The Dividend Cafe - Daily Covid and Markets - Wednesday August 5

Episode Date: August 5, 2020

The market rallied 375 points today, again closing at its highest point of the day as late trading added momentum to the market. Clearly expectations are high for a stimulus deal, there was a bit of curve widening helping banks today, and earnings season was substantially better than had been anticipated. I would love to credit the vastly improving COVID picture with some of the Dow move higher, but the COVID challenges this summer didn’t do much to harm the market, so I don’t think one can have it both ways. (Note the time ledger on the Dow chart; I started today on the eastern time zone but closed the day on pacific) The ADP jobs report did show 167,000 new jobs month over month, but one would think the number would be higher given the losses of the lockdown. The strong comeback number in June versus this more tepid comeback number in July seems to indicate a slowdown in re-hiring, not surprising given the policy measures taken in July. As is often the case, I can’t explain why but today’s missive has been one of my favorite to prepare. 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 brought to you by the Dividend Cafe of the Bonson Group. And if I sound a little bit different, I don't know, maybe it all sounds the same, but I'm back in the studio at our office in Newport Beach. And so typed a good portion of today's COVIDMarkets.com from New York City early this morning and then on the airplane after that. And now I'm in the office and recording the podcast. So what a difference a day makes. But it was a quite interesting day. The market rallied significantly. Dow was up 375

points. Both the NASDAQ and S&P were up, but not as much as the Dow. So here's my little take on that. Let me make a couple of market comments and we'll get into the COVID health stuff. The expectations, I think, are very high in the market that a stimulus deal is going to come. And the politicos are not doing much to talk that down. Every time one of them is saying we're far apart from a deal, they continue to say we're confident a deal is going to get done. And so I think both because of just the sort of natural gravitational expectation that a deal will get done, the market is wanting to price a lot of that in. And then just rhetorically, the politicos are saying something's going to get done. So I think the market finds it kind of inconsiderable, incomprehensible, I should say, that a deal wouldn't get done.

So you may have some of that getting baked in. The yield curve widened a bit today. I think that added some boost to the banks and some of the financial stocks. some boost to the banks and some of the financial stocks. And then, you know, we're near the very end of it now, but I don't know why more aren't kind of admitting that the earnings season overall was substantially better than had been anticipated. And maybe that is being sort of demonstrated just through market prices. But the reality is that it was a brutal second quarter in corporate America, but the results and the guidance forward from those very companies were not quite as brutal as had been anticipated. And there was enough hope and aspiration on the forward guidance side that markets have

responded pretty positively. So when you look into market levels now, you have the NASDAQ at an all-time high, you have the S&P 500 back to a February high, its highest level through the whole COVID epidemic today. And then the Dow is 400 points away from where it was on June 8th. If you recall, the Dow had a bit of a spike in early June that only lasted for a day or two. And it is still close to 2,500 points below its all-time high from February. So that does speak to the role that big tech has played in driving NASDAQ and S&P as market cap-weighted indexes higher. But my point being even the Dow is within striking distance of its all-time high.

Let's call it about I think nine percent or so away so it um markets are doing what they do discounting in forward uh I I do I have a comment at covidmarkets.com I want to make on the podcast and that is I I do want to say that I think a lot of the market pricing right now is some degree related to an improved COVID picture. But I kind of can't say it because if I'm being totally honest, it doesn't seem to me that the COVID challenges that needed to be improved upon, and now in fact are being improved upon, that those challenges throughout the summer didn't do much to harm the market. So it strikes me as being a little bit disingenuous to think that the good news is helping the market when the bad news didn't necessarily totally hurt the market.

But who knows? These things are always impossible to fully explain, but that's kind of the lay of the land. The ADP jobs report number this morning came out. It showed 167,000 new jobs month over month in the private payrolls. That was lower than expected. One would have thought just given the losses from the lockdown and the big improvement we had in the June report that July would be a little stronger. But I think this indicates that a strong comeback in June was then met by a more tepid comeback in July, likely with a slowdown and rehiring, given some of the policy measures that were taken in July around the case growth and so forth.

So we'll get the full month of July BLS jobs number on Friday morning. Obviously, we'll have initial jobless claims tomorrow, Thursday. So there's going to continue to be plenty of labor employment data to look at. But obviously, markets today did not respond negatively to the ADP number. Okay, so that's where we are on the market side. I alluded yesterday to there being a chart today in COVID and markets that I thought would be the most important summary of what the summer of 2020 has really been about. And I do want to dial that actually back a bit. I kind of hyped it up a little on the podcast yesterday, but the more I think about it, I think that those

various indicators that we've been providing of a much lessened lethality in COVID, a decreased mortality or severity, whatever noun you want to use, indicating a less deadly coronavirus. I think that those indicators in the summer versus where we were in the spring is probably the most significant data point or illustration of where we are in this health pandemic in our country. But I do believe that in a summer where media coverage has focused and incredibly focused on all the positive test growth and and only rarely was that coverage ever contextualized for the dramatic upswing in testing that accompanied it it is useful to see what today's chart demonstrates, where you see on an absolute case with no adjustment for testing levels, the number of positive tests, the positive cases, and then you have another line

where it is adjusted for testing. And what you see is clearly, yes, a huge upswing in cases and yes as the media has certainly pointed out plenty there was an increase in cases even adjusted for testing which we've gone over and over all summer long in our data but that adjustment a positive case growth for once adjusted for testing simply doesn't look anywhere near as dramatic as the coverage has been and as the obviously unadjusted number would indicate. So I think to really know the story of 2020, you have a heightened amount of cases in line with a heightened amount of testing, and then a bit more case growth in select states. You did not see it become anywhere near the level of hospitalization, severity, and mortality as had been feared, thank God. The death rates did

increase. The hospitalizations certainly did increase, particularly in those few states that we've highlighted our coverage on throughout the summer. And we have to continue watching all that. And I'll explain another little kind of caveat to all this in a moment. But I think this chart at covidmarkets.com, if you were to go to the website today, if you're used to listening to the podcast and not reading the Daily Missive, this chart to me is one of the most powerful encapsulations of COVID summer 2020 that you will find. A few other little tidbits. On the vaccine front, Novavax's early stage clinical trial went extremely well. They produced neutralizing antibodies in 106 of the 131 trial participants.

The other 25 had received a placebo. So you got 100% success rate. The antibodies produced were even higher than the ones that were found in people who've already recovered from COVID. And there were no serious side effects. There was some general fatigue and achiness and things like that. But that's going to happen. Late stage trial will begin in October. Then on top of that, Johnson & Johnson finalized a deal

with the U.S. government to develop and deliver 100 million doses of its vaccine when finally approved for a bit more than $1 billion. And the government will have the option to order an additional 200 million doses. Very serious optimism coming out of the Johnson & Johnson case as well. What else do we want to go through? I have this feeling that we're due for a pretty big data dump. There just seems to be a pretty dramatically reduced level of testing. The positivity ratios are all the way down. I've tried to track everywhere I can those that are reporting laboratory backlogs and testing supply shortages.

I haven't seen any validation of those concerns. There's been a couple places where they were behind in reporting. And then when they got caught up, it turned out that they were holding on to a bunch of negative tests and not positive. But there just sort of is this feeling I have. I actually sound conspiratorial right now, which is the last thing that anyone would ever describe me as. But there is this sort of feeling that there's some particular date that's about to come.

But either way, the positivity rate is way down, and I want to see that get into a six handle to feel much better. And I want to remind everyone from yesterday that New York right now has a zero handle, and their positivity rate below 1%. It's interesting that Italy, which was by far the most infected of the Western European countries in February, March, April,

has pretty much avoided this quote-unquote second wave altogether, even as other European countries have been hit, particularly Spain and to a lesser degree Germany and France. And it strikes me as anecdotal support for the idea that the places hit previously in the most heavy way are the places right now most likely to have some sort of herd immunity effect. Other interesting news that I don't know why I read about in the Wall Street Journal but didn't find it anywhere else in the press, a Mayo Clinic study, highly reputable, 3,000 patients, very broad, showed a 50% reduction in mortality where transfusions of plasma antibodies were done.

Now, the study has not been peer-reviewed yet, so that needs to be said. But again, this is a pretty substantial indication of promise that blood plasma transfusions can help create antibodies in healthy people. transfusions can help create antibodies in healthy people. I provided some numbers for you at covormarkets.com just showing what the hospitalization levels were and the ICU levels were a week ago and then a week later in Florida, Arizona, California, Texas are four fact states where people are skeptical about reporting numbers right now, mortality numbers, and positivity tests. They can't be skeptical about hospitalization levels, which, you know, of course, are real-time data. And there's census data that we can get to follow that.

I strongly encourage you to look at the chart at COVID markets today showing the percentage of emergency department visits that are what they call CLI, COVID-like illness, something related to shortness of breath, pneumonia, or influenza. And you see just a dramatic decline in COVID-like illness emergency visits. And when that decline comes in, that was the leading indicator in Arizona, from which we then ended up finding a significant decline in both cases and hospitalizations. Texas hospital bed use is the lowest level since July 5th right now. It's down 22% since its peak of nearly two weeks ago. Florida's case positives are down nearly 50%.

And again, I freely acknowledge the caveat that there are those who believe there's a lot of data getting ready to be dumped, whether related or other challenges getting it done. So I kind of went through the stock market data already. In terms of public policy, Secretary Mnuchin continues to say he thinks they're going to have an agreement by the end of the week with a goal to pass the bill early next week. He's not suggesting House and Senate would vote this week, but that they'd have a bill by the end of this week ready to vote on early next week. No one's really explaining where the optimism is coming from. I was traveling today, so I couldn't hit up my resources to get a little more color on this.

But I do intend to have more inside baseball by tomorrow. Speaker Pelosi kind of indicated the same thing. And again, reiterated, we will have a deal, her quote. The White House is certainly indicating they intend to go along with providing that enhanced unemployment insurance, much closer to what the Democrats version will be. Chuck Schumer, Senate Minority Leader, indicated the democrats to make concessions too but again there's no leaks as to what their concessions may be i assume there's something out there so we'll see what happens uh oil new high since the covid sell-off today reaching 43 plus in WTI. Natural gas, which was as low as $1.52 in late June, is now above $2.20. So a 40, excuse me, I think I said late, yeah, I guess that sounds right.

About a 40% move higher in natural gas in roughly five weeks. Okay, I'm going to spare you the details on Federal Reserve. I have a little comment at Covina Markets there as well, just in terms of my expectations for the Fed to soon be releasing an extensive policy review. I may or may not have some sources on this. Kind of indicating that they're going to be, instead of targeting that 2% inflation, they're going to target an average inflation of 2%, which of course gives them a green light to run hotter than 2% in order to affect that average of 2%. And so because they've been below 2% for so long, I think it's inevitable that's going to happen. I think that it will be an indication to markets that the Fed intends to stay lower for longer. With that said, I'll close you with this.

Sweden's Q2 GDP declined 8%. The total European Union's Q2 GDP declined over 12%. Well, there you go. All right, my friends. Be well, be safe, be free. Please reach out if you have any questions, any comments. We'll have another COVID and markets for you tomorrow on Thursday. In the meantime, please do say some good things about us somewhere. Futures have opened. They're pretty much kind of flat.

And as I'm getting ready to close up, the president's just come out and said that they are supporting some additional relief to the airline industry. We'll get more information on that tomorrow. Thank you for listening to COVID and markets. This is the Dividend Cafe from the Bonson Group. 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 Thank you. Terian will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced Terian may not be suitable for all investors. All data and information referenced Terian are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary and does not constitute investment advice.

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