‘Wrong!’ Trump and Fauci clash over the resurgence of COVID-19 cases, shutdown of U.S. economy — and hydroxychloroquine


Anthony Fauci and President Trump are still at odds.

Fauci, director of the National Institute of Allergy and Infectious Diseases for three decade who has worked on the front lines of the AIDS pandemic in the 1980s and 1990s, the Ebola outbreak of 2014 to 2016 and the anthrax attacks two decades ago, testified before Congress last week that the U.S. should have taken speedier and more comprehensive action to close businesses when coronavirus first appeared in the U.S. earlier this year.

Fauci said the U.S. effectively only shut down half the economy. “If you look at what happened in Europe when they shut down, or locked down, or went to shelter-in-place, however you want to describe it, they really did it to the tune of about 95% plus,” he told the hearing. “When you actually look at what we did, even though we shut down, even though it created a great deal of difficulty, we really functionally shut down only about 50% in the sense of the totality of the country.”

President Trump hit back at Fauci on Twitter
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on Saturday evening, replying to a post by CBS News
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of Fauci’s testimony. “Wrong! We have more cases because we have tested far more than any other country, 60,000,000. If we tested less, there would be less cases. How did Italy, France & Spain do? Now Europe sadly has flare ups. Most of our governors worked hard & smart. We will come back STRONG!”

Nearly 53 million people have been tested for coronavirus in the U.S. to date, according to the Centers for Disease Control and Prevention, with more than 5 million or 10% of those testing positive for the virus. Wait times of more than 10 days have become the norm for many Americans. There are, however, stories of people who have had to wait 26 days to get their results. Waiting 10 days for a test defeats the purpose of getting tested, some health professionals say.

Approximately half of the tests being performed daily are conducted by commercial labs such as Quest Diagnostics
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and LabCorp. “Only one state has an average turnaround time of greater than five days,” said Admiral Brett Giroir, a member of the White House coronavirus task force.” Five states are between four and five days. 26 states are still three days or less, and the rest are between three and four days.” Turnaround times of 10 to 12 days represent outliers, he added.

The Trump administration, meanwhile, is trying to block $25 billion for states to conduct testing and contact tracing in the next coronavirus relief bill, people involved in the talks told the Washington Post this month. Democratic lawmakers, in negotiations over a new stimulus bill, have demanded $25 billion for the testing and contact-tracing, over three times what the GOP have suggested. Contact tracing identifies people who someone with COVID-19 has come into contact with.

At the U.S. House Select Subcommittee on the Coronavirus Crisis, Fauci reiterated that there was no scientific evidence to show that hydroxychloroquine was helpful for coronavirus patients. “You look at the scientific data and the evidence, and the scientific data, on trials that are valid that were randomized and controlled in the proper way; all of those trials show consistently that hydroxychloroquine is not effective in the treatment of coronavirus disease or COVID-19.”

When asked by Republican Rep. Blaine Leutkemeyer from Missouri about a “peer-reviewed” study suggesting otherwise, Fauci said, “The Henry Ford Hospital study that was published was a non-controlled retrospective cohort study that was confounded by a number of issues, including the fact that many people who were receiving hydroxychloroquine were also using corticosteroids, which we know from another study gives a clear benefit in reducing deaths with advanced disease.”

”So that study is a flawed study, and I think anyone who examines it carefully [would see] that it is not a randomized placebo-controlled trial. You can peer review something that’s a bad study,” Fauci said, adding, “I would be the first one to admit it and to promote it, but I have not seen yet a randomized placebo controlled trial that’s done that. I don’t have any horse in the game one way or the other. I just look at the data.”

Social-media sites attempted to quash a video pushing misleading information about hydroxychloroquine as a COVID-19 treatment — which led to Twitter partially suspending Donald Trump Jr.’s account. The video featured doctors calling hydroxychloroquine — a drug used to treat malaria, lupus and rheumatoid arthritis for decades — “a cure for COVID”, despite a growing body of scientific evidence that has not shown this to be true.

As of Sunday, COVID-19, the disease caused by the virus SARS-CoV-2, had infected at least 17.8 million people globally and 4.6 million in the U.S. It had killed over 685,179 people worldwide and at least 154,449 in the U.S., according to Johns Hopkins University. Cases in California surpassed 500,000 as the state reported 7,118 new cases Saturday, with 134 new deaths, bringing the death toll in that state to 9,365. New York has the most fatalities (32,694) followed by New Jersey (32,694).

The Dow Jones Industrial Index
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closed higher Friday, as investors tracked round two of the potential fiscal stimulus. The S&P 500
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and Nasdaq Composite
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also ended the week after some of the industry’s largest and most powerful players — Apple
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+10.46%

Facebook
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,
Amazon.
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+3.69%

and Google parent Alphabet Inc.
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-3.27%

GOOG,
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— reported their results.

How COVID-19 is transmitted



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Job trouble? Wave of rehiring after economy reopened to fade in July after viral spiral


The engine of the U.S. economy may have gotten clogged again — no thanks to the recent acceleration in coronavirus cases. That’s bad news for Americans hoping to return to their old jobs.

Just how much damage has been done will become more evident this week, especially from the U.S. employment report for July due next Friday. The number of jobs regained last month is unlikely to match the huge increases in May and June that totaled a combined 7.5 million.

Wall Street
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economists predict the U.S. added about 1.5 million jobs in July.

Even that estimate may be inflated though by seasonal changes in educational employment at the state and local level, Morgan Stanley contends. Private-sector jobs could increase by less than one million, the investment bank calculated.

See: MarketWatch Economic Calendar

Whatever the case, a much smaller increase in hiring or rehiring in July would bode ill for the U.S. recovery from the coronavirus pandemic. The government last week reported that gross domestic product sank a whopping 32.9% in the second quarter on an annualized basis, the biggest decline since World War Two.

Read: Economy suffers titanic 32.9% plunge in 2nd quarter, points to drawn-out recovery

Also:‘A massive welfare economy’ – federal aid prevents even steeper GDP collapse

“The big question hovering over next week’s employment report is whether the two-month surge in job gains stopped in July,” says David Donabedian, chief investment officer of CIBC Private Wealth Management. He thinks that’s exactly what happened.

It will be hard for the economy to make up a lot of lost ground in the third quarter unless hiring snaps back even faster.

See:MarketWatch Coronavirus Recovery Tracker

The U.S. lost a record 22 million jobs in March and April, according to Labor Department data. So far the economy has recovered less than one-third of those jobs.

The weekly tally of jobless claims, meanwhile, showed an even higher 30 million unemployed people were collecting benefits as of mid-July, representing about one in five Americans who said they were working before the pandemic, according to a Labor Department survey of households.

Robert Frick, corporate economist at Navy Federal Credit Union, said many people who expect to return to work are going to find they have no jobs or businesses to which they can return, a “grim reminder” of how much long-term damage the pandemic has caused.

“In the long run we are going to see a sobering slowdown in job growth,” he said.

The still-high level of unemployment, the viral spiral, and the uncertainty over whether Washington will provide more financial aid has understandably made Americans feel less confidence. On Friday Congressional lawmakers were still at odds on the next relief package with many benefits set to expire at the end of July.

A variety of measures that monitor consumer attitudes show a clear deterioration in July that’s likely to bleed over into August. That will make a recovery even harder.

Read:Consumer confidence wanes in July and points to rockier economic recovery

And:Consumer sentiment falls as coronavirus cases rise and federal aid set to expire

The news might not all be negative next week, however.

Manufacturers — auto makers in particular — have shown more resilience than the service side of the economy. The closely followed ISM manufacturing survey could show improvement for the third straight month.

The housing industry has also snapped back faster than expected amid a surge in home sales. Prospective buyers with secure jobs are taking advantage of record-low interest rates to buy new homes, a trend that may have been fueled by people fleeing the closed spaces of cities with a high number of coronavirus cases.

Even that potential bit of good news, however, has been overshadowed by the broader damage to the economy from the latest spike in coronavirus cases in many American states.

A full recovery can’t take root and blossom, economists say, until the disease is brought under control.

See: Pandemic will continue for some time, experts tell Congress as U.S. case tally nears 4.5 million



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The Two-Sided Recovery: A Conversation About The Markets And Economy


By Brian Levitt, Global Market Strategist and Talley Léger, Investment Strategist

Brian Levitt and Talley Leger sit down to discuss the state of the markets and economy

In the months since the initial coronavirus outbreak, we saw the economy and markets teeter on the brink of collapse, only to recover quickly. I recently sat down with my colleague and Investment Strategist, Talley Leger, to discuss the sustainability of this recent recovery.

Brian: I’m going to start with a compliment if you promise to not let it go to your head. Your market bottom framework proved prescient in late March as extreme volatility, catastrophic investor sentiment, lopsided investor positioning, and disastrous market breadth led you to opine that the market was bottoming. Fast forward 17 weeks and the US equity market has almost fully recovered. First, what drove the market retracement and what is an investor to do now?

Talley: You’re too kind – and give me far too much credit. It’s one thing to provide investors with a framework and indicators to help get their arms around the bottoming process in stocks. It’s another thing entirely to correctly call the shape of the recovery. I admit to being surprised by the V-shaped rebound in stocks, and the fact that the market didn’t re-test the March low.

As far as I can tell, there are at least 9 tailwinds behind stocks:

  1. Massive, unprecedented and coordinated monetary policy support;
  2. Similarly impressive fiscal policy support;
  3. Still cautious investor positioning in the form of high cash balances and net short positions in stocks;
  4. Negative investor sentiment as expressed by persistent outflows from stocks and more bears than bulls in the individual investor survey;
  5. Structurally oversold conditions in the rolling 20-year total returns on stocks;
  6. Potential treatments for the disease caused by the coronavirus that is being researched and developed by a host of companies around the world, some of which have moved to human trials;
  7. Potential vaccines for the coronavirus itself that are evolving at a similar pace;
  8. The high-frequency economic data like weekly initial claims for unemployment insurance have improved; and
  9. The economy is re-opening and activity is moving in the right direction, as evidenced by the daily mobility data.1

That said, there’s also a bearish case to be made for the market, namely:

  1. Fears of a potentially deadly second wave of the coronavirus as the economy reopens and cooler fall weather approaches;
  2. The risk of a negative feedback loop between stocks and second quarter 2020 gross domestic production (GDP) and earnings per share (EPS);
  3. Heightened US-China tensions;
  4. Overvaluation; and
  5. Tactically overbought conditions.

All valid points, any one of which could be the catalyst for a near-term pullback in stocks.

Nonetheless, I remain compelled by the comparative breadth and scope of the bullish case, which leads me to believe investors should consider any short-term turbulence as a long-term “buy and hold” opportunity.

Brian: I, too, am compelled by the comparative breadth and scope of the bullish case. I think the adage is now don’t fight the Fed and every other central bank in the world as well as the European Commission and the US Congress. Addressing your bear case, there has already been a new surge in cases and while the US economy is slowing, it does not appear to be collapsing as it did during The Great Shutdown. Mobility may have plateaued (I, for one, haven’t gone to too many places in the past few months) but it does not appear to be collapsing. For the time being and until we make a medical breakthrough, I suspect we will take proper precautions – masks, outdoor gatherings, social distancing – to avoid the draconian shutdowns and disastrous economic collapse of earlier in the year. Valuations, overall, are elevated but the discount rate keeps falling. In a near-zero interest rate world, I suspect we need to get comfortable paying higher multiples on equities.

Regardless of whether there is a near-term pullback, I think we both believe that weak, protracted recoveries complete with overly accommodative policy is good for equities in the long term. How are you positioning for a protracted recovery?

Talley: From a sector and industry perspective, we’re starting to see hints of cyclicality returning to the marketplace after taking the last several weeks off (read: summer doldrums).2 Within technology, semiconductors are making fresh highs relative to software. Elsewhere, both the industrial and materials sectors are firming. Lumber continues to surge, and the homebuilders are still acting well. We’ve also seen copper and the other metals rally (e.g., zinc, tin, nickel, aluminum and silver).

While making pure, directional calls on the cyclical or defensive sectors of the market are risky, my long-term optimism forces me to take a bullish stance on the US stock market and economic recovery. Like-minded investors should think twice before hedging away the advance.

Not to obsess about a near-term pullback, but does the market’s concentration in a handful of technology companies concern you at all? While the S&P 500 Index may be positive for 2020, can the same be said for most S&P 500 stocks?

Brian: The biggest challenge in trying to time the market or appropriately hedge your portfolio is knowing when to re-risk. Would I be surprised if we see some of the high-flying drivers of the market underperform the more economy-sensitive segments or even give back some of the recent gains? No. History suggests that corrections happen often.

But again, it’s a timing issue. Equity investors must ask themselves about the types of businesses they want to own for the long term. To me, it comes down to which businesses are the disruptors and which businesses are being disrupted. The high-flying winners in this market are disrupting the way the economy, business, and society operates. We may end up paying higher equity multiples on those businesses than for the broader market but would also expect their earnings to grow faster than the broader market.

I’ll give you the final word. How do you view the recent weakness of the dollar? Is this the catalyst to unlock the deep value embedded in international markets?

Talley: The Federal Reserve (Fed) has embarked on a seemingly open-ended commitment to buy securities until the economic and labor market outlooks improve substantially.

An important consequence of the Fed’s unprecedented balance sheet expansion is the weakness of the US dollar, which should reinforce the blossoming rally in international markets, especially in emerging markets (EM) and Chinese stocks.

If quantitative easing (QE) represents a choice between interest rates and the US dollar, the Fed has opted to save growth and jobs by loosening the monetary screws and inflating the money supply at the expense of the currency. From that perspective, it’s reasonable to expect the US dollar to weaken further if the Fed keeps such an abundant supply of currency in circulation.

To your point, structural underperformance from Chinese and EM stocks – until recently – has compressed their price-to-sales ratios to deep discounts compared to the world index and history.

While valuation is a good starting point for an investment thesis, it isn’t enough on its own. Attractive valuations coupled with a weakening US dollar and improving economic growth abroad could be a potent tonic for unleashing the potential rewards presented by EM stocks and so far, it appears to be working.

Footnotes:

  1. Source: Our World in Data.
  2. The Summer Doldrums are a perceived seasonal trend in which the market declines or stagnates during the summer months

Important Information

Blog header image: Robert Anasch/Unsplash

All investing involves risk, including risk of loss.

The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

The Great Shutdown is the period between March and present day when the country went into forced lockdown

Quantitative Easing is a form of unconventional monetary policy in which central banks purchase long term securities to increase the money supply and encourage lending

The price to sales ratio is calculated by dividing a company’s share price by revenue.

The S&P 500 Index is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States.

The opinions referenced above are those of the authors as of July 27, 2020. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial advisor/financial consultant before making any investment decisions. Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state tax laws are complex and constantly changing. Investors should always consult their own legal or tax professional for information concerning their individual situation. The opinions expressed are those of the authors, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE

All data provided by Invesco unless otherwise noted.

Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail products and collective trust funds. Invesco Advisers, Inc. and other affiliated investment advisers mentioned provide investment advisory services and do not sell securities. Invesco Unit Investment Trusts are distributed by the sponsor, Invesco Capital Markets, Inc., and broker-dealers including Invesco Distributors, Inc. Each entity is an indirect, wholly owned subsidiary of Invesco Ltd.

©2019 Invesco Ltd. All rights reserved.

The two-sided recovery: A conversation about the markets and economy by Invesco US

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors





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Fed sees some pickup in economy, but maintains dovish policy stance


The Federal Reserve on Wednesday noted economic activity and jobs “have picked up somewhat in recent months” while pledging again to use its full range of tools to support further improvement.

“Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year,” the Fed said in a statement after two days of talks.

Economists are worried because the latest unofficial data suggest the U.S. economy is sagging again.

In a unanimous decision, the Fed voted to keep its federal funds rates close to zero.

The central bank again said it would keep rates near zero until employment recovers and inflation picks up .

The central bank also kept the pace of asset purchase steady at $120 billion per month. The Fed is buying $80 billion of Treasurys and $40 billion of asset-backed mortgage securities to support the economy.

Fed Chairman Jerome Powell will hold a press conference to discuss the central bank’s decision at 2:30 p.m. Eastern.

Economists are wondering what the Fed will do if the economy falters again.

The “bazooka” in the Fed’s tool kit would be to peg longer term Treasury yields, a policy known as yield curve control.

Economists think the Fed will adopt incremental policy moves at its next meeting in September. The Fed is expected to tie any future interest rate increase to higher inflation. The central bank is expected to say it will not consider raising short-term interest rates until inflation is seen rising above its 2% target. The Fed might also add a specific period of time to the pledge.

The Fed is also expected to change its asset purchases to buy more longer-term securities.

These policy steps are seen as incremental by many economists. Markets already expect the Fed to keep interest rates “low for longer.” Futures markets are pricing in only one 25 basis point rate hike over the next three years.

The next “big bazooka” for the Fed would be to peg the 10-year Treasury note yield. This is known as “yield curve control” and has been used in Japan and Australia.

Fed watchers will also be keen to see what Powell says about the timing of the release of the Fed’s review on its long-term policy goals and strategy. This review was started in November 2018. The results were delayed by the coronavirus.

After its September meeting, the Fed may also announce it has adopted a strategy to let inflation run hotter after a period when inflation remains below the 2% target. This is called setting an “average” inflation target. In the past, the Fed has always “let bygones be bygones” if inflation was low.

Economists think the Fed has already informally adopted this approach but it has not been formally announced.

Stocks were higher on Wednesday with the Dow Jones Industrial Average
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up 100 points just before the Fed decision.



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U.S. trade deficit in goods falls 6.1% in June as exports rebound, but outlook still weak


The numbers: The U.S. trade deficit in goods showed a 6.1% decline in June as exports grew faster than imports, but the level of trade is still well below year-ago levels because of the massive strain caused by the coronavirus.

The advanced trade deficit in goods dropped to $70.6 billion in June from $75.3 in the prior month, the U.S. Census Bureau said Wednesday.

The decline was larger than expected. Economists polled by MarketWatch had forecast the gap to shrink just slightly to $74.9 billion.

A smaller deficit adds to gross domestic product, the official scorecard for the U.S. economy. The government is expected to report on Thursday that GDP fell a record 35% in the second quarter.

An advanced look at wholesale inventories, meanwhile, showed a 2% decrease increase in June. And an early look at retail inventories reflected a 2.6% decline.

These declines are likely to offset any benefit to GDP from a lower trade deficit.

What happened: U.S. exports of goods climbed almost 14% to $102.6 billion in June. Higher auto exports accounted for the bulk of the increase.

Most exports increased, suggesting a solid rebound for American manufacturers. The only category to show a decline was food and feeds.

Imports rose a smaller 4.8%. More foreign-produced autos as well as consumer goods such as cell phones and electronics made their way through U.S. ports, but a large decline in industrial imports partly offset those increases. The U.S. probably imported less foreign oil because Americans are driving and flying less.

The advanced report only includes goods. Services such as travel and tourism aren’t included until the full report that gets released next week.

The big picture: Global trade partially collapsed early in the coronavirus pandemic and the level of overall activity is still depressed despite a recent rebound. U.S. exports are 24% lower compared to one year ago while imports are off 17%.

Trade is unlikely to return to precrisis levels for a while, adding to the U.S. economy’s slow recovery. Millions of people around the world have lost their jobs or suffered a big drop in income, limiting demand for an array of goods and services.

What they are saying?: “Trade activity turned a corner in June, but still lags behind the rest of the economy,” James Watson and Gregory Daco of Oxford Economics wrote to clients in a note. “With global and US demand facing a long and risky path towards recovery, trade is set to be one of the hardest-hit sectors.”

Market reaction: The Dow Jones Industrial Average
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and S&P 500 index
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were set to open modestly higher in Wednesday trades. Stocks have traded in a narrow range for the past few weeks.



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