The Dividend Cafe - Daily Covid and Markets - Wednesday July 15

Episode Date: July 15, 2020

The market closed up 230 points today, zig-zagging around most of the day after opening up +350 points. The driver was optimism around vaccine talk (and it is not just one source of optimism, as you will see in today’s Health Data). Earnings season is too young to be much of a driver but I selfishly like what I have seen so far. Let’s jump around the bend as always … 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 podcast brought to you by the Dividend Cafe of the Bonson Group. This is David Bonson. It is Wednesday. The market is closed. Most of the health data has come in, and we're sitting here kind of processing another day as we get closer to post-COVID life in America.

Markets today, the Dow was up 230 points. It opened up 350. Keep in mind, yesterday it was up 460. Markets have been on a tear. I've talked quite a bit about, I think, the statement markets have made against a lot of the sensationalism that is very evident in the public square right now around COVID and by sensationalism. That's not a term I use to suggest denialism. It's a term I use to suggest a lack of equilibrium and a lack of honest objectivity around the state of affairs where, of course, a very serious pandemic persists, requiring tremendous grown-up efforts to mitigate and help us advance to the next phase of American life. And yet right now, I think investors and citizens alike are looking for accurate information and dependable data to

make decisions off of. And in the meantime, the market, for whatever signal it is worth, has been quite resilient around the case growth that we have seen over the last now about six weeks. It's been quite some time. And if you recall the concerns that we would see a real big outbreak in deaths that would come two weeks later or then another two weeks or then another two weeks, what have you. We have definitely seen in a couple of states some increase in mortalities, but just a fraction of the growth of cases as the pandemic has appeared to be less and less lethal. And another way of saying that is infecting more and more healthy people.

And by the way, it's entirely possible that it's both things, not one or the other. So that's where we are. Let me go into some details here because the vaccine talk was a big part of today's market action and a lot of the overnight futures. If I remember correctly this morning, and it's weird being here in New York because I'm used to futures being much more reliable in the sense that it's still an ungodly hour, but at 3.15 in the morning in California, it's only three hours away from the markets opening where when I'm getting up here in New York, the markets are not opening for six more hours. And so I just always have to kind of remind myself that some of the futures action I see pre-market

between 3.30 and 6.30 is not quite as dependable you know that you're going to get a little bit more true up into fair value of markets going into the actual opening of the exchanges, which is, of course, at 9.30 Eastern time. And so the futures were up here in New York, about 500 points. The market opened in the cash market up 350. We closed up 230. And there was a lot of zigging and zagging going on along the way. But that vaccine news from moderna that we talked about uh yesterday was certainly the big story again 45 people in the initial human clinical trial and all 45 demonstrating um overwhelming antibodies with overwhelming um uh good news on side effects. Overwhelming good news, as I read deeper, did not mean no side effects, by the way. It just meant where there were side effects, they were mild or moderate. And I will quote from Anthony Fauci himself, who, you know, this trial, by the way, was run by the National Institute for Allergy and

Infectious Diseases, which, of course, Dr. Fauci runs. The Hallmark of vaccine is one that can actually mimic natural infection and induce the kind of response that you would get with natural infection. And it looks like, at least in this limited small number of individuals, that's exactly what's happening. The data really looked quite good. There were no serious adverse effects. So, you know, it's hard not to be encouraged by that. There is a type of person in the world who can find anything to not be encouraged by, and I'm sure that they will be able to do that with this as well. The phase three trial for this treatment begins on July 27th, and then that's when it starts to get more real. But I read a rather extensive story this morning as well

on ongoing developments that have not got quite the news coverage yet, because it isn't linked to a particular study, but they're actually ahead of even this other Moderna vaccine venture, and that's the University of Oxford's project. It's a joint venture with the Jensen Institute, and then they've now signed with AstraZeneca for distribution and manufacturing. They're preparing to be able to move 2 billion doses out of the gate if at some point they get approval. An 1,100-person human trial already took place, and then a 10,000-person efficacy trial is next. Like remdesivir, which is the viral therapeutic that Gilead discovered, but they were out of them doing R&D for Ebola about six years ago, five or six years ago. That's kind of the fruits of the R&D for this Oxford project as well, albeit it's a vaccine,

not a therapeutic, but they seem to be pretty strategically assembled and impressive. So there's good news on the vaccine front. I found this number fascinating. You may not. I actually suspect there's some that might not necessarily have it grabbed in the way it did me. So it's all relative. It doesn't make you right or wrong or me right or wrong. But in the last week, seven calendar days, the U.S. has tested 4.6 million people for COVID. In all of 2018, 19, and what has been of 2020 so far, we've tested 100,000 less than that, 4.5 million for the flu. So that's in one week, we've done almost three years worth of flu testing within COVID, give you just some scope for what our testing is right now,

which I hope will help you understand a lot of the math of the case growth because of the vast testing pool, the extraordinary amount of very mildly and even asymptomatic people that were catching a positive test. I don't want to make a big deal of this because I really don't know enough to read into it. But 39 deaths were removed from the state of Washington's toll yesterday after being determined that the prior reports were not from COVID-19. I'm reading that quote from the statement. So I haven't figured out yet how someone undied from COVID or how they wrongly were classified, what that exactly means, if it's a paperwork error or a medical error. I don't know how systemic it may be happening other places, but I want to be very clear. I don't have any reason to believe it

is, but I think it's just something noteworthy that I'm going to kind of follow up on the best I can. I do think hospitalizations are stabilizing. I know they're stabilizing in Arizona. They haven't declined to the degree that we'd like it to. I had a source today indicate that authorities there are getting substantially fewer calls around capacity constraints. And certainly the numbers, now three weeks later, the ICU beds are the same. And that's with tens of thousands of new cases. And they're at the same ICU use that they were three weeks ago.

So, you know, there's a half full and half empty dimension there because those ICU cases are not dropping. But that's with a whole lot of new cases. And yet it hasn't moved higher. So again, suggesting the ability to withstand hospital capacity concerns. And, and I think that you got to look at that positively on a similar note, by the way, 79% of Florida hospital beds, 82% of ICU beds were being used a week ago. They've had a big week of case growth and they're at 79% of ICU beds were being used a week ago. They've had a big week of case growth and they're at 79% of hospital beds and 81% of ICU beds. So actually a mild tick down in usage of both on a

percentage basis. Positive. Okay. I do have a chart for Orange County in COVID markets today, I do have a chart for Orange County in COVID and markets today, just showing their curve of case growth moving down dramatically in a seven-day average basis. And then really, really helpful data from the good folks at Houston Methodist Hospital Network, the premier network of major hospitals in Houston, Texas. This took a little bit of research today, but again, looking all the way through July 14th, which was yesterday, tragically there's been 200 plus deaths

since COVID began. 3,800 hospitalized, only 700 still hospitalized as 2,900 have been successfully discharged. So you're getting a lot of people coming in and getting out and you're going to get a real kind of clarity moment. I'm using the equal weighted S&P 500 and the Russell 2000 because it either takes away in the Russell's case or substantially marginalizes in the equal weight S&P's case, the market impact of the big five tech stocks that are such a massive weighting in the S&P 500, you know, getting close to 25% of the index. And I think that

what you see is this tight trading range, moving towards the higher end of that range, a very healthy consolidation. But eventually you get to a kind of decision point as that range narrows, will the market move higher from there or not? And I don't care much what the overall index will do, but I think the reason I'm tracking it this way is it speaks to the health of the average stock in the market, which is a very different metric than the overall index. And please email us if you need to understand that a little bit better, okay? Oil prices up to $41 today, both in the morning and at a closing basis. OPEC Plus meeting today. There'll be more resolution around their meetings tomorrow why would oil be going higher when OPEC plus is meeting to curb some of their production cuts to kind of cut less so to speak because there seems to be a lot of indication that even though

Russia and Saudi are going to go forward with curbing some of those cuts, it might get made up for by some of the cheater countries in OPEC Plus that didn't cut as promised in May and June, that they will make up some of that production decrease. And that seems to be a factor right now on the supply side. We'll get more data for you in the next day or two. Fed news, I'm pretty sure, I could be wrong, it's the first time I've seen a Fed governor, this is Lil Brainerd, she explicitly came out supporting yield curve control. I will tell you that that is very likely actually something that has eked its way into equity markets over the last two days as we're up, you know, 750 more points. But, you know,

you've heard the Fed governor say things like, oh, yeah, we're looking at all options and we're wanting to understand the history. But this was a full-throated endorsement from a voting governor in the Federal Open Market Committee, so worth paying attention to. Okay, I don't have futures data at this time, but I will tell you this. It's been a heck of a week, and nothing has changed in my mind at all. There'll be ongoing volatility. I do not get discouraged on down days. I do not get encouraged on up days. As of right now, we continue to not have any clients whose financial goals end tomorrow. So to the extent we continue to manage for long-term goals and maintain a mentality and an approach to portfolio management that is harmonized with such, we will not get caught

up in the zigs and zags of the moment, but we will be prepared to expect more zigs and zags because this is the world we live in. With that said, thank you for listening to COVID and Markets. We ask that you share it with those you think may be interested in hearing.

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