21 Jul SOME DAUNTING STATISTICS
The proverbial “stay at home trade” is thriving even following encouraging news on a potential virus vaccine. There are now over 130 vaccines in the development process and 17 are in late stage testing with some corporate officials stating a vaccine may be available by Fall.
Washington is again front and center as yet another stimulus program is believed to be enacted. The discussion is over amount…$1.5 trillion to $3.5 trillion. Wow!
As noted many times, the country has to learn how to live with the virus. I believe to again shut down the economy is not a viable option. With the reopening, cases have swelled but an increase was to be expected. Moreover, testing is surging with over 700,000 tested daily. Three months ago, less than 25,000 were tested daily. The more tests conducted, the greater the potential number of discovered cases.
What I find interesting is the CDC is now suggesting that over 35 million American have had the virus, a number derived via a statistical analysis of people who have antibodies.
Radically changing topics, New York state is considering a securities transaction tax to close the huge hole in the state’s revenue. Albany is projecting one fifth of the state’s revenue has disappeared.
Approximately half of NY legislature is supporting rising taxes on the “rich” before cutting spending to balance the budget. A bill currently in the legislature is proposing a 1.25 cents/per share on a sale of stock worth $5 or less a share to as much as 5 cents/per share for stocks worth more $20 share.
Bloomberg writes Wall Street is responsible for 17% of NY’s state tax revenue and 181,200 jobs. It is widely agreed that if a tax is implemented, trading volume will fall as transactions would move out of state.
Wow! In my view, such a security tax will hasten the move from NYC. According to Bloomberg, about one in four office employers already intend to reduce their footprint by at least a fifth and about 16% expect to move jobs out of the city.
Companies are further projecting only 10% of their employees to return to the office this summer and just 40% by years end.
Bloomberg states that if the above does occur, city and state tax revenue losses may exceed $37 billion during the next two years as the state’s economic output drops 7%. The city’s economy could shrink as much as 13% this year.
What happens to revenues if a security tax is implemented? If one uses Philadelphia’s soda tax as an example, soft drink tax revenues were about 50% lower than projected as consumption plunged, jobs were lost, and consumers purchased (and drank) soft drinks outside of Philadelphia.
Returning back to the markets, the vast majority from March’s lows is the result of the rebound in the information technology shares. Bloomberg writes Apple and Microsoft now account for 11.5% of the S & P 500 market cap. Information technology now comprises 27% of the S & P up from 23% at the start of the year.
In addition, the successes of Amazon and Facebook are distorting returns for the consumer discretionary and communication services sectors.
Approximately 60% of the S & P 500 capitalization is crowded into a handful of names, names that are technology related but are not classified as such—for example Netflix, Amazon and Facebook.
To most seasoned market professionals such a crowded name is dangerous at best. The only certainty is change but the question is when.
What will happen today?
Last night the foreign markets were up. London was up 0.54%, Paris up 1.22% and Frankfurt up 1.75%. China was up 0.20% Japan up 0.73% and Hang Sang up 2.31%.
The Dow should open moderately higher on more global stimulus, positive vaccine news, an advance led by oil and technology shares. Speaking of tech shares, Bloomberg writes “the momentum in the NASDAQ 100 is the hottest in 20 years where prices are defying reality.” The 10-year is off 3/32 to yield 0.63%.