The Dividend Cafe - Daily Covid and Markets Podcast - Thursday July 2

Episode Date: July 2, 2020

The market closed the shortened holiday week up over 800 points for the week, with the market up almost 100 points today. Futures were really flat last night, and at 4:30am Eastern this morning were up over 200 points. The jobs report came at 8:30am ET and futures added on another 200 points. Markets were up 400 points at one point and moved up and down throughout the day before selling off substantially in the final 30-45 minutes of trading (not a surprise at all going into the long holiday weekend). Regarding that jobs report, the big bullish news was that 4.8 million jobs were added back in June, about 1.6 million more than the 3.2 million consensus expectation. I want to reiterate – the fact that the “experts” continue to get economic projected data so wrong is not so much that they are incompetent as that this is all very, very hard – and not based on solid historical precedents. That said, I would recommend the pundits moderate their predictions with greater humility, but again, this is uncharted territory. 2.1 million jobs in leisure and hospitality were brought back. This makes it all the more important that policymakers not capitulate to the panic mob and allow a safe and sensible re-opening to continue. More importantly, it does show a continued trend that job losses were initially classified as temporary, are indeed proving to be temporary. Now, permanent job losses were up 500,000, and that is a cause for concern. The percentage of the unemployment we have classified as “temporary” as gone from 78% to 59%, yet that is largely because a good portion of those temporarily unemployed people have been hired back. 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 in Markets podcast. It's Thursday, July 2nd, and I am pleased to say that the week has come to an end because we are closed tomorrow, Friday, for Independence Day. So hopefully you will have a wonderful, nice extended holiday weekend celebrating the freedom of our great country. I will have a Dividend Cafe going out on Friday morning, the normal extended weekly market commentary, along with the podcast and video that we normally do. In the meantime, a very quick summary for the Thursday COVID markets action. The market was up over 800 points on the week with 100 point increase today. Futures are pretty much flat all night at about 4.30 a.m. Eastern. They were up 200 points. The jobs report came at 8 30 eastern and futures immediately jumped up another 200 okay so we were

set to open 400 points we opened we stayed up most of the day kind of sold off in the final 30 45 minutes of trading which is really not a surprise given that we're going into a long holiday weekend a lot of traders don't like to have that exposure over a longer weekend. So sold off in the last half hour of trading, but still a big up week in this shortened four-day market week. Now, what was the big news out of the jobs report? It was that 4.8 million jobs were added back in the month of June. Consensus expectations were in the low threes,

somewhere between 3.1 and 3.3 million. So you're talking about being off by about 50%, one and a half million plus additional jobs on top of what was expected. The point I want to make is that, yes, these experts continue to be wrong on these things, but rather than beat up on them, you just have to understand that this is totally unprecedented and that their projections themselves are coming without much historical precedent for the nature of what's been going on. So I would not be defensive personally of analysts and economists and pundits who are overly confident or arrogant in their expectations and in their consensus projections, but I would give grace to those who are just trying to formulate a model out of things that don't

have a lot of precedent. In the weeds on the jobs report, we were at 78% that were classified as temporary back in April going into May. Now that number is down to 59%, but that's largely because those 21% were indeed hired back. So I don't believe that we're seeing a major surge in temporaries becoming reclassified. I do think that there is some degree of growing permanent unemployment. The number is at 500,000. It's a small percentage of the unemployed job base, but that number has still creeped up, so we have to watch that. But again, an unemployment rate that dropped to 11.1% from 13.3%, 2.1 million jobs hired back in leisure and hospitality,

significant amount in retail, and even more than expected in manufacturing. So really good news that kind of gets shared. The only thing I would add to it is that the expectations going into August for the July number still look to me that they're continuing to assume a significant amount of rehires not taking place. And so that has to continually be watched. By the way, this was the second time in only five in five months, only the second time in five months, the S&P was up for four days in a row. So the comment I made at COVID and markets.com today is that depending on your kind of worldview and your investor personality,

you're either shocked that the S&P was up four days in a row, or you're shocked that it's only happened twice in five months. Let's move into the health data and then kind of round the horn and get ready for Dividend Cafe tomorrow. Okay, so Wednesday of this week was the lowest Wednesday for COVID deaths on record since we went to full testing capacity back in early April. Tuesday was the lowest Tuesday for deaths. Monday was the lowest Monday. So, yes, three days have seen the lowest mortalities nationally related to COVID since early April. Now, I'm going to just go on a limb and guess you have not heard that anywhere in the national media,

that the focus has continued to be on growing cases. And indeed, we have had a significant amount of growing cases with mortality news, which is really the driver of all of this getting better and better. I have a chart at covidmarkets.com showing the collapse of the seven-day death average. And then you can see the positivity rate, the percentage of those testing positive divided by the number of tests we're taking, had collapsed all the way down to just below 5%.

Now it's come back up to 7%, still a third of what it was before we ramped up testing. As far as the why of all of this, I am just going to stick with the Occam's razor of it all, which is younger cases meaning less mortalities. But I also would say that there are a couple other things on the table. I'll get to that in a moment. There's a chart at covidandmarkets.com straight from the CDC website of the total deaths by age group, including the percentage COVID deaths. And one can kind of see where those younger age groups and their just minimal fatality rate

are the reason why the growing cases right now, really, just frankly, by any serious person, cannot be considered the most important data point as we evaluate a macro treatment of this subject. The percentage of cases that are classified as serious or critical is at an all-time low now. It's basically at 1%, 1.05 to be precise. 15,898 cases, a country of 330 million people. That's with 1.5 million active cases. So you have a very low percentage and even on a day-by-day basis, growing lower of cases that are serious and critical, which speaks to the ability of our medical system, hospitalizations, of our medical system, hospitalizations, ICU beds, necessary equipment necessary to treat this. It is very clear to me that the overall treatment of COVID is going better, whether that is from various therapeutics or just wisdom in the hospitals and medical community, but we're

getting a much quicker discharge. And of course, as I said, the demographics play into that as well. Okay, I'm going to skip through a couple of this. You've got to go to COVIDMarkets.com to see some of these charts because it's hard for me to walk through them on the podcast, but just very, very good information. In terms of Arizona, record number of discharges from the hospital yesterday. Three weeks ago, it was 11% of Arizona cases that were hospitalized. That number is now down to 5.7%, basically half, even as their media attention

around their growing cases has gotten worse and worse. The mortality number has fallen. It was at 4.43%, and now it's down to basically right at 2%, so greater than half reduction. ICU beds have increased modestly in Arizona this week. Good news out of those states where we're seeing some of the trouble. Market technicals, the dollar looks to me ready to roll over a little bit. I have a great chart in our technical analysis section today looking at the dollar's surge in recent weeks and how it just really proved to be kind of an anemic bounce. Commodity prices have stayed very well bid and what the implications of a rolling over dollar would mean

for emerging markets, energy investments, etc. And then just a sneak preview into the Dividend Cafe tomorrow. The first quarter this year was the ninth worst quarter in market history. The second quarter this year was the ninth best quarter in market history. All in all, no one's enjoyed what 2020 has meant, what the volatility that's come with this market experience. But there's really only one investor that has done irreparable damage to themselves, or has had irreparable damage done to them, I should say.

And that is the investor who caught the ninth worst quarter of market history, but did not catch the ninth best quarter of market history. That late March panic or early April belief that they'd come back around later, that was a very popular view being promulgated by a lot of people who should be ashamed of themselves. I hope that many investors stayed clear of that situation. It would be very difficult to ever come back from that. In terms of those believing there's significant exuberance in the marketplace right now, I have to point out at another chart in COVID markets that we are net, net, net if you look at all the money into

equity ETFs minus all the money in equity than in bond ETFs that we're negative $65 billion. You just have a significant flow into fixed income ETFs much more so than equities and I think that speaks to something far more important than what's going on in the equity market. On the public policy front, the House did pass a clean extension of the PPP, which basically the Senate kind of came out of nowhere to extend it five more weeks.

Then there was the concern that the House may say, well, no, we want to throw this in and that in. They didn't end up doing that. So companies have five more weeks to tap those funds that then become forgivable if used according to their formula. In the meantime, we know stimulus 4.0 talks are going to begin next week. And I think July will be a heavier policy-centric month than June, which will certainly make people who like growing deficits happy.

Russia and Saudi kept their word on production cuts for the month of June. We can see now 8.5 million barrels in new supply, right in line with OPEC Plus's keeping of their word, and a great month for oil prices overall. Okay, I have a chart of COVID markets on the housing front just on the Manhattan side. Really surreal to see how much over 50 percent drop in volume of apartment sales. Now, obviously, there was a total shutdown of the city in the end of the first quarter, but even including the first two months and two weeks of the quarter, a really significant drop and not a big surprise as to what's happening there where ground zero of COVID really was. No futures to think about until Sunday night because of the market being closed Friday.

So that means nothing to say about where we are headed into the next market day. But I'll come back to you shortly. You know, not only do you get your Dividend Cafe podcast tomorrow, Friday, we'll have another COVID and markets over the weekend. And of course, be back next week to continue doing what we're doing. I do encourage you to reach out with any questions you may have. A lot going on in the world of COVID. I believe mostly positive in terms of the things that matter. But there are still negative signs out there that have to be watched. And right now,

the most negative sign is not really in the health data per se, as we knew there'd be bigger case growth as the world reopened, as you had these massive amounts of protests and people populating together. And as we've increased a amounts of protests and people populating together, and as we've increased a lot of testing, including the people with very mild symptoms. All of those things put together have not unexpectedly created a higher case growth in COVID. But in terms of the issues that would have economic impact, that would really make for wise policy shutdowns as opposed to unwise, I think that the data is still favoring an economic reopening.

We have to watch it because even if I believe something should happen, that doesn't mean it will. And that could be very relevant for investors. So the beat goes on. Enjoy your weekend. We'll come to you at Dividend Cafe tomorrow, Friday. Thank you for listening to COVID in Markets. The Bonson Group is a group of investment professionals Dividend Cafe tomorrow, Friday. Thank you. Thank you. of the Bonson Group and do not represent those of Hightower Advisors LLC or any of its affiliates. Hightower Advisors do not provide tax or legal advice. This material was not intended or written

to be used or presented to any entity as tax advice or tax information. Tax laws vary based on the client's individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor for any related questions.