The Dividend Cafe - Daily Covid and Markets - Tuesday July 14

Episode Date: July 14, 2020

Futures were up close to a hundred points last night, vacillating between the flat line and +100, at 3:30am ET this morning they were flat, and by 4:00am they were +100. But really it was all worthless until bank earnings started coming in, and when the first mega-bank reported their results, futures had a mixed response (some names up, some names down) The market opened up a bit and throughout the day grinded higher. Bottom line, by 4pm ET, the market closed up 557 points, and the Nasdaq even ended up despite moments of big sell-off mid-day. 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 missive brought to you by the Dividend Cafe of the Bonson Group. This is David Bonson. It's good to be back with you. I feel like it's been a few days because yesterday we had our bi-weekly national video call. So we use that as the podcast, about 45 minutes of COVID and markets discussion on Monday. And then on Friday is our weekly dividend cafe. And over the

weekend, we don't do a COVID and markets podcast. And so really, I haven't been able to record one of these since Thursday and an awful lot has happened since then. And so really, I haven't been able to record one of these since Thursday, and an awful lot has happened since then. And really, quite frankly, an awful lot's happened in the last 10 minutes as I am sitting here to record. First of all, just quickly, the market was up 557 points today. And yet the thing I'm about to talk about is not at all related to that. It did not come out until after the market closed. And that is the early announcement, Stat News, one of the big kind of medical news providers,

that one of the leading companies in driving the vaccine development, Moderna, we've talked about it a lot at COVID and markets, has said that its coronavirus vaccine trial produced robust immune response in all patients. Now, this was an early stage human trial. The newly released data has just come out after market, and it is in only 45 patients. There's still placebo tests to do.

There's still stage three clinicals, but it's incredibly promising data to see neutralizing antibodies, the antibodies in all 45 patients in this early stage human trial. So I'm saying this to you less than 15 minutes after the stories come out. There's most certainly more nuance that I'd prefer to be able to get, and I imagine I'll report on more tomorrow, but I did want to lead with that. And then let's kind of go through some other updates and we'll take it from there. Futures in terms of the market action were up about 100 points last night. They've kind of vacillated throughout the early, early morning hours between flat and up 100. morning hours between flat and up 100. Bank earnings began coming for a couple of major U.S. banks that reported earnings results early morning, and futures were at a mixed response.

Some were up, some were down. But we opened up a bit, and then we just grinded higher throughout the day. There wasn't really a lot of downside volatility. We just kind of worked our way up, and then up more. And then in the final hour, really pushed it up another couple hundred points. More interestingly is that the NASDAQ was getting pummeled yet again. It was down 4.3% yesterday from its high point till the close on the day. You recall that all markets reversed in the middle of the day when Governor Newsom in California announced his sort of modified shutdown and the NASDAQ would drop significantly. And then today the Dow was up and the NASDAQ was down a couple hundred points and then it closed up a hundred. So it had a bit

of a reversal as well. What you will see at covidamarkets.com today on the health side is a couple of things. First of all, testing nationwide week over week is up 39%, which is now growth in new cases is up 29%. So we've been experiencing growth in new cases. We've talked about it ad nauseum for about six weeks now. And for the bulk of the states, that growth in testing has outpaced the growth in new cases. But for those troublesome states, particularly Florida, Arizona, and Texas, the growth of positives has outpaced the growth of new testing leading to that higher positivity ratio. But the positivity ratio nationwide is down one full percentage point from roughly nine to roughly eight week over week as that huge surge of testing continues. The positivity rate is still higher in Texas, Florida, Arizona, and yet we're

dealing with a real problem in Florida, as now even mainstream press is really all over the story that significant labs, Orlando, Florida, confessing up today, that they have not reported their negative test results. And therefore the 98% positive rate that was being detected out of a certain sector of labs in the Orlando market was in fact only 9%. And there's, I believe about a 100 labs so far that are reporting these 80 to 100% positive rates. I really don't want to read too much into it. I don't want this to come back that it turns out to be a nothing burger. But I don't think that's going to be the case. The major point I want to make so that people can understand what I'm not saying here is the point I made yesterday.

There's no allegations. There's no concern. I'm not being any conspiratorial or anything like that. The big case growth is real. They have a lot of new positive cases. But if in fact the denominator is lacking a lot of negatives, it does recontextualize what that positivity ratio would be. So we don't have a choice but to follow the story. I'm doing it just about once a week, which is once a week more than the media is doing it. But the Sweden numbers warrant continued coverage for a number of reasons as we continue to look to what the policy response to COVID-19 is in the States. But we're at a three-month low in new cases and just a continually

and rapidly collapsing both death rate and case rate in Sweden. If their death count really does fizzle here in between 5,000 and 6,000 range across the whole country, they reported 11 deaths yesterday. I think only one of them was from yesterday. But I mean, you know, you're talking about a just minimal number of deaths that are being reported. I think it would be really hard, I would imagine, I guess, and nothing surprises me anymore, for anyone to conclude something other than a herd immunity dynamic taking place there, which would, I think, bode very well for other parts of our country here in the States as well. Okay. So in terms of other things I would focus on in Arizona, case growth was down 60% yesterday versus the prior week. But again, because of last week's anomalies

with the 4th of July weekend reporting and the lags, let's just wait till the end of the week to do a better understanding of Arizona's progress. Their case growth today did tick up a little, but there's a lot of backward reporting in that. And so again, it does appear that Arizona is in a much better position. And the chart I put in covidandmarkets.com reflecting the state of their inpatients with COVID-like illnesses, which has been declining.

And then their inpatients that are coded as COVID positive but don't have a COVID-like illness. like illness that is about double the level in Arizona hospitals right now of inpatients that actually have COVID like illnesses. So it's roughly two thirds of the total COVID positive hospitalizations that right now do not reflect COVID like illness. And so you have to see how this stuff gets retracted and re reported over time. It obviously has a prima facie kind of positive connotation, but I don't want to overread into it. I just think we need to, to continue watching that in terms of in California that, you know, the, we know that the, went to the higher shutdown level yesterday. I don't know why they're posting it as they're shutting things down, but like in Orange County, they have a three day average of a negative hospitalization of new patients. Um, and

yesterday it was negative 0.5%, which is still negative. Um, when you factor in discharges, they think you could handle up to a 10% positive, you know, increase, but we're actually going negative. And then now it went from 0.5 negative to 1.1 negative. Um, we're at 43% of ICU beds available, 66% of ventilators available in Orange County. So I know the numbers are not as rosy in every county in the state, but I think it's worth sharing. In Texas, continuing to monitor Houston and Austin, story's pretty much the same. It's not getting worse, and it's not getting significantly better, but on the margin,

getting worse and it's not getting significantly better, but on the margin, 80 more hospital beds available versus two days ago in Austin, looking at rolling averages. And so important to keep monitoring all that. Okay. Some interesting stuff on oil and energy and on the Fed in COVID markets. And I think most of you listen to the podcast for the health data side, but for those who like all the other stuff, which is really actually my bread and butter, let me just quickly say that on the oil, OPEC Plus meets tomorrow, which is this sort of cartel of the traditional OPEC,

Middle Eastern producing countries, and then Russia, Mexico, a few others. And they're really just debating what they want to do with the prior agreed upon production cuts that are now expired. And the expectation is that they will extend some degree of forced production cuts, but not at the same level that they have been. I provide a chart of where the U.S. rig count is, which has just completely collapsed here in the last couple quarters, and how that could lead to a really

very significantly elevated price in oil if demand picks up anywhere near where we want it to or above where we want it to as the ability to get supply back online will inevitably lag. And so there's a couple of data points there I'd encourage you to look at. On the Fed side of things, one of the big stories that I think is getting more and more play is the Fed's capacity to influence the municipal bond market. There's more op-eds I'm seeing. There's more Congress folks, both Senate and particularly House, that are pushing it. And I make a point in COVID markets today that whenever you see something like this, it means someone is getting lobbied. OK, someone is getting lobbied to go push for this.

And there seems to be a concerted effort to generate more awareness and more motivation for the Fed to intervene more aggressively in the municipal market. But see, they're limited by statute. They're only right now able to participate in maturities up to six months. And yet, that's $1.2 billion that they've spent out of a $500 billion facility. And so I think that you can expect Congress to act in their fourth stimulus package to empower the Fed to take a longer term, a longer maturity allowance into what they may do to compress the spread to treasuries in terms of the cost of municipal borrowing as a means of supporting these cities and states that clearly need to access debt markets as their financials are increasingly impaired. We've

already heard about this story, political, and it's a big political story. And we've already heard about the story with a divide between President Trump and Governor Cuomo or between Pelosi and McConnell. I'm trying to bring it up not as a political story here, but as a Fed monetary story, because I think that's where the solution is going to come from. Okay, so I'm going to leave it there. I'm going to continue watching this vaccine story. All the charts, all the updates at covidandmarkets.com. Thank you, as always, for listening.

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