The Dividend Cafe - Daily Covid and Markets - Wednesday July 22

Episode Date: July 22, 2020

The market was up 165 points today, mostly on a flat/choppy day that simply escalated in the last two hours of trading. The general mood was that reports the Republicans are open to extending the federal unemployment benefit at a $400/month level through December drove the last day market move higher, but I am skeptical. It is certainly possible, but it strikes me as utterly incomprehensible that the market would not have known Republicans were going to do something like this. 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. And kind of interesting day in the markets. I'll start there real quick. You had the Dow was up throughout the day.

Nothing big, nothing small. You're just kind of bouncing around. It wasn't down much and it wasn't up much. And then in the last couple hours of trading, it kind of spiked higher and held there. So on the day the Dow was up about 165 points. So on the day the Dow was up about 165 points, and there was a number of things I read suggesting it was because I got to think that anyone in the entire market would have already known some version of this was coming. I don't know. There's a few things that could have driven it, but when you're talking about 165 points, the market really doesn't need a reason to go down one or 200 points or go up,

as was the case today, one or 200 points or go up as was the case today, one or 200 points. But let me get into some of the COVID health information and we'll go through our normal categories and call it a day. Get ready for the next one. The seven day average for COVID deaths in the US in the second week of June was 780 deaths per day. As of yesterday, it was 720 per day. It may tick a bit higher because of some of these backlog of reportings that moved up deaths yesterday. But my point is that we're actually lower than we were six or seven weeks ago, not higher and not meaningfully higher, which is what would really have to be the case for the forecast

about this explosion of cases to have played out. So I think that rolling average, staying flat, maybe dropping a bit is very encouraging. There's a couple charts to that effect at COVIDMarkets.com today. There continues to be an awful lot of conversation around the issue of herd immunity. And a couple of things came out today. The professor leading the epidemiology team at Oxford University gave an interview that I thought was one of the most helpful, understandable for a non-medical mind and non-scientific vocabulary.

It was just very discernible and really, I think, useful in maybe drawing conclusions around society's true remaining exposure to the coronavirus. Then the second piece was that the American Medical Association published, it was authored by a plethora of doctors, scientists, kind of a group effort from the CDC's COVID response team, where they studied the seroprevalence estimates in 10 major U.S. cities to try to get an idea of how many more may have been infected than tested positive. So we have that broader base of infection understanding. And there were cities that they're concluding it was anywhere from as low as six times as many to as high as 24 times as many. And I think that data point is very useful in establishing where the herd immunity threshold will end up proving to be.

And it is still, in my mind, one of the important things as to why we want to study Sweden, I believe that a lot of folks I respect, a lot of folks I'm studying and reading, want to study Sweden to be able to do what I told you so to policymakers around the lockdowns. And that is just simply not my objective. People throughout history will determine what they think the lockdowns were effective at doing and what they weren't effective at doing. And as I sit here right now, I probably have some opinions on the subject, but they're really very unimportant to me. What's important is on a go forward basis, having an understanding. What's important is on a go-forward basis having an understanding.

And I think that Sweden's case is either going to provide a great lesson in what not to do or a great lesson in what to do or various nuances around both. So the charts I've put up today showing the peak of mortalities in New York City and the peak of mortalities in Stockholm, and then their trajectory and timeline down and where they both ended up at right now is really helpful data. We know that any causation there between the two isn't policy related because New York and Sweden had very different policies. But there's certainly some correlation between how things have played out there. So it helps us to understand that better. So that's a big part of why Sweden continues to be on my radar.

The positivity trend has kind of peaked nationwide and we hope it will stay pe. But, of course, these things are always moving targets to some degree. The positivity rate stabilizing lately right around 8.3%. I think a break below 8% would be more encouraging. The fact that it has stopped going higher, though, is wonderful news, but we do want to see it go lower. And obviously all these things are taking some time. The only states where we're seeing an increase right now in the rate of growth are Alaska, Mississippi, Nevada, Maryland, and Indiana. So obviously that we want a really tremendous health improvement for all 50 states in the country, including those five,

but I hope it is encouraging that for the other 45 states, you either see a really substantial decline in the rate of growth or at least a flattening. Another vaccine announcement this morning that the U.S. is committed to pay $1.95 billion, just shy of $2 billion to Pfizer, for 100 million doses of its COVID-19 vaccine candidate if it proves effective in the current human trials they're doing. The vaccine would then be offered to Americans at no cost by nature of the U.S. purchasing. Now, there's also a kicker in the deal that they can purchase an additional 500 million doses if Health and Human Services so desires. So interesting and encouraging news on the vaccine front, but again, still going through

various levels of human trials and so forth. through various levels of human trials and so forth. So as always, our normal charts and illustrations where cases are flat or where they're falling, particularly in some of the harder hit states as of late. And then in terms of hospitalizations, just seeing those curves continuing to bend, and we want nothing more than for people to get healthy, and we'll keep monitoring that. Florida, today, second day in a row of cases, below 10,000 new cases. It's still in the nines.

It's too high. But, you know, like I said, I'm waiting until the end of the week to see if we can get, you know, those days of 15, 13, 12, 10. If we can get behind those, then at least we know that Florida's moving into a better place. Really increased their testing a lot in recent, not only weeks, obviously, but days in particular, leading obviously to some higher positive tests, but their positivity rate way too high, but not moving higher. So that's the mode we're in.

New cases in Arizona today were back below 2,000. Remember they had been consistently in the twos and even below 2,000 some days, and then went up to 3,500 yesterday with a backlog reporting now today back below 2,000. So really encouraged to see Arizona getting their case growth under control. thousand so really encouraged to see Arizona getting their case growth under control and what I did in California today is because I had not spent a lot of time in San Diego County, Riverside County, Los Angeles County. I spent a good hour this morning in each of those county sites. I'm so used to going to Orange County's metrics and just thought I'd kind of tour around the state a little bit and I really liked what I saw. Just knowing that San Diego's ICU occupancy is declining, their trend line for positive ratio

is dropping. Riverside County, same thing, the hospitalization moving average moving way lower. And then in Los Angeles, you don't necessarily have a clear improvement. You know, we would like to see a turndown hospitalizations in ICU. It seems to have stabilized a little, but there's still some work to do to make us feel like that's more under control. In terms of the stock market today today i mentioned obviously what market action was today but i do want to continue talking about this theme around the u.s dollar um you did see the euro begin to break out above that uh dollar 15 exchange rate level i think that would continue to put downward pressure on the dollar. And I bring that up not

because we're sitting here going long Euro, which we would never do in a million years, or shorting US dollar. It's just simply that in the short term, I think more weakness in dollar has a positive impact to energy. You would call oil as denominated in dollars. A positive impact to multinationals that have a significant global export business. And then, of course, the emerging markets, which I've talked about a lot. By the way, this is very interesting. Monday, the S&P rallied, but the advanced decline line was even. Tuesday, the S&P was flat, and yet there were four advancers for every one decliner. That's a huge breadth in a flat market day. And then you also had high beta outperforming

low beta significantly. These are, I don't even want to say mild indications because they're pretty substantial indications of a theme of a broadening market, a healthier market, better for more companies instead of worse for all companies. On the public policy side, I do believe that there is some action coming from the president around drug pricing. I think he wants to build a campaign on having done something. There's some things he could do I'm a little worried about. I continue to hope and pray that indexing drug prices to this international price index has been discussed will not happen. I think it's a form of price controls on the market.

It doesn't seem to think that's going to happen, obviously. Some kind of jawboning around forcing a relocating of supply chains wouldn't bother me. I don't think it would bother markets. I think there's actually a lot of merit to the idea, policy-wise. There is still talk, though, around rebates coming back in. I did talk to someone who said that the person in the White House who was most against that is gone, and they're kind of revisiting that idea now. The drug companies like the idea, by the way. The insurers do not. So I'm expecting something in the policy realm from the president on drug pricing as far as the stimulus bill. I really don't want to sit here every single day and just keep telling you,

oh yeah, they're meeting, they're talking, they're fighting, they're far apart, they're threatening, they're back together, they're this and that. First of all, bugs meet, I have to read about it all day, which gives you some idea of how much tolerance I have for the sausage making process. But it also, if I were a reader or a listener, I think it would be very annoying to really get an update all the time of no update. Here's what I will say. I think a bill's going to happen, and I don't think a bill's going to happen until August. So we'll continue to wait it out and see where things go.

And as real substantive news comes, instead of did you hear what he said that she said that he said, I will actually update you when there's real news. Do I think that they're going to end up doing some emergency measure to extend that federal unemployment rate, knowing that a deal won't get done until August? Yes, I do. I would say that's pretty likely Republicans will cave on that. As far as oil and energy goes, I think that there is a lot of optimism in the energy sector. It had one of its biggest days of the year yesterday. Is it possible some energy sector momentum came about because of the big acquisition announced

and just this general feeling that perhaps some of the larger companies are in a position to benefit from the weakness of the smaller companies and that the smaller companies can benefit from being able to consolidate and be absorbed by the larger companies. I think that that's a very viable thesis at a high level in the upstream sector. And we'll continue to watch it. In the meantime, oil is still sitting right there around $42. Existing home sales for the month of June were up 20.7%. Still down 11% versus a year ago at this point. But I got to say, a volume of home sales down 11% when for three months of the year, the world was shut down,

I think is stunning. Prices are up almost 5% from a year ago. Now that is for homes with a conforming loan on them. So think a bit lower priced with the Fannie, Freddie, FHA type mortgage. But again, all market geographies and all product categories participated in the increase in existing sales in the month of June. Okay, we'll leave it there and see what COVID and market forces bring to us tomorrow, Thursday. In the meantime, reach out with any questions. If you'd like a copy of that AMA paper, email us at COVID at thebonsongroup.com. If you have any questions, email the same. And just know that we are here to provide you as much information as we can day by day. Thank you for listening, as always,

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