361 Capital Market Commentary | June 15th, 2020

Time for a pause. I am not a fan of that much volatility in such a short period of time. I have never seen the market move from short-term overbought to short-term oversold in a three-day period. In fact, no one has ever seen it because it has never happened. (And, it has only happened twice in the last 93 years over a four-day period.) The rise in COVID cases, the FOMC meeting, and the Robinhood traders are getting all the blame; but I don’t think that was the cause. Some very big strategies are rolling hundreds of billions of dollars around the markets causing seven trillion dollar weekly swings in global equities. Too much volatility is not typically a good thing for long-only portfolios. So, time to take a pause, reduce some risk, sit back and watch until the skies clear.

The market has plenty of issues to analyze right now:

    • The strength of this economic recovery. The TSA data, June’s Empire Fed Manufacturing and all housing data points are showing a solid recovery off of the COVID lows.

 

    • COVID cases/hospitalizations/deaths. Nationwide numbers are improving daily, but pockets of outbreaks are occurring in some of the cities and states that re-opened early. As a result, states such as Oregon, Utah and Tennessee are re-evaluating their re-opening plans.

 

    • Social unrest incidents and protests continue to impact the recovery.

 

    • And closely related, the Democratic blue wave in November is beginning to look more like a tsunami with each passing day which could worry some investors.

 

    • Congress and the White House are working on a next round of COVID economic stimulus. But fiscal worries are now taking out its negative impact on the U.S. dollar.

 

  • One constant is that the Fed remains uber committed to stimulating the markets. They even went so far last week as to admit that bubbles are good because they help people find jobs.

Hopefully by the end of the month, we will have enough new data and reads to increase, or decrease, our risk appetites going into the July earnings reporting season. But until then, play it safe, both with your long portfolio exposures and with the virus.


Robinhood investors are not helping the Stock Market…

Barclays dug into the stock holdings of Robinhood customers since March 2020 and learned that as its customers moved into a new holding, that stock tended to perform worse, not better, than the average stock. They also learned that its customers adding shares has not helped the S&P 500. But Hertz would like to thank all Robinhood accounts for giving it another chance to find bankruptcy financing.

Robinhood customers

Wonder if one of the largest, most successful hedge funds is causing some of the market’s current ripples…

Renaissance Technologies, one of the world’s largest and best-known hedge funds, has extended its recent run of poor performance and has recorded double-digit losses this year, according to investors.

The $75bn computer-driven fund firm, founded by former Cold War codebreaker Jim Simons, is having a difficult year navigating the increased market volatility brought on by the coronavirus pandemic.

Its Renaissance Institutional Diversified Alpha fund declined 8.8 per cent in the first week of June, and is now down 20.7 per cent year to date, according to numbers sent to investors.

Renaissance’s equities-focused funds were among some of the most high-profile casualties of the coronavirus-led market rout in early March, putting the firm on track for one of its worst annual performances. The firm declined to comment on the numbers.

(FinancialTimes)

There was a FOMC meeting last week. It could have not been more dovish…

“We’re not thinking about raising rates. We’re not even thinking about thinking about raising rates”
(Jerome Powell)

Goldman Sachs moves it reopening scale from 1 to 2 last week…

While great that this doubled, it is based on a scale of 10, so don’t get too excited.

The GS Reopening Scale moved up to ‘2’ driven by a recovery in dining and lodging and moderating growth in eCommerce and online media consumption (both ‘stay at home’ activities). In a sign of what type of ‘stay at home’ activities may carry over into the post-COVID economy, however, online payments continue to accelerate.

With nearly all states having moved to some degree of reopening, businesses adapting with more localized offerings like curbside pickup and outdoor dining, and early summer vacations serving as a catalyst, the data is beginning to reflect an ease from full lockdown.

(Goldman Sachs)

Composite Scale

Likewise, air travel data shows a solid rebound week-over-week, but the numbers are still down 80% year-over-year…

TSA checkpoint
(TSA)

Tom Lee suggests that air traffic numbers could normalize in August…

The trendline of TSA passenger traffic implies a recovery to pre-COVID-19 levels by August. “We realize this sounds ludicrous. And we do not necessarily think what will happen. But the rising mobility of Americans suggest that industry experts may be too negative..”’- @fundstrat

TSA checkpoint

How sustainable is this move in homebuying?

Key Takeaways
* Demand is 25% above pre-pandemic levels. Buyers haven’t “batted an eyelash” over the possibility of a resurgent pandemic or now protests.
* Bidding wars are “bananas” with homes “flying off the shelves.” Sale prices are up 3.1%; asking prices are up 9.9%.
* New listings are still 15% below last year’s levels. More listings may hit the market soon, though sellers still have more health concerns than buyers. A buyer can decide how many homes to visit, but a seller has to “let an open-ended number of people walk through until the home is sold.”
* Many renters in the city are buying in more affordable outlying areas; home-ownership levels may meaningfully increase for the first time in 15 years.
* But continued unemployment could pull first-time buyers out of the market; “Condos are tough to sell right now… The ball is going to drop and it will be interesting to see how it rolls down the hill.”
(Redfin)

Homebuyer Demand Index

Finally, what an incredible collection…

James Micioni had amassed hundreds of collectibles — including a signed Babe Ruth card from 1933 that could go for over $100,000 – in what experts say is one of the most remarkable private collections in the history of the hobby, NJ.com reported.

Uncle Jimmy, as he was known around his hometown of Boonton, actually owned six cards signed by The Sultan of Swat himself, as well as signed Lou Gehrig and Jimmie Foxx cards from the same Goudey collectibles set, the news outlet reported…

“Maybe once a decade something like this comes around,” Whisman said. “The cool thing is, nobody knew of his collection. He just collected his whole life. He didn’t show it off to anyone.”…

Micioni never paid for autographs, according to his relatives, who said he would send lengthy letters and return envelopes to teams and players – including his favorite Yankees — requesting them.

The former janitor at Boonton High School never had children, but shared his passion for card collecting with many nieces and nephews, as well as his great-nieces and great-nephews.

(NYPost)

Baseball Cards

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