COVID-19 is a National Stress Test; Surprise Record Infections, Policy Shifts Occurring

  • The Federal Reserve, after performing its annual stress tests, are requiring banks to suspend share buybacks in the third quarter, and the Fed is only allowing dividends to be paid based on an earnings formula.

  • The broader backdrop for investors and the financial community at large is that the COVID-19 Pandemic Recession is a national stress test.

  • There were 218,248 confirmed COVID-19 cases in the U.S. for the week of June 18; a surprise record.

  • Overall, the national coordination and response to the health crisis and Pandemic Recession has been uneven at the very best. It looks like nationally we may have failed the first inning, or the first installment, of the national “stress test.” Hopefully, leaders can spark a comeback. Policy shifts are occurring, but still only on a state-by-state basis.

  • The response strategy is now changing, along with the narrative. Both Texas and Florida announced changes to their reopening efforts. •

  • We expect the Dallas Fed’s Mobility and Engagement Index (MEI) results in the coming weeks are likely to worsen, which tells us that financial and labor market data are likely to worsen as well.

  • We are watching to see if these recent developments spark changes in monetary or fiscal policy targeted toward state and local governments.

  • Investors added $1.47 billion to municipal mutual funds as of the week ending June 24. This was the seventh consecutive week of flows into municipal bond funds, totaling $10.6 billion. Investors could begin pulling back, which would threaten an eighth straight week of flows.

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