Heat Is On

Heat is on.  Stocks dipped yesterday as traders finally did the math on a recent surge in COVID cases across the Southern and Western US. Threat of a new trade spat between the US and some EU nations added to the negativity of the day.





Positives attract negatives.  OK, so where were we in the story of the Global Economy in 2020?  Oh yes, I remember, there was this pitch battle between the V-shaped recovery bulls and the cautiously optimistic U-shaped moderates.  The V’s have won a couple of notable battles, pushing up travel stocks, cruise lines, and even bankrupted auto rental companies.  The U’s have had some victories as well, though their successes have typically been understated and come at a big cost to the closely followed indexes.  Yesterday added a point for the U’s.  The S&P500’s biggest winner was Kroger (+2.4%) while its biggest loser was Norwegian Cruise Lines (-12.37%). The number two and three spot on the losers list went to Royal Caribbean and Carnival, both down -11.26% and -11.11% respectively.   Talk about rough seas.  You may be wondering where all of the optimism has gone.  Here in the New York area, things are beginning to ease up as average daily new COVID cases have fallen and continue to shrink. Of course, the region was hardest hit and had some of the most stringent lockdowns.  If you live here you might think that a V-shaped recovery could actually happen.  However if you have been following the news on new daily cases across the country you may not be so optimistic. First, let’s get something out of the way.  Politicians are known to have an answer for everything, spinning information to support their agendas.  It’s bad enough that people are getting sick and dying but economic loss and joblessness are not a good look for politicians.  So, as you would expect, politicians would be supporters of the V-shaped recovery.  But then there are those pesky numbers.  I have been reporting a rising number of new daily cases over the past two weeks and I am not the only one. States which have been particularly (and sometimes proudly) lax in their restrictions have seen an alarming jump in reported new daily cases and hospital admissions. Here comes the spin.  Governors in those states have been quick to blame the rise on increased testing. While it is true that increased testing will reveal an increased amount of non-symptomatic cases, that is not the number that has experts concerned.  A less-closely watched metric is the positivity number.  That number relays the percentage of positive cases.  If you test 1000 patients and 50 test positive, your positivity is 5%.  If you double the testing to 2000 and find 100 positives, your positivity is still 5%, despite doubling the number of new cases.  So, you see that if we follow the correct metrics we can get a better handle on where we are in the recovery battle. Unfortunately, positivity is actually rising in a number of states.  Just yesterday the Governors of New York, New Jersey, and Connecticut mandated a 14-day self-quarantine for travelers coming from recently surging states like Florida, Arizona, Texas, and the Carolinas amongst others.  Absent from that list was California which has also seen a rise in new cases.  That is because California’s positivity is not rising, while positivity is rising in the states on the quarantine list. The bottom line here is that while restrictions continue to ease we expect to see cases rise.  The good news is that testing is increasing, enabling authorities to quarantine non-symptomatic carriers, thus keeping things from getting out of hand.  In situations where positivity rises, quick and tactical responses can stop a surge and minimize economic calamity. Though these recent flair-ups and restrictions will have economic consequences it does not appear that we are headed back to the lockdown days earlier this year.  The flair-ups do make it increasingly difficult to make the V-shaped argument.  Whether V or U, both have the US recovering in 2021, which is… well… positive. It will be a bumpy road, but will get there.  Stay healthy!




Stocks dropped yesterday on new trade fears and a rise in new COVID cases in some Southern and Western states.  The S&P500 fell by -2.59%, the Dow Jones Industrial Average lost -2.72%, the Russell 2000 Index gave up -3.45%, and the Nasdaq Composite Index sold off by -2.19%,  Bonds rose and 10-year treasury yields slipped by -4 basis points to 0.67%.  Crude Oil dropped by -5.85%, dipping back below $40 on news from the DOE that US crude oil inventories grew faster than expected last week.




– Durable Goods Orders (May) are expected to have risen by +0.4% compared to the last reading of +0.3%.

– GDP Annualized (1Q) is expected to be in line with its prior estimate, shrinking by -5.0%.

– Personal Consumption (1Q) is expected to have slipped by -6.8%, same as the last estimate.

– Initial Jobless Claims (June 20) are expected to be 1.32 million, down from the prior week’s 1.508 million.

– Continuing Claims (June 13) may have decreased slightly from 20.544 million to 20.0 million.

– Dallas Fed President Robert Kaplan and Atlanta Fed President Raphael Bostic will both speak today.

– This morning Darden Restaurants beat estimates and Nike will report after the bell.


daily chartbook 2020-06-25


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