RECOVERY TRUMPS CASES

Equities rose after better than estimated economic data offset concern over an increase in coronavirus cases.  US pending home sales posted a record gain, exceeding all forecasts.

Second quarter earnings season is about to commence and according to Bloomberg the potential earnings recession may be less severe than expected.  The newswire reports there is one measurement of upcoming profitability based upon revisions reached its highest level in the index’s 20-year history on June 17.

There is no conviction as to where equities will be by year end.  According to a survey conducted by DataTrek Research, roughly 10% of respondents are suggesting a 10% decline and 10% are predicting a 10% gain from current levels.

Regarding the election, 48% are expecting Joe Biden to win and 43% are foreseeing a Trump victory.  The survey states political expectations are weighing high on market views.  Respondents believe if Trump were to win, the odds are twice as likely to think the markets would have a double-digit gain and vice versa.

I must write historically democrats produce a greater positive market response given their propensity to spend more than republicans.

As I reiterated the other day, there is a distinct possibility that all must learn how to live with the disease.  It is widely accepted shutting down society again is not an option.

How much will the increase in cases affect the ongoing V shaped recovery?  Unfortunately, only history will answer this question.  Over 600,000 people are now tested daily, up from about 7,000 four months ago. More testing will find more cases.  In my view hospitalizations and ICU admissions are perhaps a better indicator to the severity of the outbreak.

And then there are vaccines and treatment.  According to the CDC there are over 15 vaccines in phase III testing.  There is a distinct probability a vaccine may be available by summer’s end.  To write the obvious, all would cheer this discovery.

Just as an aside, nationally according to Johns Hopkins cases increased yesterday by 1.2%, below the average daily increase of 1.6% over the past week.  Hospitalizations are down 0.4% and ICU admissions down 4.9%.  Deaths rose 0.2%, the smallest increase in 11 weeks.

What will happen today?

Last night the foreign markets were up.  London was down 0.42%, Paris up 0.17% and Frankfurt up 0.55%.  China was up 0.78%, Japan up 1.33% and Hang Sang up 0.52%.

The Dow should open flat om concerns that new virus infections could slow the pace of re openings.  The 10-year is off 2/32 to yield 0.64%.

 

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.