Housing Market Stays Strong
Some investors didn't have any concerns about the potential for the housing market to slip backwards following this slowdown that started in mid-June. If you did have worries, the latest MBA applications data should calm your nerves. There really wasn’t a reason to be nervous because the housing market bounced back extremely quickly.
It was rebounding even before most states reopened and the economy was out of the recession. To be clear, if this slowdown ends soon and the recovery gets back on track, the recession will officially be from March to May. The housing market had a very brief dip.
If you just look at housing, the sock market, and diffusion indexes, you’d think there was a V shaped recovery and that the economy has fully recovered. Unfortunately, the housing market and the performance of the top internet stocks aren’t the economy.
Overall MBA index in the week of July 10th was up 5.1% weekly after increasing 2.2% the prior week. Refinance index drove that increase as it showed 12% growth following 0.4% growth. Purchase index fell 6% after rising 5%. As you can see from the chart above, the index is still very high. Yearly growth fell from 33% to 16%.
Obviously, that’s a huge drop, but it was impossible to sustain over 20% growth let alone 33% growth. Yearly growth 2 weeks ago was 15% which means it’s right on trend. JP Morgan reported strong auto and mortgage lending growth in its latest quarterly report.
Labor Market Looks Terrible
At this point, we just have to hope the alternative data we are seeing on the labor market is wrong because it paints a consistently bad picture. July labor report is about to be terrible for a recovery. As you can see from the chart below, the household pulse survey showed another decline in employment. It was down 1.3 million in the last week and is down 2.6 million in the prior 3 weeks.
This is just as the $600 in extra weekly unemployment benefits are about to go away on the 25th. There needs to be really great data on the vaccines to paper over what is very likely to be a bad labor report.
Next week’s data in this survey is the BLS’s survey week. It’s highly unlikely that it turns around. And the labor market is only going to weaken because COVID-19 caused more restrictions from early July to mid July. If you’re optimistic, you think the restrictions will be lifted in August or September. Maybe investors will look past this terrible report. We will be watching the Thursday jobless claims reading as initial claims are in the BLS’s survey week.
Wednesday Was Terrible In The Fight Against COVID-19
Even with the optimisim about the fight against COVID-19, let's not sugar coat Wednesday’s numbers were very bad. There were 71,670 new cases which is the 2nd most ever. The most was on July 10th when there were 71,787. Furthermore, there were 997 deaths which was the most since June 10th.
Unfortunately, it was correct about the 7 day average getting above 750 as it rose to 760. Good news is this increase in deaths is still much below the spike in April even though there are now more cases. That’s because younger people are getting it and treatments have improved. Arizona had a decent day as the number of new cases fell from 4,273 to 3,257.
7 day average peaked on July 7th. We need to wait about 2 more weeks for all the hotspots to enter downtrends. Then we need to wait until mid to late August to see the restrictions lifted.
Good news is we know how to stop the spread of this virus. As you can see from the chart below, when states have made masks mandatory, there have been 74 cases per million which is about half of when they are recommended, but not required. As the people in these hotspots change their habits, the case counts will certainly fall.
Not only is Moderna working on a vaccine which is showing promise, but also Oxford University is headed in the right direction. This Oxford vaccine is in large scale phase 3 human trials. Moderna is starting its phase 3 trials on July 27th. Oxford paper which formally reports phase 1 trial results will be released on Monday.
Many people have high hopes for this vaccine as it seems to have been in the lead for the past few months. There are over 100 vaccines being worked on. Best case scenario is by early next year there are limited new cases and the vaccine helps people get immunity.
2020 Election To Heat Up
Prediction is that new cases will subside in the coming weeks and we will get great news on the vaccine. Then, the media will switch to focusing on the 2020 election. Some scattered reports are currently a 61% chance of Joe Biden winning. We've seen in 2016 how these reports and polls can be totally wrong.
If Donald Trump wasn’t the incumbent, these reports would probably show him with even worse odds. Before the 2016 election, remember, nearly everyone said Clinton would win for sure. For the few more moderate/neutral voices who said it was a 50/50 race, were definitely the more accurate odds.
As you can see from the chart above, the options market is pricing in more volatility over this election season than prior to the past 3 elections. The options market should have been pricing in much more volatility in 2008 since the market crashed in October.
It wouldn’t be surprising if the market was strong this fall because we are likely to get better COVID-19 related news. We will see in 1 week if I’m correct about the Oxford vaccine and the rate of change in new COVID-19 cases. Remember, some analysts don’t expect new deaths to peak until August.