The Dividend Cafe - Daily Covid and Markets Podcast - Wednesday June 24

Episode Date: June 24, 2020

Market futures were pretty much flat all of last evening, and I awoke at 3:15am to a down 250 level. By the open, futures were pointing to down ~700. It opened there, got as down as -850, and closed down 700 points on the day. COVID case growth and coverage of it is a fine explanation for market volatility today, but again the performance in structured credit today – mortgages, loans, etc. – paints a different picture. Threats of tariffs with Europe probably did not help, and neither did ongoing polls showing Biden’s lead over Trump continuing to grow. 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 brought to you by the Dividend Cafe of the Bonson Group. This is David Bonson. I'm the Chief Investment Officer at the Bonson Group. And we had a big sell-off in the market today. Dow down 700 points. At one point, we were down about 860. Here's kind of the progression over the last 24 hours.

Market futures were really pretty much flat most of last evening, all the way up to my bedtime. I woke up at 315, and we were down 250. By the time we opened, futures were down 700. So basically all of the drop was in that kind of pre-market period of about 330 AM to 630 AM. We opened down at that level, got down as much as 850, got back to down about 550 or so, and then closed in the middle of those two ranges down 700. So at covidmarkets.com, you have a chart of the day, a lot of downward movement first few hours, then kind of bounced around and stayed flat throughout the day. At that level, again, down 700 points on the Dow. S&P pretty much down at the same level as the Dow was.

pretty much down at the same level as the Dow was. COVID case growth and the coverage of it is a fine explanation for market volatility today. There's a lot of news coverage, a lot of data out there, a lot of headlines and things like that. Some of them I think are really distorted. Some of them are bad news. But either way, the sentiment to the market is clearly very negative. However, I just got to bring up again for fundamentalists like me, the performance and structured credit again today, mortgages, bank loans, other credit instruments does sort of paint a different picture as far as the source of equity volatility being entirely related to COVID concerns because these other risk assets actually performed quite well, either flat or even modestly higher. My theory, again, we had an 1800 point down day a couple weeks ago. We were 700 points down today. Those down days generally should be accompanied by every other risk asset dropping as well if the basis for the drop is really this idea of markets being very concerned about another shutdown in the economy.

My view is that we have some states doing very well health-wise, some states or at least counties not doing well, but that a full shutdown is not coming back. And yet, overall, it's a pretty tall order to expect markets to rally with the kind of sentiment and psychological backdrop we see right now. Now, I will add that there is, you know, woke up also to stories about threatening European Union with retaliatory tariffs. There's a number of things straining the economic dialogue between the U.S. and Europe. I don't think tariff threats necessarily were helping markets today. And then a whole slew of new polls coming out showing Joe Biden's lead over President Trump and the polls continuing to grow. I don't think it's unfair to wonder if that is playing into it. So the market's already, you know, kind of reeling from a big move higher, getting a handful of good reasons to be able to

sell off and these all came together. Because this is a COVID and markets podcast and a COVID and markets website, there's going to be a lot of focus on the COVID side of things. Let me just kind of give you my perspective on a few issues. The percentage of cases in the United States classified as serious or critical has declined to an all-time low, 1.28%. Now, I'll be the first to say that number can go higher. If you get enough of the cases that are currently not serious or critical to escalate to that place, then that is going to have an impact. But right now, that number is continuing to go lower, and that is somewhat compatible or consistent with the other data that we're seeing of the surge of new cases, particularly in Florida, Arizona, Texas, are primarily falling upon healthier and younger

people. Now, when you see case growth, 37,000, 35,000, as I'm recording, I don't think we have the final numbers in yet. It may not end up being as high today as it was yesterday, but it's pretty close. And let me see if that number is updated yet. Yeah, it's basically right now flat to where we were yesterday, about 36,000 new cases. Now, Dr. Gottlieb, who many of you will see on television a lot, former FDA head, a pretty hawkish guy overall around coronavirus. He pointed out that back in April, when we were reporting the daily levels, that we were only diagnosing 1 in 10 and possibly as little as 1 in 20 infections. So the actual daily case growth then was probably closer to 500,000. I would just say this.

All we can do is bench it relative to where we were. We had gotten that number down to below 20,000, and now it's gone back up above 30,000. So there's no question that we are seeing an increase in case growth, and it is primarily concentrated in a handful of states. And, in fact, median states are still seeing some declines. So it's those key states that have to be watched and then see where we go with hospitalizations and severities. I did put the charts at covidmarkets.com,

continuing to watch the data in Germany and the rest of Europe, United Kingdom. You know, you have less than 200 new daily cases in Italy right now, just a really severe and significant move to the downside as far as COVID cases there. And of course, the data in certain states in the US is positive as well. By the way, 502,000 tests done today, a positivity rate of 7.7%. And then we compare the data yesterday, California, Texas, Arizona, Florida, to the same data today. Only caveat is that I'm capturing it at a point in time. And if more numbers report after press time, then those numbers change a little bit later. In market technicals, the S&P definitely is indicating a lower resistance level will need to be found. It does appear that there's

such thing as a lower, a second lower high. So for the second time, the market goes up and then, but the high level is lower than it was before. And that could definitely point to further consolidation. Again, I'm not one for technical analysis as a predictive indicator, but I definitely understand the rules of their trade. and that appears to be the concern people need to look for. WTI crude dropped. It's actually sitting a little bit above $38 a barrel right now. It's down about 5%. Again, risk off ruling the day in markets.

And there also was a third week in a row with inventories domestically at a higher level. On the housing side, mortgage applications were down 8.7% last week. But again, versus a year ago, it was up 18%, which is really, really shocking. And I think it reflects a lot of the pent up demand coming out of the COVID lockdowns. Refinance applications were down 12% versus the week prior, but are 76% higher than they were this week a year ago. Again, just reflecting how much interest rates have dropped versus where we were a year ago. I do think too, volume is very high because demand is so high for, you know, taking advantage of lower rates, but it doesn't necessarily reflect as low as rates can go

because there's such a backlog of volume that a lot of lenders are unable to fully adjust their rates because it would just simply mean more volume of business. And so rates have not had to become as hyper competitive. Please do reach out if you'd like a copy of our weekly housing market report from the American Enterprise Institute. I think there's a lot to benefit from out of that report, a lot of data. I really wouldn't rule anything out in the next couple days as far as where markets could go. I mean, I suspect you're going to have to see some of these states stabilizing their COVID increases before you'll see markets dramatically heal up.

And probably it could take a full reversal, as you've seen in some of these southern states, to move markets meaningfully higher. But I think that point will come. I don't know when. We've got to see how bad it gets before we can understand when and how it will get better. There's plenty of negative data points out there. I'm not one to really overreact to them, but I do understand the sentiment overall is definitely right now. I'm more on the skeptical side and that's where you

can expect markets to be for some time. It's one of the big reasons why we're taking a disciplined and averaging in type tethered approach to things. So as I'm getting ready to bid you ado, the futures market for tomorrow has opened. And again, at least as of right now, press time, it was reflecting something modestly positive, but nothing huge, something in the range of about 100 point increase. And we'll see how that holds up into the evening. Okay, so with that, please reach out any questions anytime. Thank you for listening to COVID and markets. The Bonson Group is a group of investment professionals registered with Hightower Securities LLC, member FINRA and SIPC, with Hightower Advisors LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC.

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