Although many countries, including Canada, enter phase three, the ongoing pandemic still haunts the markets: affects of COVID start to change the markets and FED are responding to it.
Leslie Cliff: [00:00:00] Okay, well, welcome to the Genus weekly video. Wayne and I are happy to be here today telling you what what went on in the week. Wayne you have done a very good job of convincing me that the stock market is a discounting mechanism for what’s going to be happening six to nine months from now. There goes the big disconnect between Main Street and Wall Street. But the market was down this week. So does that mean the market’s having a changing its opinion of what’s going to be going on six to nine months now?
Wayne Wachell: [00:00:26] Well, the news for this week was more negative than positive to do with, you know, the outbreak of COVID in the Sunbelt and maybe markets lowering the expectations of the improvement in into Q3 and Q4. And there is as well. There’s some issues around the financials, the a stress test and another one coming this fall, as is announced by the Fed. And they’re also putting controls on their ability to pay dividends. They have to have earnings that they want to pay the dividend. So which makes sense given this disjuncture. Those two little bit of news, both in the COVID side and the bank side did not help matters. Also, Nike missed as well, like he’s been a real darling. It wasn’t that bad of a miss, but they did miss. But there their online sales were up 70 percent. So stock was off like six percent today. So was it kind of three bad things that kind of drove the market this week in terms of the COVID hanging around longer. Some still some issues with the banks and and maybe retail getting hit a bit harder here.
Leslie Cliff: [00:01:21] Right. Also, the Fed also said no buybacks. Bank buybacks, which has been in support in the market too. So I always we worry about, you know, the plumbing, the credit side. And I see that those moves by the Fed really trying to get ahead of any problems that might happen on the credit side by addressing the bank situation. We should view that as a good thing that they’re on the ball.
Wayne Wachell: [00:01:44] Yeah, you know, I do that as a really solid move by the FED. They’re doing the responsible thing and not a little bit may pay cash or shareholders if they still have financial and solving this issue.
Leslie Cliff: [00:01:55] So what they did in 09 with Obama’s money. And that’s better this time.
Leslie Cliff: [00:02:00] Wayne when we talk in April about rebalancing back to a policy out of the mix, even with our accounts at Genus, there’s a fair amount of news out there about institutional clients and big money stock market having done so well this quarter, rebalancing to June 30th quarterly, not at not a Genus. This is the big, big world out there. And those numbers are pretty big. You think that’s having an influence over people trying to get ahead of that trade of selling stocks and buying bonds?
Wayne Wachell: [00:02:30] A couple of things. I’m not a really big flow of funds type investor. I just think usually people people coming each day, traders will be trading that kind of flow flow data. So it tends to get discounted in advance. I would say. But secondly, the numbers I’ve seen have not been between 30, 40 billion to say 80 billion to the US equity market is thirty seven trillion. So that’s less than one percent. So it’s not just a drop in the bucket, if you will.
Leslie Cliff: [00:02:57] A question from a client, Hong Kong. What do you think the effect on capital flows will be with what’s going on over there?
Wayne Wachell: [00:03:05] Well, you know, Hong Kong has been sort of a conduit for capital flows into mainland China. Now, if they wrecked that model and they seem to be in the process of doing that, with Beijing coming in and taking over security, which is really means there to use AI database to spy on their citizens, effectively, it’s going to ruin that whole that whole market, I think longer term, which means you’ll have it’ll impact biggest impact will be on China. I would believe. And they will have, maybe are you Shanghai the next financial center for the mainland. But it’s not that it will
Leslie Cliff: [00:03:37] Disrupt capital flows. It’s not a good thing.
Wayne Wachell: [00:03:40] It’s not a good thing.
Wayne Wachell: [00:03:41] We were going to make this the last COVID video in our session in our series. But given the spike up, we decided that we should keep going for a couple more weeks.
Wayne Wachell: [00:03:50] COVID doesn’t want to die.
Leslie Cliff: [00:03:51] COVID doesn’t want to die. Diet Coke. It wants to increase.
Wayne Wachell: [00:03:55] So Wayne another thing that is, getting talked about more, you hear more about and probably was a negative for the market this week, is that Biden seems to be getting up in the polls. Trump’s going down. And that is starting to hear more about Biden’s increasing corporate taxes, increasing taxes on people earning above four hundred thousand dollars. And Wall Street doesn’t really like that, too. How do you view it?
Wayne Wachell: [00:04:19] Know, I’ve been ignoring it. The betting polls, as you watch it start to swing hard towards Biden recently. They can swing back and forth the strategy, Biden strategy hiding-Biden has been working in Trump’s been dealing with COVID and with the unrest. So he’s, Biden it’s just letting letting him fall on his own on his own minds, if you will, which seems to be working very well. At some point, he’ll have to come out. There’ll be a debate, I guess, which will be interesting if he does, when in fact, people should. I think the markets are discount on that over the summer, given where the polls are right now. So it’s going to be not capital friendly. Number one is going to probably raise the the corporate tax rate to 28 percent, we’re hearing.
Wayne Wachell: [00:04:57] This was all always pre COVID plan, if you will so that could be…
Leslie Cliff: [00:05:00] Right.
Wayne Wachell: [00:05:01] Could be shelved. But we didn’t anticipate he’ll raise taxes to the corporate side to twenty eight percent raise the marginal tax rate as well. Put a minimum tax on corporations at 15 percent, which wouldn’t be the end of the world. But that’s not capital friendly. Also, what’s going to happen with China? Will he be friendly with China? We don’t know. But Elizabeth Warren, he’s is slated for secretary of state. And she had very dramatic policy regarding trade and trading, putting tariffs on come on jurisdictions that weren’t environmentally friendly and her season of her senior people are involved with Biden as well in terms of planning.
Wayne Wachell: [00:05:37] So she’s got a big impact on, I think, trade with China, which will probably hurt China, but probably good for the environment. Of course, the big issue, too, is who will take the Senate as well as the Senate if the Republicans hold the Senate, it’s going to be a stalemate and probably not a bad situation to be in for some middle of the road strip. They want to know how to build roads. So we’ll have to wait and see. But it’s becoming a concern. We have to see Biden in a debate and taking questions from the press and everything else before we can assess us any further. But Trump couldn’t have had any any worse news news flow, and he didn’t handle the pandemic that well. I don’t think he handled the riots that well either.
Leslie Cliff: [00:06:16] You’re not alone.
Wayne Wachell: [00:06:17] Yes. So those things have all hurt him. And it’s hard for an incoming president president when you’re in recession to win. It’s only been done once in the past. So those those facts, not good for him, but things can change so fast. Who thought like in January, it looked like he was a shoo in. The economy was doing great. Not a sudden. Boom, boom, boom.
Leslie Cliff: [00:06:39] Now we have a long, long way to go.
Wayne Wachell: [00:06:41] So we would only say, though, it could be a totally different issue. And, you know, come October. We just don’t know.
Leslie Cliff: [00:06:47] Anyways, we’re starting to digress. And they’re probably taking up too much time. But it’s an issue in the market. It’s another uncertainty. So the market’s not really very happy right now. So next week, Ian Lusher will be on with Wayne. And, you know, July 1st is around the corner. So that’s the start of summer. And I know a lot of people have different summer plans this summer. No. no going to the traditional summer places often. And, you know, having close relatives come to see you, are you going to see them? So it’s a different summer, but it’s going to be a great summer. And we should all countered blessings. We’ll talk to you next week. Thank you.
