When what must have seemed like an eternally-long day of relentless selling, the S&P 500 had dropped 3.5%, the Dow was down 2.8% and the NASDAQ took the brunt of the hit, down nearly five percent.
Since June 11, Thursday's drubbing was the worst single-day drop for the NASDAQ and the S&P 500. The cause for the sudden departure from exorbitant optimism may have been a needed jolt of reality, as the US economy remains mired in a COVID-related mess and the "V-shaped" recovery theory looking more doubtful as congress dithers over a second aid package to hard-hit individuals and businesses and violent protests continue to plague large American cities.
Among the casualties were some recent high fliers. Apple (AAPL) dropped 8% on on the day. Tesla (TSLA, 407.00, -40.37) skidded 9%, finishing the day down 19% from the record high achieved on Monday (498.32). Chip maker AMD (AMD) lost 8.5%. Another big name in the chip sector that has traded to the upside throughout the rally, Nvidia (NVDA), lost 9.2%.
The stocks added to the Dow Industrials Monday didn't provide any cover either. Honeywell (HON), Amgen (AGM), and Salesforce.com (CRM), were among the worst performers on the index, losing 3.58%, 3.96%, and 4.22%, respectively. These were the companies chosen to replace dullards ExxonMobil (XOM), Raytheon (RTX), and Pfizer (PFE) to propel the Dow to record highs. So much for best-laid plans.
Money was flowing out of stocks and into bonds, a story that's been developing all week. The 10-year note, which ended last Friday with a yield of 0.74%, finished Thursday at 0.63%. The slide on the 30-year was more pronounced. It ended last week with a yield that was the highest since June, 1.52%, but dropped to 1.34% Thursday.
As investors were looking forward to the August non-farm payroll data from the BLS and an upcoming three-day weekend, concern is that Thursday's reversal of fortune might not be a one-off but rather a second leg of the carnage that developed in February and March, when the coronavirus was still incubating in the US and government lockdowns and stay-at-home orders had not yet been issued.
Following the stock swoon in March, the Fed stepped up with $3 trillion in loan guarantees and a smorgasbord of programs, facilities, and initiatives designed to limit the damage to US stocks. They provided cover for iliquid stocks and sent the indices soaring to new heights over the next five months.
There's growing evidence that the market has been left to retail investors as insiders have been cashing out with extraordinary gains at a breakneck pace. Most professional investors had at least an inkling of suspicion about the foundation of the sharp rally off the March lows and were likely those jumping ship as stocks got crushed... for a day. The potential for a re-rally is still evident, and it doesn't have to be right away. Stocks could slide even further in coming days before serious money comes back into the market on the dip.
As congress readies to get back to business - if that's how one would characterize what they do up there - following the Labor Day weekend, the market can be buoyed by the White House and House of Representatives at least coming to an interim solution to keep the government operating. Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi have apparently struck a deal in principle for a continuing resolution to extend government operations into the 2021 fiscal year, starting October 1.
At 8:30 am ET, there was some encouraging news, with non-farm payrolls for August coming in slightly above expectations at 1.371 million. The unemployment rate fell by a massive amount, from 10.2% in July to 8.4% as of this reading. Futures are gradually improving ahead of the cash open at 9:30.
In other news, that paragon of virtue, Goldman Sachs (GS), has avoided jail time for some of its highest executives via a settlement with the government of Malaysia in the 1MDB scandal.
Goldman Sachs had to boost its legal reserves by $2.01 billion to account for the Malaysia settlement, shaving its second-quarter net income by 85% and wiping out what had been a surprise jump in profit due to trading gains.
Not to worry. The Vampire Squid - as Goldman Sachs is known - will probably just steal that amount or more from some other non-white country, or maybe France. Or, they could be reimbursed by the Federal Reserve, to which $2.01 billion amounts to a rounding error.
Those unfamiliar with the Goldman-1MDB scandal that involved theft, money laundering, corrupt government officials, bribery, and even murder of political opponents, is encapsulated in this scathing report by the Harvard Law School Forum on Corporate Governance.
With bad news seeming to have taken some of the wind out of Wall Street's sales, the good news is that there are some college football games this weekend (two were played on Thursday, with seven more slated for Saturday) and the Kentucky Derby will be run Saturday at Louisville's Churchill Downs, albeit four months late. Many of the horses will be wearing blinkers and all of the jockeys will be wearing masks. Oh, well...
At the Close, Thursday, September 3, 2020:
Dow: 28,292.73, -807.77 (-2.78%)
NASDAQ: 11,458.10, -598.34 (-4.96%)
S&P 500: 3,455.06, -125.78 (-3.51%)
NYSE: 12,966.14, -310.61 (-2.34%)
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