This morning’s ISM Non-Manufacturing report for the month of February was impressive at the headline level despite growing concerns over the impact of the Covid-19 virus. One aspect of the report where the outbreak is starting to show up is in the survey where companies are asked what commodities are in short supply.  In this month’s survey, ISM noted that 11 commodities were in short supply among companies in the Non-Manufacturing sector.  The chart below shows the number of commodities in short supply on a monthly basis with recessions highlighted in gray.  Going back to 1999, there have only been two other months where a larger number of commodities were in short supply and that was in the months immediately following Hurricane Katrina.

Looking at the commodities that were flagged as being in short supply in February, five can be directly related to Covid-19. As shown below, Medical Supplies, Personal Protective Equipment, Surgical Gowns, Surgical Masks, and Surgical Packs are all flying off the shelves. Start a two-week free trial to Bespoke Institutional for full access to all of our economic research and tools.

The yield on the 10-Year Treasury tipped below 1% today for the first time ever as the Fed cut rates by 50 bps. That is a record low yield for the 10 Year.  Meanwhile, the past few days have seen the S&P 500’s dividend yield rise to some of its highest levels in over a year. This leaves the S&P’s dividend yield at 2.1% today. That means holding the various levels of risk and other factors constant, stocks are yielding over 1% more than the 10-Year yield. That sharp divergence in yields is shown in the chart below.

Since the mid-2000s, the spread between the S&P’s dividend yield and the 10-year yield has only moved above one on one other occasion, and that was near the depths of the Financial Crisis in December 2008.  Start a two-week free trial to Bespoke Institutional to access our interactive tools and full library of research.

One of the factors that makes it so hard for investors to grapple with the Covid-19 coronavirus is that there really aren’t very good numbers related to the mortality rate, and if you look at the mortality rates by individual countries, they vary widely.  Reasons for the variance range from lack of available testing infrastructure to a general distrust of statistics being reported by certain governments.  With those two caveats in mind, a look at current infection and mortality rates shows a disconcerting picture from a US perspective.  The table below shows the number of cases and deaths due to the coronavirus broken down by country.  These figures were pulled from the incredibly useful Johns Hopkins Coronavirus monitor, and we only included countries that have reported more than ten cases of Covid-19.

The table below is sorted by mortality rate from highest to lowest, and here is one case where the US doesn’t want to be winning.  With a current rate of 5.6%, the mortality rate from confirmed Covid-19 cases in the US is higher than any other country in the world including Iran which comes in at 3.3%.  Obviously, the lack of available testing in the US from a shortage of test kits has resulted in fewer tests than other countries, so the number of confirmed cases in the US is likely a lot lower than the number currently flowing around undetected.  However, the fact that the US even finds itself here in the first place isn’t the most comforting thing for Americans already worried about the spread of the virus!  Receive full access to all of our analysis, including the latest coronavirus news and how it’s impacting the markets, by signing up for a free two-week free trial to Bespoke Institutional today.

The chart below shows the ten countries/regions with the highest mortality rates from the Covid-19 outbreak.  The US is nearly a full two percentage points above China (3.7%) and a full three percentage points above every other country besides Iran. Again, as testing expands in the US, the number of cases will undoubtedly rise as milder cases are detected, but even in that case, testing procedures capacity in the US should have been a lot faster to ramp up.

Earlier today we updated our weekly Stock Scores, which ranks each of the stocks in the S&P 1500 based on various fundamental, technical, and sentiment factors.  Coincidentally on the same day that the Federal Reserve surprised with a 50 bps rate cut, one group of stocks poised to benefit from lower rates, the homebuilders, came in with very strong scores.  As shown in the chart below, breaking down the S&P 1500 by the GICS Level 4 Sub-Industries, the average stock in the homebuilder sub-industry had a score of 65.9 (out of 100). That is higher than any other group with the next highest-ranked sub-industry being Heavy Electrical Equipment.  Another interesting group to note is Airlines, which despite having been crushed in the coronavirus fallout, surprisingly find themselves in the top ten.

The strength in Airlines is due in large part to high fundamental ratings for stocks in the group.  Those high scores don’t fully take into account the weaker earnings that the market is pricing in, but unlike prior periods over time, airlines as a whole are in a lot better financial shape than they were in the past.

Looking at just the homebuilder stocks, Taylor Morrison Home (TMHC) boasts the highest total score this week at 81.1 thanks to strong fundamental, technical, and sentiment scores. TMHC has such a strong score this week that it also places second out of all S&P 1500 stocks. Several others have similarly strong fundamental scores, but only DR Horton (DHI) has a flawless technical score.

While equities more generally have traded violently in the last two weeks, they have moved decidedly lower this afternoon, even after the FOMC cut rates. The homebuilders, however, have been the exception . Following steep declines last week, the Homebuilders ETF (ITB) fell back down to the 200-DMA for the first time in nearly a year.  That level acted as support, though, as ITB bounced off that level over the past couple of sessions. This bounce has been helped further today by low rates providing a stimulus to the industry.  This is as already low mortgage rates have led to housing being a bright spot for the economy. Looking ahead, the next resistance to watch for ITB would be the 50-DMA. If you’d like full access to our weekly Stock Scores ratings, start a two-week free trial to Bespoke Institutional today.