It's an intravenous treatment. It's not an oral pill. It requires medical supervision. It's anywhere from five to ten days. You're laying in a hospital bed. It's for more serious cases. to 10 days you're laying in a hospital bed it's more serious for more serious cases so it isn't like a convenient you know popping a tylenol from home solution yet it's showing signs of saving lives it's showing signs of decreasing hospitalization and utilization of resources

whether it be respirators personnel hospital space hospital space, etc. So it's a really exciting possibility that we just have to watch play out. On the societal side on the health issue, I did notice today some press coverage of various NBA executives and agents, none of which were named, pushing for the league to cancel the remainder of the season altogether. I think a lot of people are looking to NBA, then Major League Baseball, then NFL for sort of symbolic indications of societal normalcy. And no one spoke on the record on this thing. The league itself does seem anxious to try and salvage some of the season or the playoffs

because there has not been communication otherwise. But again, at this point, it's still speculation. On the public policy front, not a lot of big news today. The second round of PPP continues to be in hot demand and a lot of funds going out there. But I think building the different sides on this eventual stimulus 4.0 bill that I believe will be coming, on this eventual stimulus 4.0 bill that I believe will be coming, I'm rather convinced that you're going to see the line in the sand for Republicans be liability protection for businesses, and the line in the sand be state support,

support directly to the distressed states will be the Democrats' line. And I think that both sides will very likely end up getting what they want. We'll see how that plays out. Interesting story I included in COVID markets about POTUS pressuring Saudi to cut oil production a few weeks back before the OPEC Plus deal and using leverage of U.S. military support of the region as a factor, something that I've been writing about and certainly believed should happen and would happen. I don't think that he got as good of a deal as he probably could have gotten for the cards we're holding. So that leads me to believe there's still possibility of more leverage coming.

The jobless claims down 3.4 million on the week, excuse me, 3.8 million. It was brutal, but obviously we're going down week by week, which is a good thing. But new people making a claim of unemployment over the last, I think, six weeks now, we've passed 30 million. So a really difficult time out there and looking forward to seeing that really drastically improve when we get the economy back open. So I'm not going to do a COVID and markets podcast tomorrow, Friday, because we'll be doing our weekly Dividend Cafe podcast. So there'll be about a 30 minute recap of the entire week and a lot more material, broader macroeconomic overview, really kind of, you know, bigger picture things we want investors to think about. So in the meantime, if you do have more detailed questions on COVID and markets, please reach out to us at COVID at thebondsongroup.com. That's COVID at thebondsongroup.com.

And thank you for taking the time out of your day to listen to COVID and markets. to COVID markets. with the SEC. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities. No investment process is free of risk and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance. This is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors. All data and information referenced herein are from sources believed to be reliable. Any opinion, news, research, analyses, prices, or other information contained in this research is provided as general market commentary. It does not constitute investment advice.

The team at Hightower should not be in any way liable for claims and make no express or implied representations or warranties as to the accuracy or completeness of the data and other information or for statements or errors contained in or omissions from the obtained data and information reference herein. The data and information are 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 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.