[Market Madness] Edition 0080
Maybe Good, Maybe Bad
What have we here
Well folks, yesterday marked another COVID 19 case record here in the U.S., with over 60,000 new cases in a single 24-hour period. Today, we surpassed 3 million total cases here as well. Despite the gloom, we are seeing homebuyers demand mortgages at an increasing pace in effort to capitalize on the continuing decline of interest rates on those agreements. Some universities are suing Donnie after his move to ban international students from studying in the U.S. at a university offering only online courses in the fall. The futures market showed indices dancing just above neutral from yesterday’s close, which held on and gave the markets a green open, and hope for a rebound after yesterday’s sell off. The markets bounced throughout the midday, but managed to hold onto minor gains at the close.
Elsewhere, the major indices overseas were mixed, signalling more global challenges to come. The TikTok talks continue, with Donnie interested in using the app’s ban as a way to strike back at China for the virus. Additionally, some rumors have surfaced about the administration’s plans to break the longstanding U.S. dollar peg held by Hong Kong in retaliation for the new security law China has passed there. Either way, it looks like both sides are just slinging sand from opposite corners of the sandbox at this moment. In Europe, the combined economic council (The European Commission) cut their full year GDP forecast again, signalling that although their management of the COVID 19 outbreak was strong, the economic damage will continue to dampen their outlook for some time into the future.
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Fundamentals
Wednesday Close:
Dow Jones Industrial Avg: +0.68%
S&P 500: +0.78%
NASDAQ: +1.44%
US 10 YR: 0.659%
Crude OIL: $40.84
Market Madness Portfolio: +0.89%
COVID 19 Global Cases: 11,900,855
Indices Overseas:
FTSE 100: -0.44%
Nikkei 225: -0.78%
Hang Seng: +0.59%
TEDRATE: 0.14
LIBOR (3 month): 0.26838%
Business spending
Business-to-business spending is showing some signs of recovery, although it remains down more than 10% compared to the same month last year. The June figure showed an increase when compared to May’s figure. The overall improvement is optimistic, but cautious since that increase only accounts for some industries and bright spots. The overall trend is still spotty and down, suggesting that we are still well away from full recovery metrics.
People more familiar with this data than myself feel that the start of recovery is underway, but has definitely been slowed because of the continued spread of the virus. All industries operate with a different target scenario and goal in mind. The data notes that garden supplies stores and electronics stores saw expansion in business during the shutdown, others like general merchandise contracted (likely due to the mass amount of closures). Another picture is painted when you look at the data from June, when many states had begun their reopening processes. Air transit, food and dining, apparel stores and gas stations all saw recovery business and others tapered off into plateau. Consumer needs have shifted during different phases of the lock downs and reopenings, and as a result businesses have seen vast differences in traffic as well.
Moving ahead, it will be telling to see how this data has changed for the month of July as we have seen rapid increases in cases across the U.S., forcing companies to revisit their H2 strategy.
Betting on Bullion
Gold seems to always find itself in the news somehow. Looking back on the year thus far, gold is up 20%, separating itself from the rocky road of equities. Gold-backed ETFs have been a hot commodity lately, seeing nearly $40 billion in capital inflows in the first half of the year. Going the ETF route to get commodity exposure has grown really popular in recent years. For people who are more novice to investing, investing in commodities through ETFs allows them to do so without much added confusion or risk (since ETFs trade just like any other equity).
Gold is the most traditional safe haven currency, and a very common place for investors to park their money when they flee from other asset classes in times of high volatility or perceived downturn. Both the difficult recovery path from COVID 19 and the upcoming U.S. election are creating a great deal of market uncertainty that many fund managers aren’t seeing priced in quite yet. The perception of future risk increasing is a clear signal to some investors to drop bonds and stocks and get some significant commodity, usually gold and silver, exposure.
As we have discussed a lot in the past weeks and months, uncertainty is the name of the game. Risks are present in many different, and some new, ways that will need to be priced in and managed over time. Unfortunately as well, many of these risks are not likely to just disappear overnight, but will stick around for as long as we are in recovery mode and well past the November election. Other investors are seeing some risks with the Fed’s bond buying activities as a warning sign for future rises in inflation down the road, also feeding into the purchasing of gold related assets lately.
Read more here and here and some more about inflation hedges here.
Quick Takes
The 202-year old U.S. clothier, Brooks Brothers, files for bankruptcy protection. (via WSJ)
Slack acquires SaaS company, Rimeto. (via CNBC)
A look at the changing global playing field. (via FT, opinion piece)
Trump threatens to cut school funding if schools do not reopen in the fall, his own CDC’s guidelines are ‘too expensive’ and ‘too impractical.’ (via CNBC)
Insiders benefiting from PPP loans at the country’s dime. (via FT)
United Airlines to potentially cut 36,000 jobs as uncertainty continues to loom over airline travel. (via CNBC)
Twitter talks subscriptions. (via CNBC)
KKR to purchase Global Atlantic Financial Group for $4 billion. (via WSJ)
Theme parks, in the days of COVID 19, in Japan. (via WSJ)
Reader’s Corner
The reader might enjoy reading up on Mary Trump’s soon to be released memoir about the Trump family and how we’ve gotten to where we are today. You know the drill; another book, another claim of entirely false accusations. This book is due to release next week, but the FT gives us an inside sneak peak at some topics discussed on the pages.
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