Morning Roundup

By Mark Masterson on August 24, 2020

Good morning,

Below are the news items moving markets today

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Executive Summary:

 

Plenty of optimism as we start the final week of August.

President Trump kicked off the stock market futures session last night with the announcement of FDA approval for plasma treatment for covid cases.

We are also seeing good news on the Covid front as cases are easing according to the WSJ….

• New U.S. coronavirus infections fell to their lowest level in more than two months.
• Meanwhile, the FDA authorized the use of convalescent plasma for the treatment of serious cases.

Seems to me the mask mandates are working in reducing the number of cases.

 

Later this week we will see Jay Powell speak yet again at the Jackson Hold conference.  Expect no changes, but more support for markets from the Fed….

• Jackson Hole conference goes virtual as world passes “peak central banking” with need for fiscal policy to do more (Bloomberg)

While the stock markets continues to hit new highs, we are seeing less optimism in the broad economy….

• Noted white-collar employment remains fairly resilient and those professionals are also benefiting from rising stock portfolios and home prices.
• However, workers in the service sector, retail and other fields have been hit hard by a combination of the coronavirus pandemic and technology-driven trends that have been gaining traction for decades.
• Added that another factor that could increase economic inequality is the outsized damage to the small business sector in the current recession.
• Pointed out that the jobs that remain will be at the so-called “superstar companies” that are largely responsible for existing wage gaps.

 

Now that earnings season is almost over, we also see little positive signs in the year over year earnings and sales…..

• With 95% of companies reported, S&P 500 GAAP earnings are down 50% over the last year, S&P 500 Sales down 11%. $SPX

And the Fed is most certainly contributing to the wealth inequality – despite its comments to the contrary.  See the below fact…..

• Stock ownership increasingly concentrated among small share of population; top 10% of earners owned 87% of all U.S. stocks in 1Q 2020—up from 82.4% in 2009—while bottom 50% owns just a sliver

@WSJ

 

About the markets…..

The article below highlights how short interest in the market (bets that the market can go down) are now the lowest in 16 years…..

 

• Going by the short positions of hedge funds, resistance to rising prices is the lowest in 16 years” https://bloomberg.com/news/articles/2020-08-21/bears-are-going-extinct-in-stock-market-s-13-trillion-rebound… via

@markets

 

 

A clever note from the WSJ noting a love letter to the Fed from the stock market….

• A love letter to Jerome Powell and the Fed from the adoring stock market https://bloomberg.com/news/features/2020-08-21/a-love-letter-to-the-federal-reserve-from-the-adoring-stock-market… via

@BW

 

We kick off the Republican convention this week…..

 

• Trump seeks to reboot struggling campaign with a ‘hopeful’ convention (Reuters)
• Trump says school choice and being tougher with China would be top priorities in his second term if reelected (Politico)
• A new CBS News/YouGov poll puts Biden ahead by a 52% to 42% margin among likely voters (CNN)
• GOP voters say economy, Covid-19 response good in CBS poll (Bloomberg)

Democratic candidate Biden is trying to take some of the wind out of the Republican sails this week with some comments on taxes…..Trying to look more moderate….

• Biden says no new taxes for anyone making under $400K and will stick to stay-at-home strategy (ABC News)
• In an interview with ABC News, Democratic presidential nominee Joe Biden said he would raise taxes on anyone making over $400K but vowed no new taxes for those making less than $400K as well as businesses that employ less than 50 people. However, Biden said “it’s smart to tax businesses making excessive amounts of money and paying no taxes.”
• Separately, Biden said he would shut down the country if elected president in order to stop the spread of coronavirus if scientists recommended such an action. Biden vowed to “do whatever it takes to save lives” and criticized the Trump administration’s handling of the pandemic, arguing that an economic recovery cannot begin until the virus is under control.
• StreetAccount notes an analysis by the Tax Policy Center earlier this year noted Biden’s tax plan would roll back income tax cuts for those earning over $400K under the 2017 tax cut law, tax capital gains and dividends as ordinary income, and subject earnings to Social Security Payroll tax. The analysis noted that Biden’s plan would increase the top corporate income tax rate from 21% to 28% and impose a 15% minimum tax on companies’ book income.

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Articles of Interest:

 

• • Top Democrats and Republicans blame each other for stimulus stalemate on Sunday talk shows (Reuters)
  • Millions in the US fall back into crisis as stimulus and safety nets disappear (Washington Post)
  • Trump considers fast-tracking UK Covid-19 vaccine before US election (FT)
  • FDA authorizes convalescent plasma as a treatment for serious coronavirus cases (WSJ)
  • New US coronavirus cases stay below 50K (WSJ)
  • Antibody drugs advancing to fill Covid-19 treatment gap (WSJ)
  • More than 500K mail ballots were rejected in the primaries, which could make difference in battleground states (Washington Post)

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Charts of the day:

 

I have commented on the dollar.

Macro Charts did it much better than I have with the below chart and commentary.

The dollar needs to be watched.  If it keeps falling – everything keeps going up.

If it rallies – I suspect most assets correct since they are negatively correlated.

 

• The Dollar and Stocks have moved like a mirror image since March.
• Their correlation has collapsed to near the most negative in history.
• In a liquidity-driven market, the biggest risk could be *any* drop in liquidity triggering a USD rally – more than ever, watch it like a hawk.

 

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Quote of the day

As George Washington once said, “Few men have virtue enough to withstand the highest bidder.”