My, oh, my, what a week this was!
The numbers are sufficiently horrifying to speak for themselves, and they're speaking loudly.
Stocks suffered their worst week since 2008. Yes. The week just past was worse than anything since the Great Financial Crisis, and beyond that, the dramatic drop that kicked off the Great Depression in 1929, is comparable.
The three top indices had their worst weekly performances since October of 2008. The Dow dropped 17% for the week, the S&P 500 tumbled 15% and the NASDAQ lost more than 12%. Friday's losses were widespread, the biggest losers were utilities (-8.2%) and consumer staples (-6.5%).
Since the beginning of the COVID-19 crisis, the main indices are down anywhere between 30% (NASDAQ) and 35% (Dow).
Here are the stark, raving-mad numbers from the peaks to Friday's close, with dates:
Dow Industrials: peak: 29,551.42 (2/12), close 3/20: 19,173.98, net: -35.12%
NASDAQ: peak: 9,817.18 (2/19), close 3/20: 6,879.52, net: -29.92%
S&P 500: peak: 3,386.15 (2/19), close 3/20: 2,304.92, net: -31.03%
NYSE Composite: peak: 14,136.98 (2/12), close 3/20: 9,133.16, net: -35.40%
Bear in mind, these numbers are all higher than they were prior to the collapse of 2008. For reference, here are figures from August 2008, followed by the bottoms, all recorded March 9, 2009.
Dow Industrials: 8/11/09: 11,782.35; 3/9/09: 6,926.49
NASDAQ: 8/14/09: 2,453.67; 3/9/09: 1,268.64
S&P 500: 8/11/08: 1,305.32; 3/9/09: 676.53
NYSE Composite 8/6/09: 8,501.44; 3/9/09: 4,226.31
What are the implications from these figures? Pretty simple, really. Since nothing was really fixed from 2008-09 (i.e., none of the major commercial banks - Lehman and Bear Stearns notwithstanding, as they were investment banks - failed), nobody went to jail, the GFC was mostly the deflation of a housing bubble, and all of the gains in stocks were the product of buybacks and/or massive infusions of cash by the Federal Reserve, it stands to reason that stocks will fall below their lowest levels of the GFC, or sub-prime crisis.
As almost all bear markets prove, there are steep losses in the initial phase, followed by a longer, slower, gradual decline, ending in complete capitulation wherein nobody wants to be holding equity shares at any price. Stocks go bidless. There are no buyers, and that is the condition to come.
The years 2009 through early 2020 can readily be construed as what's often referred to as the "everything bubble," in which all financial assets were inflated. In the simplest terms imaginable, gains in stocks during the past 11 years were a chimera, a figment of Wall Street's great imagination and greed.
An arguable point is that all of the major corporations who feasted on stock buybacks and easy money from the Fed are bankrupt. A corollary to that is the the commercial banks - Citi, Bank of America, JP Morgan Chase, Wells Fargo, Goldman Sachs, and Morgan Stanley - being either major shareholders of the Federal Reserve and/or many major corporations are also bankrupt, insolvent, as is the Fed, which, for all intents and purposes, just creates whatever money is needed out of thin air, with no backing other than the faith of the people and institutions using their fiat currency, and that faith is fading fast.
WTI crude oil concluded its worst week since the 1991 Gulf War, settling -11%, at $22.43/bbl as part of its 29% meltdown this week.
Precious metals continued to be under pressure, even though buyers of physical gold and silver are paying high premiums and silver buyers are waiting as long as a month for deliveries from major coin and bullion dealers. Many online outlets are out of stock on almost all silver items. Scottsdale Mint is advising buyers that silver purchases are 15-20 days behind. Spot silver was as low as $11.94 per ounce, ending the week at $12.59. Prices for coins and bars are ranging between $17.50 and $25.00.
Gold traded as low as $1471.40 on the paper markets. It finished up Friday at $14.98.80
Bonds were all over the map and ended with lower yields overall. Yield on the 30-year was as low as 1.34% and as high as 1.78%. It ended the week yielding 1.55%, crashing 23 basis points on Friday. The 10-year note yield ranged from 0.73% to 1.18%, closing at 0.92%. The curve steepened through the week to 151 basis points from the 1-month bill (0.04%) to the 30-year bond, though yields are lower than ever in history. Money has lost nearly all of its time-value, especially at the shorter end. The two-year is yielding a mere 0.37%.
The point is that the Federal Reserve, with ample assistance from other central banks around the world, particularly, the ECB, BOE, BOJ, and SNB (Swiss National Bank), blew an enormous stock bubble around the world, and, since it is deflating rapidly, are trying to blow an even bigger bubble. It will not work. Never has, never will. It might for a time, but in the end there will be massive defaults from individuals all the way to sovereign states and central banks themselves. There is a limit to how much fiat currency (not money, which would be currency backed by gold or silver or some other tangible, not-easily replenished asset) and how much complexity the world can handle. We are at those limits and hastily exceeding them.
What's worse is that the governments and central banks of planet Earth are doing this to themselves, or, rather, to their sovereign citizens, who will bear the brunt of rash decisions based on faulty economics and radical monetary and fiscal policies. The Fed will print trillions of dollars. The government will run debts to the tune of 20-25% of the gross national product, if there is any left after the shutdowns, slowdowns, quarantines, and eventual rationing.
Profligate spending and corruption at the highest levels of business, finance, and government has led to an inevitable dead end, ruining lives, destroying businesses, and deflating, then inflating bogus currencies.
This is the end of the fiat currency era, but it doesn't have to be the end of the world. Money Daily has been warning its readers for more than a decade that this kind of economic carnage would eventually come, urging people to invest in hard assets, real estate, precious metals, machinery, food supplies, arable land and produce, and more.
There will be winners and losers in all of this, and it is the intention of Money Daily to provide information and instruction on how to win.
Some random links:
Gregory Mannarino says, in a very emotional and exasperating video, that it's OVER, just as Money Daily has been suggesting for weeks.
Here's a beach-loving Seeking Alpha commentator who thinks we've seen the worst.
Marketwatch notes that the Dow is on track for its worst month since the Great Depression.
Sending checks to every eligible American is being debated in congress. Treasury Secretary quipped early in the week that President Trump and he would like to get money into the hands of Americans within two weeks. The current proposals being argued in congress are looking at early April as a timeline to get money to needy citizens. That's a lot longer than two weeks, but, when the banks and hedge funds need billions and trillions of dollars from the Fed, they get it the next day, if not sooner. It's about as unfair as banks getting money at near zero interest and charging 17-29% interest on credit cards.
The house of cards (no pun intended) is tumbling down.
At the Close, Friday, March 20, 2020:
Dow Jones Industrial Average: 19,173.98, -913.21 (-4.55%)
NASDAQ: 6,879.52, -271.06 (-3.79%)
S&P 500: 2,304.92, -104.47 (-4.34%)
NYSE: 9,133.16, -328.15 (-3.47%)
For the Week:
Dow: -4011.64 (-17.30%)
NASDAQ: -995.36 (-12.64%)
S&P 500: -406.10 (-14.98%)
NYSE: -1718.82 (-15.84%)
Showing posts with label COVID-19. Show all posts
Showing posts with label COVID-19. Show all posts
Sunday, March 22, 2020
Friday, March 20, 2020
Stocks Bounce As News Suggests Possible, Readily-Available COVID-19 Treatments May Be Effective
Considering the extreme levels of volatility lately, Thursday's trading was relatively calm. Though the VIX remained elevated, it came down from over 80 to near 70 as the day commenced.
Stocks initially were lower, but found solid footing and ramped higher by mid-morning, the NASDAQ leading the way with speculators eyeing stocks that had cratered over the past three weeks, and began establishing positions at levels they considered to be bargains.
The S&P, Dow, and NYSE composite followed gamely but trailed the red-hot NASDAQ by more than a percentage point throughout the session. It was the first in many days that stocks had not ventured more than three percent in either direction for the last nine sessions, so some might argue that volatility is cooling, though still near record levels.
Moving 900 points from the morning lows to the close, the Dow's move was impressive, considering it has been absolutely damaged the prior session with Boeing (BA) leading the way down on Wednesday with a loss of some 25%. The aircraft manufacturer was down a mere four percent on Thursday, and is sporting a positive sign in pre-market trading Friday.
Thursday's unemployment claims numbers were 281,000, up by 71,000 over the prior week, but were for the week ending March 14, so much of the coronavirus-related data had not been tabulated, but will appear next Thursday.
Goldman Sachs’ Jan Hatzius wrote in a note to clients on Thursday night, “state-level anecdotes point to an unprecedented surge in layoffs this week.” The analyst claims that figures for the week ending March 21 will show initial claims rising to roughly 2¼ million, which would be the largest increase in initial jobless claims and the highest level on record. That's not unlikely, as major cities - San Francisco and New York in particular - are at or near lockdown levels of activity with many workers furloughed or otherwise idled by warnings or edicts from city and state officials.
Philly Fed’s manufacturing activity index crashed to an eight-year low of -12.7 in March from a three-year high of 36.7 in February. This follows the NY Fed’s Empire State Manufacturing index, which also dropped at a record pace to an 11-year low.
In a research report published on Thursday, Bank of America economists predicted the U.S. economy would lose 3.5 million jobs and GDP plummeting at a 12% pace in the second quarter, also probable figures given the severity of the reaction to COVID-19.
What's keeping Wall Street open for business and possibly ending the week with a positive tone are actions taken by the Fed which are too numerous to list, but include opening swap lines to other central banks, injecting billions of dollars via repo and QE, and wide open credit lines to primary dealers.
Also, President Trump's mention of a possible treatments for the virus in his now-daily news briefing, has been getting a great deal of attention. Specifically, the president mentioned a number of possible drugs that showed promise in tests, including Gilead Sciences' remdesivir (Money Daily mentioned Gilead's product back in January as a promising treatment and the stock has responded with a run from 63 to 78 since then) and chloroquine, an inexpensive drug long used to treat malaria, which is widely available and has proven to be an effective anti-viral in clinical trials done recently in China and France.
Thus, while COVID-19 is still making its way through the population, potential treatments are promising and - in the case of chloroquine - readily available in mass quantities at extremely low cost (less than 10 cents per pill in some countries). Also emerging is data from South Korea, Italy, the United States, and elsewhere that show the vast majority of cases that result in death are people over the age of 60 with underlying health conditions such as heart conditions, diabetes, or otherwise compromised immune systems.
That's the kind of news Wall Street traders can get behind, because, if successful treatments become widely available, people could be back at work within weeks, rather than months. While various governments - including California, which late Thursday announced a state-wide stay-at-home recommendation - are trying to limit transmission via social distancing and "soft" quarantines, communities that develop "herd immunity" quickest will be fastest to recover, meaning that the virus spreads readily and renders most of the population immune.
As the opening bell approaches, stock futures have lost some of their momentum, but still point to a positive opening Friday, which also happens to be a quadruple witching day.
Investopedia.com defines quadruple witching as "...a date on which stock index futures, stock index options, stock options, and single stock futures expire simultaneously. While stock options contracts and index options expire on the third Friday of every month, all four asset classes expire simultaneously on the third Friday of March, June, September, and December."
These dates are normally volatile, but should fit snugly into the current trading regime.
At the Close, Thursday, March 19, 2020:
Dow Jones Industrial Average: 20,087.19, +188.29 (+0.95%)
NASDAQ: 7,150.58, +160.74 (+2.30%)
S&P 500: 2,409.39, +11.29 (+0.47%)
NYSE: 9,461.30, +76.71 (+0.82%)
Stocks initially were lower, but found solid footing and ramped higher by mid-morning, the NASDAQ leading the way with speculators eyeing stocks that had cratered over the past three weeks, and began establishing positions at levels they considered to be bargains.
The S&P, Dow, and NYSE composite followed gamely but trailed the red-hot NASDAQ by more than a percentage point throughout the session. It was the first in many days that stocks had not ventured more than three percent in either direction for the last nine sessions, so some might argue that volatility is cooling, though still near record levels.
Moving 900 points from the morning lows to the close, the Dow's move was impressive, considering it has been absolutely damaged the prior session with Boeing (BA) leading the way down on Wednesday with a loss of some 25%. The aircraft manufacturer was down a mere four percent on Thursday, and is sporting a positive sign in pre-market trading Friday.
Thursday's unemployment claims numbers were 281,000, up by 71,000 over the prior week, but were for the week ending March 14, so much of the coronavirus-related data had not been tabulated, but will appear next Thursday.
Goldman Sachs’ Jan Hatzius wrote in a note to clients on Thursday night, “state-level anecdotes point to an unprecedented surge in layoffs this week.” The analyst claims that figures for the week ending March 21 will show initial claims rising to roughly 2¼ million, which would be the largest increase in initial jobless claims and the highest level on record. That's not unlikely, as major cities - San Francisco and New York in particular - are at or near lockdown levels of activity with many workers furloughed or otherwise idled by warnings or edicts from city and state officials.
Philly Fed’s manufacturing activity index crashed to an eight-year low of -12.7 in March from a three-year high of 36.7 in February. This follows the NY Fed’s Empire State Manufacturing index, which also dropped at a record pace to an 11-year low.
In a research report published on Thursday, Bank of America economists predicted the U.S. economy would lose 3.5 million jobs and GDP plummeting at a 12% pace in the second quarter, also probable figures given the severity of the reaction to COVID-19.
What's keeping Wall Street open for business and possibly ending the week with a positive tone are actions taken by the Fed which are too numerous to list, but include opening swap lines to other central banks, injecting billions of dollars via repo and QE, and wide open credit lines to primary dealers.
Also, President Trump's mention of a possible treatments for the virus in his now-daily news briefing, has been getting a great deal of attention. Specifically, the president mentioned a number of possible drugs that showed promise in tests, including Gilead Sciences' remdesivir (Money Daily mentioned Gilead's product back in January as a promising treatment and the stock has responded with a run from 63 to 78 since then) and chloroquine, an inexpensive drug long used to treat malaria, which is widely available and has proven to be an effective anti-viral in clinical trials done recently in China and France.
Thus, while COVID-19 is still making its way through the population, potential treatments are promising and - in the case of chloroquine - readily available in mass quantities at extremely low cost (less than 10 cents per pill in some countries). Also emerging is data from South Korea, Italy, the United States, and elsewhere that show the vast majority of cases that result in death are people over the age of 60 with underlying health conditions such as heart conditions, diabetes, or otherwise compromised immune systems.
That's the kind of news Wall Street traders can get behind, because, if successful treatments become widely available, people could be back at work within weeks, rather than months. While various governments - including California, which late Thursday announced a state-wide stay-at-home recommendation - are trying to limit transmission via social distancing and "soft" quarantines, communities that develop "herd immunity" quickest will be fastest to recover, meaning that the virus spreads readily and renders most of the population immune.
As the opening bell approaches, stock futures have lost some of their momentum, but still point to a positive opening Friday, which also happens to be a quadruple witching day.
Investopedia.com defines quadruple witching as "...a date on which stock index futures, stock index options, stock options, and single stock futures expire simultaneously. While stock options contracts and index options expire on the third Friday of every month, all four asset classes expire simultaneously on the third Friday of March, June, September, and December."
These dates are normally volatile, but should fit snugly into the current trading regime.
At the Close, Thursday, March 19, 2020:
Dow Jones Industrial Average: 20,087.19, +188.29 (+0.95%)
NASDAQ: 7,150.58, +160.74 (+2.30%)
S&P 500: 2,409.39, +11.29 (+0.47%)
NYSE: 9,461.30, +76.71 (+0.82%)
Wednesday, March 18, 2020
Stocks Gain Tuesday, Busy Fed Monetizes Stocks Amid Spreading COVID-19 Virus: Boeing Wants $60 Billion
On the heels of Monday's knee-knocking losses, Tuesday's trade to the upside was somewhat predictable, in that a dead cat bounce usually follows massive losses, so the major indices continued along their path of one step forward, two (or three, four, or five) steps back.
There has not been back-to-back gains on the majors since a four-day stretch from February 4-7, as stocks rose relentlessly to new highs, the general top coming on February 12, in itself a surprising date, since the coronavirus was already in the process of devastating China and its economy, already having disrupted the global supply chain. How could investors have been so short-sighted? Greed has a certain blinding element to it, as does the opposite market reaction, fear, which has taken firm hold in the US markets and around the world.
Tuesday's events surrounding the viral outbreak were more of the standard fare of shutdowns, closures, government-imposed rules, as Europe closed its borders, every nation inside the EU locking down, as did the city of San Francisco, soon to be followed, most likely, by a similar "shelter in place" order in New York City, hinted at by Mayor Bill DeBlasio, shutting down all commerce for the foreseeable future.
The global case count has no exceeded that of mainland China and continues to outpace it. China's figures are still suspect, as they claim to have all but conquered the virus, the number of new cases since February 18 having grown by only 7,000, leveling off in the 81,000 range, a minuscule percentage of China's 1.4 billion population. However, China did lock down more than half of the country, especially in the province of Hubei, he original epicenter. There's probably never going to be any way to verify China's figures, since they announced Tuesday that reporters from The New York Times, The Wall Street Journal and The Washington Post would have their media credentials revoked, essentially barring them from reporting on anything.
With the March FOMC meeting underway, the Fed was very busy, boosting QE, extending credit for commercial paper to businesses large and small, and, after the market closed, re-instituting a loan facility to primary dealers from the 2008-09 crisis.
Officially called the Primary Dealer Credit Facility, or PMDF, the program will supply primary dealers of equities and other financial instruments loans of up to 90 days for at least the next six months, essentially monetizing stocks by allowing the 24 primary dealers to use stocks as collateral for short-term funding.
Also making headlines were Secretary Steven Mnuchin and President Trump, who were touting a plan to send $1000 checks to most Americans, specifically singling out millionaires, who, according to their statements, would not receive any handouts.
Boeing (BA), besieged by their own errors, is asking for a $60 billion bailout from the federal government. Boeing stock has fallen from a high of 440.62 to 124.14 currently, but the aerospace and airplane manufacturer should not be afforded such generosity, given that the company has been derelict in its corporate money management. Over the past 12 years, Boeing has repurchased at least $40 billion of its own shares, so, if it is in need of capital, it should just sell those stocks in the open market.
Boeing's stock buyback scheme worked to enrich shareholders and top executives as the share price soared as available stock was taken out of circulation and dividends were increased. Instead of reinvesting their profits, Boeing executives showered themselves with lavish bonuses and stock options. Now that a rainy day has arrived, they come begging for money from US taxpayers.
The same is true of major airlines, who spent almost all of their free cash flow on stock buybacks since the Great Financial Crisis of 2008-09. It's a travesty beyond compare.
While stocks held their own private party, other parts of the economic landscape obviously didn't share in the celebratory mood. Crude oil was sent to fresh lows, WTI crude cratering to $26.95 on Tuesday, and falling even more, to $26.04, in early Wednesday trading.
Gold and silver have been ravaged for days, though gold rallied sharply on Tuesday while silver fell to new lows, sending the gold-silver ratio to unimaginable heights. The last spot silver price in New York was $12.56 per ounce. Gold settled Tuesday at $1527.90, leaving the ratio at 121.65, an unbelievable figure, far and away the highest level in the 5,000 years of gold and silver being used as money.
As investment grade (IG) spreads have blown out to crisis levels, the treasury curve steepened dramatically on Tuesday, as the short end was bought and longer-dated maturities were sold. The total spread from 1-month bills out to 30-year bonds increased from 109 basis points on Monday to 151 Tuesday, the 30-year yield spiking 29 basis points to 1.64%, the 10-year note yielding 1.02%, also 29 basis points higher. At the short end, the 1-month bill yields 0.12%, falling from 0.25% on the day.
Thus, with millions of Americans at home for the next two weeks, with no sports, little work, and high anxiety, high finance drama continues to play out daily in the markets, which, for better or worse, remain unfettered and open for business.
The world is witnessing a financial calamity in real time.
At the Close, Tuesday, March 17, 2020:
Dow Jones Industrial Average: 21,237.38, +1,048.86 (+5.20%)
NASDAQ: 7,334.78, +430.19 (+6.23%)
S&P 500: 2,529.19, +143.06 (+6.00%)
NYSE: 10,063.36, +495.83 (+5.18%)
There has not been back-to-back gains on the majors since a four-day stretch from February 4-7, as stocks rose relentlessly to new highs, the general top coming on February 12, in itself a surprising date, since the coronavirus was already in the process of devastating China and its economy, already having disrupted the global supply chain. How could investors have been so short-sighted? Greed has a certain blinding element to it, as does the opposite market reaction, fear, which has taken firm hold in the US markets and around the world.
Tuesday's events surrounding the viral outbreak were more of the standard fare of shutdowns, closures, government-imposed rules, as Europe closed its borders, every nation inside the EU locking down, as did the city of San Francisco, soon to be followed, most likely, by a similar "shelter in place" order in New York City, hinted at by Mayor Bill DeBlasio, shutting down all commerce for the foreseeable future.
The global case count has no exceeded that of mainland China and continues to outpace it. China's figures are still suspect, as they claim to have all but conquered the virus, the number of new cases since February 18 having grown by only 7,000, leveling off in the 81,000 range, a minuscule percentage of China's 1.4 billion population. However, China did lock down more than half of the country, especially in the province of Hubei, he original epicenter. There's probably never going to be any way to verify China's figures, since they announced Tuesday that reporters from The New York Times, The Wall Street Journal and The Washington Post would have their media credentials revoked, essentially barring them from reporting on anything.
With the March FOMC meeting underway, the Fed was very busy, boosting QE, extending credit for commercial paper to businesses large and small, and, after the market closed, re-instituting a loan facility to primary dealers from the 2008-09 crisis.
Officially called the Primary Dealer Credit Facility, or PMDF, the program will supply primary dealers of equities and other financial instruments loans of up to 90 days for at least the next six months, essentially monetizing stocks by allowing the 24 primary dealers to use stocks as collateral for short-term funding.
Also making headlines were Secretary Steven Mnuchin and President Trump, who were touting a plan to send $1000 checks to most Americans, specifically singling out millionaires, who, according to their statements, would not receive any handouts.
Boeing (BA), besieged by their own errors, is asking for a $60 billion bailout from the federal government. Boeing stock has fallen from a high of 440.62 to 124.14 currently, but the aerospace and airplane manufacturer should not be afforded such generosity, given that the company has been derelict in its corporate money management. Over the past 12 years, Boeing has repurchased at least $40 billion of its own shares, so, if it is in need of capital, it should just sell those stocks in the open market.
Boeing's stock buyback scheme worked to enrich shareholders and top executives as the share price soared as available stock was taken out of circulation and dividends were increased. Instead of reinvesting their profits, Boeing executives showered themselves with lavish bonuses and stock options. Now that a rainy day has arrived, they come begging for money from US taxpayers.
The same is true of major airlines, who spent almost all of their free cash flow on stock buybacks since the Great Financial Crisis of 2008-09. It's a travesty beyond compare.
While stocks held their own private party, other parts of the economic landscape obviously didn't share in the celebratory mood. Crude oil was sent to fresh lows, WTI crude cratering to $26.95 on Tuesday, and falling even more, to $26.04, in early Wednesday trading.
Gold and silver have been ravaged for days, though gold rallied sharply on Tuesday while silver fell to new lows, sending the gold-silver ratio to unimaginable heights. The last spot silver price in New York was $12.56 per ounce. Gold settled Tuesday at $1527.90, leaving the ratio at 121.65, an unbelievable figure, far and away the highest level in the 5,000 years of gold and silver being used as money.
As investment grade (IG) spreads have blown out to crisis levels, the treasury curve steepened dramatically on Tuesday, as the short end was bought and longer-dated maturities were sold. The total spread from 1-month bills out to 30-year bonds increased from 109 basis points on Monday to 151 Tuesday, the 30-year yield spiking 29 basis points to 1.64%, the 10-year note yielding 1.02%, also 29 basis points higher. At the short end, the 1-month bill yields 0.12%, falling from 0.25% on the day.
Thus, with millions of Americans at home for the next two weeks, with no sports, little work, and high anxiety, high finance drama continues to play out daily in the markets, which, for better or worse, remain unfettered and open for business.
The world is witnessing a financial calamity in real time.
At the Close, Tuesday, March 17, 2020:
Dow Jones Industrial Average: 21,237.38, +1,048.86 (+5.20%)
NASDAQ: 7,334.78, +430.19 (+6.23%)
S&P 500: 2,529.19, +143.06 (+6.00%)
NYSE: 10,063.36, +495.83 (+5.18%)
Tuesday, March 17, 2020
Following Massive Declines, Wall Street, Global Markets Brace For Recessions, Bankruptcies, Deficits
With most of America and parts of the rest of the world on lockdown in an attempt to slow the spread of COVID-19 coronavirus, international markets and Wall Street investors suffered stunning losses even with the Federal Reserve lowering interest rates essentially to zero and promoting a heavy dose of quantitative easing Sunday night.
The world awoke to a different place on Monday, one in which social distancing was preferred over social networks, toilet paper was more valued that commercial paper, and sheltering in place triumphed over going anyplace.
US indices encountered the worst point losses ever and the largest percentage declines since the 1987 crash which sent stocks reeling by 22 percent. Back then, there were no "circuit breakers" as are in place today, so the waves of selling were allowed to just continue until trading ended.
Monday's journey into the depths of despair began with futures going limit down (-5%) prior to the opening bell, after the Fed panicked and sent the federal funds to 0.00-0.25%, and launched a massive bond-buying binge, otherwise known as QE. None of that helped. In fact, the Fed's emergency actions, coming right before a planned FOMC meeting on Tuesday and Wednesday, sent a signal that all was not well and that liquidity was at the top of the Fed's agenda.
Having credit markets seize up, as they did in the 2008 rout, would be an economic disaster in itself, exacerbated by the effects of trying to tame the coronavirus, people out of work, events cancelled, life, as it used to be known, utterly changed, but for how long, nobody knows.
When the opening bell rang on Wall Street, trading was halted almost instantaneously, with the S&P 500 declining seven percent, setting off the first circuit breaker for the third time in the past two weeks. After a fifteen minute pause, stocks reopened, collapsed below the seven percent mark, but never made their way to the next circuit breaker, at -13%, until after 3:30, when the circuit breakers are effectively "turned off" in the final 25 minutes of trading.
As President Trump spoke at the White House, stocks continued to tumble into the close, saved by some spirited short-covering minutes before 4:00 pm ET.
Elsewhere, markets in Europe and Asia were likewise battered, with just about the entire world's markets already in bear markets and likely to fall further. The dangers for stocks are varied, but essentially fall into three areas. First, supply chain disruptions stemming from China and elsewhere grinding production to a halt. Second, even if corporations have goods or services to sell, the virtual lockdown of more than half the global population is causing a demand shock. Third, having employees working from home or furloughed will wreak havoc on underlying corporate structures and the general economy.
If the severe measures being taken now don't contain the spread of the virus in two to three weeks - in itself a damaging amount of time - and quarantines are put in place for longer, the economic effect could be devastating, no matter how much money the government wants to throw the way of the corporate class. It is individuals that are being most adversely affected. Federal government plans don't include any relief for the people who contribute 70% of GDP. The government will instead seek to bail out large corporations, figuring that if they are kept afloat, jobs will be saved, which is, of course, hogwash, because there will be nothing to stop cash-strapped corporations from laying off employees by the thousands.
With bars, restaurants, night clubs, and casinos being ordered to shut down, layoffs have already begun. On Monday, New York State's unemployment website crashed as thousands rushed to apply for benefits. Americans have been living hand-to-mouth, paycheck-to-paycheck for decades and now they're expected to ride out an economic shutdown at home, with their kids and spouses and no income for weeks, maybe months. The federal government should be making plans to offer relief to individuals in the form of direct payments, forbearance on loans, mortgages, and credit cards. Giving money to businesses is not the most efficient way to ease the pain and suffering of families and individuals. Direct assistance would be more beneficial, but, from the squabbling already firing up on capitol hill over the federal government's relief package, it's unlikely that any significant money will find its way down to the family or individual level.
So, with markets due to open Tuesday (up slightly) within minutes, looking ahead for any positive news is a fool's errand. The Fed meeting Tuesday and Wednesday is now a non-event, and Thursday's first look at new unemployment claims could be an eye-opener, though next week's will probably be more impactful.
There's a good chance for a bounce today, but all rallies should be sold into at this point. No sense in catching falling knives nor beating dead horses.
At the Close, Monday, March 16, 2020:
Dow Jones Industrial Average: 20,188.52, -2,997.10 (-12.93%)
NASDAQ: 6,904.59, -970.28 (-12.32%)
S&P 500: 2,386.13, -324.89 (-11.98%)
NYSE: 9,567.53, -1,284.45 (-11.84%)
The world awoke to a different place on Monday, one in which social distancing was preferred over social networks, toilet paper was more valued that commercial paper, and sheltering in place triumphed over going anyplace.
US indices encountered the worst point losses ever and the largest percentage declines since the 1987 crash which sent stocks reeling by 22 percent. Back then, there were no "circuit breakers" as are in place today, so the waves of selling were allowed to just continue until trading ended.
Monday's journey into the depths of despair began with futures going limit down (-5%) prior to the opening bell, after the Fed panicked and sent the federal funds to 0.00-0.25%, and launched a massive bond-buying binge, otherwise known as QE. None of that helped. In fact, the Fed's emergency actions, coming right before a planned FOMC meeting on Tuesday and Wednesday, sent a signal that all was not well and that liquidity was at the top of the Fed's agenda.
Having credit markets seize up, as they did in the 2008 rout, would be an economic disaster in itself, exacerbated by the effects of trying to tame the coronavirus, people out of work, events cancelled, life, as it used to be known, utterly changed, but for how long, nobody knows.
When the opening bell rang on Wall Street, trading was halted almost instantaneously, with the S&P 500 declining seven percent, setting off the first circuit breaker for the third time in the past two weeks. After a fifteen minute pause, stocks reopened, collapsed below the seven percent mark, but never made their way to the next circuit breaker, at -13%, until after 3:30, when the circuit breakers are effectively "turned off" in the final 25 minutes of trading.
As President Trump spoke at the White House, stocks continued to tumble into the close, saved by some spirited short-covering minutes before 4:00 pm ET.
Elsewhere, markets in Europe and Asia were likewise battered, with just about the entire world's markets already in bear markets and likely to fall further. The dangers for stocks are varied, but essentially fall into three areas. First, supply chain disruptions stemming from China and elsewhere grinding production to a halt. Second, even if corporations have goods or services to sell, the virtual lockdown of more than half the global population is causing a demand shock. Third, having employees working from home or furloughed will wreak havoc on underlying corporate structures and the general economy.
If the severe measures being taken now don't contain the spread of the virus in two to three weeks - in itself a damaging amount of time - and quarantines are put in place for longer, the economic effect could be devastating, no matter how much money the government wants to throw the way of the corporate class. It is individuals that are being most adversely affected. Federal government plans don't include any relief for the people who contribute 70% of GDP. The government will instead seek to bail out large corporations, figuring that if they are kept afloat, jobs will be saved, which is, of course, hogwash, because there will be nothing to stop cash-strapped corporations from laying off employees by the thousands.
With bars, restaurants, night clubs, and casinos being ordered to shut down, layoffs have already begun. On Monday, New York State's unemployment website crashed as thousands rushed to apply for benefits. Americans have been living hand-to-mouth, paycheck-to-paycheck for decades and now they're expected to ride out an economic shutdown at home, with their kids and spouses and no income for weeks, maybe months. The federal government should be making plans to offer relief to individuals in the form of direct payments, forbearance on loans, mortgages, and credit cards. Giving money to businesses is not the most efficient way to ease the pain and suffering of families and individuals. Direct assistance would be more beneficial, but, from the squabbling already firing up on capitol hill over the federal government's relief package, it's unlikely that any significant money will find its way down to the family or individual level.
So, with markets due to open Tuesday (up slightly) within minutes, looking ahead for any positive news is a fool's errand. The Fed meeting Tuesday and Wednesday is now a non-event, and Thursday's first look at new unemployment claims could be an eye-opener, though next week's will probably be more impactful.
There's a good chance for a bounce today, but all rallies should be sold into at this point. No sense in catching falling knives nor beating dead horses.
At the Close, Monday, March 16, 2020:
Dow Jones Industrial Average: 20,188.52, -2,997.10 (-12.93%)
NASDAQ: 6,904.59, -970.28 (-12.32%)
S&P 500: 2,386.13, -324.89 (-11.98%)
NYSE: 9,567.53, -1,284.45 (-11.84%)
Saturday, March 14, 2020
WEEKEND WRAP: Cancel Everything Else, But Stock and Bond Markets Will Remain Open
Despite Friday's massive rally, this past week was one of the worst on record for Wall Street, as the Dow lost another 10 percent and the NYSE Composite, the broadest measure of equities in the United States, dropped more than 12 percent, below levels last seen in late 2016.
With all the major indices ensconced in bear market territory (-20%), which the Dow entered on Wednesday afternoon, Friday's jaunt to the upside was more short-covering and a boatload of pent-up, falsely-placed optimism than anything positive, manifesting itself in the final 27 minutes of trading while President Trump was declaring a national emergency over the COVID-19 crisis, the outbreak declared a global pandemic by the World Health Organization (WHO) two days prior.
The week in financial markets was literally one for the record books, with record gains and losses recorded on all US indices, Friday's meteoric rise becoming the largest one-day gain on the Dow, NASDAQ, and S&P 500, just a day after the biggest point losses. Market volatility has been off the charts as well, as the VIX has remained at an inflated level over the past three weeks, rising as high as 77.54 on Friday before coming down through the week-ending rally.
Putting that into perspective, the VIX closed at 17.08 on February 21. On Thursday, March 12, it ended the session at 75.47, and Friday, 57.83. These are extraordinary numbers.
It wasn't just stocks that were battered and bruised during the week. Bonds took painful hits at the long end of the curve, the 10-year note yield rising from 0.54% on Monday to 0.94% on Friday. Yield on the 20-year was up 44 basis points, from 0.87 to 1.31%. The 30-year bond yield went from 0.99 to 1.56, an enormous, 57 basis point move in just four days.
Shorter duration offerings were bought, sending yields in the other direction, which helped steepen the curve and iron out most of the inversion. Top-to-bottom, the curve was at a mere 73 basis points on Monday, increasing to 128 by Friday.
The most perplexing trade had to be precious metals, which were whipsawed to unforeseen levels as the week wore on. Gold, which had rocketed to 1683.65 on March 6, plummeted to 1529.90 on Friday. Silver fell from a high of 18.78 on February 24 to a close Friday of 14.69. That puts the gold:silver ratio at a record, 104.15.
Closings and cancellations were all the rage late in the week. The NBA canceled their remaining regular season games, as did the NHL. The NCAA cancelled the annual Men's and Women's basketball tournaments and all the major conferences canceled the remainder of their championships. Major League Baseball suspended all Spring Training games and pushed back the opening of the regular season temporarily by two weeks, from March 26th to April 9, at the earliest.
Broadway shows were cancelled in New York, as were any gatherings of 500 or more, throughout the state. California banned gatherings of 250 or more. Disney closed all of its major resort properties, including Disney World in Florida, and halted production on a number of films in progress.
More than 46,000 schools had announced closures by week's end. In Europe, Italy closed its borders, followed by Spain on Saturday. Just about any kind of social activity involving an audience has been shut down indefinitely. DollyWorld in Tennessee closed its doors on Friday. Augusta National postponed the Masters golf tournament and did not specify a date for when it would be held.
For many people, the cancellation of sporting events, shows, and theme parks leaves them with little to do. All cruise lines are on hiatus and President Trump imposed a travel ban to and from Europe and included Great Britain and Ireland on Saturday.
Shopping for essentials seemed to be on the mind of quite a few. Stores like Costco, Wal-Mart and other large grocery chains (Kroger's, Wegman's) saw some shelves emptied quickly, especially the staples, bread, milk, and toilet paper, which was apparently the hottest commodity on the planet this past week. The Players Championship, which was halted on Thursday due to darkness, never got the second round started, cancelling the event and dividing half the prize money evenly among players.
What will continue is the pursuit of money and all its derivatives in equity, bond, and commodity markets, as of this writing. Markets should open Monday as scheduled, though floor traders at the NYSE will surely be screened upon entering the building. Most trading is done electronically, and many traders are working from home instead of offices on Wall Street, throughout Manhattan and in New Jersey and Connecticut.
The Fed has promised as much as $1.5 trillion in repo operations and probably more will be needed. Additionally, the FOMC meeting this Tuesday and Wednesday promises to be of paramount interest, with expectations of another 75 to 100 basis points cut to the federal funds rate, bringing it effectively to the zero bound. The Fed executed an emergency cut of 50 basis points on March 3rd, bringing the overnight lending rate to 1.00-1.25% The Bank of England cut its main bank rate to 0.25% with a 50 basis point slash on March 11.
As the economy weighs the impacts of COVID-19 on the business community and global economies, the threat of recession looms large in all developed nations. With markets turning decidedly bearish since the spread of the disease expanded out of mainland China, companies are looking at major disruptions to business and first quarter earnings. If the crisis is an extended one, second quarter results will also be impacted to a greater degree than they already are.
Estimates for US GDP in the first quarter were already low, teetering around 1.5 to 2.0 percent and that will certainly come in lower than expected, but economists believe the hit to the second quarter (April-June) will be even greater, with some calling for a GDP decline of three to four percent.
With all that's gone on over the course of the past three weeks, nothing is for certain as the market searches for a bottom. While it's nearly assured that Thursday's knee-shaking rout will not prove to be the ultimate drop point, it brings some interesting perspectives to light, particularly, what if the virus does actually peter out with the onset of warmer weather and all this emergency preparedness turns out to be major overkill in addition to being a major buzz kill?
If conditions begin to improve rapidly, the impact to the second quarter would be minimal and first quarter results might actually be skewed positively due to all the panic buying by the general public. That would certainly wrong-foot any number of investors, sending alternate shock waves back at the bears.
Opinion is still out on how long this state of emergency will exist and whether measures will become more severe in coming weeks remains to be seen. The outbreak in the United States has not been particularly alarming, with 2,569 cases and now, 51 deaths, though those numbers continue to accelerate and probably will exceed 8,000 and 200 over the coming week. Most cases are mild, but lack of testing due to fumbling incompetence at the CDC and being slow in preparing overall might cause the numbers to spike.
Whatever the case, the money people will carry on, Washington will bail out anybody and anything with freshly printed greenbacks and the deficit will soar even further into the stratosphere. The global economy has reached a point of no return and is rapidly applying the principles of Modern Monetary Theory (MMT) to a system that has basically be dysfunctional since October 2008.
At the Close, Friday, March 13, 2020:
Dow Jones Industrial Average: 23,185.62, +1,985.00 (+9.36%)
NASDAQ: 7,874.88, +673.07 (+9.35%)
S&P 500: 2,711.02, +230.38 (+9.29%)
NYSE: 10,851.98, +791.21 (+7.86%)
For the Week:
Dow: -2679.16 (-10.36%)
NASDAQ: -700.74 (-8.17%)
S&P 500: -261.35 (-8.79%)
NYSE: -1500.06 (-12.14%)
With all the major indices ensconced in bear market territory (-20%), which the Dow entered on Wednesday afternoon, Friday's jaunt to the upside was more short-covering and a boatload of pent-up, falsely-placed optimism than anything positive, manifesting itself in the final 27 minutes of trading while President Trump was declaring a national emergency over the COVID-19 crisis, the outbreak declared a global pandemic by the World Health Organization (WHO) two days prior.
The week in financial markets was literally one for the record books, with record gains and losses recorded on all US indices, Friday's meteoric rise becoming the largest one-day gain on the Dow, NASDAQ, and S&P 500, just a day after the biggest point losses. Market volatility has been off the charts as well, as the VIX has remained at an inflated level over the past three weeks, rising as high as 77.54 on Friday before coming down through the week-ending rally.
Putting that into perspective, the VIX closed at 17.08 on February 21. On Thursday, March 12, it ended the session at 75.47, and Friday, 57.83. These are extraordinary numbers.
It wasn't just stocks that were battered and bruised during the week. Bonds took painful hits at the long end of the curve, the 10-year note yield rising from 0.54% on Monday to 0.94% on Friday. Yield on the 20-year was up 44 basis points, from 0.87 to 1.31%. The 30-year bond yield went from 0.99 to 1.56, an enormous, 57 basis point move in just four days.
Shorter duration offerings were bought, sending yields in the other direction, which helped steepen the curve and iron out most of the inversion. Top-to-bottom, the curve was at a mere 73 basis points on Monday, increasing to 128 by Friday.
The most perplexing trade had to be precious metals, which were whipsawed to unforeseen levels as the week wore on. Gold, which had rocketed to 1683.65 on March 6, plummeted to 1529.90 on Friday. Silver fell from a high of 18.78 on February 24 to a close Friday of 14.69. That puts the gold:silver ratio at a record, 104.15.
Closings and cancellations were all the rage late in the week. The NBA canceled their remaining regular season games, as did the NHL. The NCAA cancelled the annual Men's and Women's basketball tournaments and all the major conferences canceled the remainder of their championships. Major League Baseball suspended all Spring Training games and pushed back the opening of the regular season temporarily by two weeks, from March 26th to April 9, at the earliest.
Broadway shows were cancelled in New York, as were any gatherings of 500 or more, throughout the state. California banned gatherings of 250 or more. Disney closed all of its major resort properties, including Disney World in Florida, and halted production on a number of films in progress.
More than 46,000 schools had announced closures by week's end. In Europe, Italy closed its borders, followed by Spain on Saturday. Just about any kind of social activity involving an audience has been shut down indefinitely. DollyWorld in Tennessee closed its doors on Friday. Augusta National postponed the Masters golf tournament and did not specify a date for when it would be held.
For many people, the cancellation of sporting events, shows, and theme parks leaves them with little to do. All cruise lines are on hiatus and President Trump imposed a travel ban to and from Europe and included Great Britain and Ireland on Saturday.
Shopping for essentials seemed to be on the mind of quite a few. Stores like Costco, Wal-Mart and other large grocery chains (Kroger's, Wegman's) saw some shelves emptied quickly, especially the staples, bread, milk, and toilet paper, which was apparently the hottest commodity on the planet this past week. The Players Championship, which was halted on Thursday due to darkness, never got the second round started, cancelling the event and dividing half the prize money evenly among players.
What will continue is the pursuit of money and all its derivatives in equity, bond, and commodity markets, as of this writing. Markets should open Monday as scheduled, though floor traders at the NYSE will surely be screened upon entering the building. Most trading is done electronically, and many traders are working from home instead of offices on Wall Street, throughout Manhattan and in New Jersey and Connecticut.
The Fed has promised as much as $1.5 trillion in repo operations and probably more will be needed. Additionally, the FOMC meeting this Tuesday and Wednesday promises to be of paramount interest, with expectations of another 75 to 100 basis points cut to the federal funds rate, bringing it effectively to the zero bound. The Fed executed an emergency cut of 50 basis points on March 3rd, bringing the overnight lending rate to 1.00-1.25% The Bank of England cut its main bank rate to 0.25% with a 50 basis point slash on March 11.
As the economy weighs the impacts of COVID-19 on the business community and global economies, the threat of recession looms large in all developed nations. With markets turning decidedly bearish since the spread of the disease expanded out of mainland China, companies are looking at major disruptions to business and first quarter earnings. If the crisis is an extended one, second quarter results will also be impacted to a greater degree than they already are.
Estimates for US GDP in the first quarter were already low, teetering around 1.5 to 2.0 percent and that will certainly come in lower than expected, but economists believe the hit to the second quarter (April-June) will be even greater, with some calling for a GDP decline of three to four percent.
With all that's gone on over the course of the past three weeks, nothing is for certain as the market searches for a bottom. While it's nearly assured that Thursday's knee-shaking rout will not prove to be the ultimate drop point, it brings some interesting perspectives to light, particularly, what if the virus does actually peter out with the onset of warmer weather and all this emergency preparedness turns out to be major overkill in addition to being a major buzz kill?
If conditions begin to improve rapidly, the impact to the second quarter would be minimal and first quarter results might actually be skewed positively due to all the panic buying by the general public. That would certainly wrong-foot any number of investors, sending alternate shock waves back at the bears.
Opinion is still out on how long this state of emergency will exist and whether measures will become more severe in coming weeks remains to be seen. The outbreak in the United States has not been particularly alarming, with 2,569 cases and now, 51 deaths, though those numbers continue to accelerate and probably will exceed 8,000 and 200 over the coming week. Most cases are mild, but lack of testing due to fumbling incompetence at the CDC and being slow in preparing overall might cause the numbers to spike.
Whatever the case, the money people will carry on, Washington will bail out anybody and anything with freshly printed greenbacks and the deficit will soar even further into the stratosphere. The global economy has reached a point of no return and is rapidly applying the principles of Modern Monetary Theory (MMT) to a system that has basically be dysfunctional since October 2008.
At the Close, Friday, March 13, 2020:
Dow Jones Industrial Average: 23,185.62, +1,985.00 (+9.36%)
NASDAQ: 7,874.88, +673.07 (+9.35%)
S&P 500: 2,711.02, +230.38 (+9.29%)
NYSE: 10,851.98, +791.21 (+7.86%)
For the Week:
Dow: -2679.16 (-10.36%)
NASDAQ: -700.74 (-8.17%)
S&P 500: -261.35 (-8.79%)
NYSE: -1500.06 (-12.14%)
Wednesday, March 11, 2020
Record Rise on NASDAQ; Big Gains on Dow, S&P Relieve Bear Market Fears... for Now
(Simultaneously published at Downtown Magazine)
In case anybody is growing weary of the recent volatility that has sent stocks soaring and diving over the past three to four weeks, prepare for more of the same. There will be no respite in daily swings of two percent, three percent or more, as yesterday proved, as stocks staged a monumental rally in the latter part of the the session, the Dow rising more than 1000 points in the final two hours.
At the end of the day, all major indices were approaching gains of five percent. Keeping with the trend of record-breaking sessions, the Dow's rise was the third largest point gain in market history. The other two occurred earlier this month. On March 2nd, the Industrials set the mark with a gain of 1,293.96 points. Tow days later, it came close to breaking that, up by 1,173.45 points.
With an eye toward the VIX - the market's preferred measure of volatility - this kind of roller coaster ride should continue until there's resolution to the downside. The VIX has recently hovered in the 40-50 range, ripping as high as 55. Normal volatility is usually measured in the teens.
The NASDAQ and S&P also experienced massive upside Tuesday afternoon, resulting in a record point gain on the NASDAQ, up 393.58 points, surpassing the record set just over a week ago, on March 2nd (+384.80). The S&P's gain of 135.67 points fell just shy of the record mark, also recorded on March 2nd, at +136.01.
In this regime of wild swings, it's probable that some traders are going to make massive profits while others fail miserably. It's all about timing and nerves. Anybody with poor timing and a thin appetite for risk is likely to be wiped out in short order. Those who relish the thrill of the hunt and have money to burn should come out ahead in the end, varying trades between long and short, at least until the market overseers ban short sales or profiting on put options.
It may not be obvious to the general public, but where this is head seems pretty clear. The coronavirus, COVID-19, has wreaked havoc on human society, thus disrupting the normal flow of business, a trend that's only just begun. Businesses are only beginning to feel the effects of breaks in the supply chain from China, and soon enough the entire planet's trade will be paralyzed by delays, outages, work stoppages, quarantines, deaths, and all the assorted maladies that accompany global pandemics, the likes of which have not presented themselves in the lifetimes of anybody alive today.
Estimates from medical experts are frightening, which is why the numbers being released by the CDC in the United States are nothing short of a bad joke. Over the past week, the CDC has "officially" recorded anywhere between 2 and 19 new cases of COVID-19 daily, this in a country with a projected population of 333,546,000.
Actual incidence of infection is orders of magnitude higher; that can be safely assumed. With the aid of the CDC, the US government has chosen to protect the economy rather than the people, a strategy doomed to fail. Without effective measures for controlling and containing the spread of the disease - as has been accomplished to a relatively high degree in places like Hong Kong, Singapore, and South Korea - via testing, contact tracking, and quarantine - it will spread virtually unchecked through a population. The evidence from the epicenter in Wuhan, China is compelling in this regard. Akin to what happened there, the US approach is dangerously close to causing a widespread outbreak in any number of cities by ignoring simple precautions and putting money ahead of human health.
What would an economy look like with 200 deaths per day, hospitals overwhelmed and people forced to stay indoors and away from others for weeks at a time? We, and some European nations are about to find out. With a population spoiled by the luxuries of freedom, it's not going to be much fun watching entitled populations melt down under the imposition of travel bans, quarantines, and other draconian measures.
As for stocks, well, their pathway will be all but assured. The Dow Jones Industrials bounced off a mark of declination on Tuesday when it bottomed out at 23,690.34. It was down 19.88% from the intraday high of 29,568.57, recorded on February 12 of this year. It was about to fall into bear market territory. The day's gains may have staved off capitulation for now, but it's coming, and soon. The end of the 11-year bull market and the beginning of what could be a prolonged bear market is at hand.
At the Close, Tuesday, March 10, 2020:
Dow Jones Industrial Average: 25,018.16, +1,167.14 (+4.89%)
NASDAQ: 8,344.25, +393.58 (+4.95%)
S&P 500: 2,882.23, +135.67 (+4.94%)
NYSE: 11,793.27, +494.84 (+4.38%)
In case anybody is growing weary of the recent volatility that has sent stocks soaring and diving over the past three to four weeks, prepare for more of the same. There will be no respite in daily swings of two percent, three percent or more, as yesterday proved, as stocks staged a monumental rally in the latter part of the the session, the Dow rising more than 1000 points in the final two hours.
At the end of the day, all major indices were approaching gains of five percent. Keeping with the trend of record-breaking sessions, the Dow's rise was the third largest point gain in market history. The other two occurred earlier this month. On March 2nd, the Industrials set the mark with a gain of 1,293.96 points. Tow days later, it came close to breaking that, up by 1,173.45 points.
With an eye toward the VIX - the market's preferred measure of volatility - this kind of roller coaster ride should continue until there's resolution to the downside. The VIX has recently hovered in the 40-50 range, ripping as high as 55. Normal volatility is usually measured in the teens.
The NASDAQ and S&P also experienced massive upside Tuesday afternoon, resulting in a record point gain on the NASDAQ, up 393.58 points, surpassing the record set just over a week ago, on March 2nd (+384.80). The S&P's gain of 135.67 points fell just shy of the record mark, also recorded on March 2nd, at +136.01.
In this regime of wild swings, it's probable that some traders are going to make massive profits while others fail miserably. It's all about timing and nerves. Anybody with poor timing and a thin appetite for risk is likely to be wiped out in short order. Those who relish the thrill of the hunt and have money to burn should come out ahead in the end, varying trades between long and short, at least until the market overseers ban short sales or profiting on put options.
It may not be obvious to the general public, but where this is head seems pretty clear. The coronavirus, COVID-19, has wreaked havoc on human society, thus disrupting the normal flow of business, a trend that's only just begun. Businesses are only beginning to feel the effects of breaks in the supply chain from China, and soon enough the entire planet's trade will be paralyzed by delays, outages, work stoppages, quarantines, deaths, and all the assorted maladies that accompany global pandemics, the likes of which have not presented themselves in the lifetimes of anybody alive today.
Estimates from medical experts are frightening, which is why the numbers being released by the CDC in the United States are nothing short of a bad joke. Over the past week, the CDC has "officially" recorded anywhere between 2 and 19 new cases of COVID-19 daily, this in a country with a projected population of 333,546,000.
Actual incidence of infection is orders of magnitude higher; that can be safely assumed. With the aid of the CDC, the US government has chosen to protect the economy rather than the people, a strategy doomed to fail. Without effective measures for controlling and containing the spread of the disease - as has been accomplished to a relatively high degree in places like Hong Kong, Singapore, and South Korea - via testing, contact tracking, and quarantine - it will spread virtually unchecked through a population. The evidence from the epicenter in Wuhan, China is compelling in this regard. Akin to what happened there, the US approach is dangerously close to causing a widespread outbreak in any number of cities by ignoring simple precautions and putting money ahead of human health.
What would an economy look like with 200 deaths per day, hospitals overwhelmed and people forced to stay indoors and away from others for weeks at a time? We, and some European nations are about to find out. With a population spoiled by the luxuries of freedom, it's not going to be much fun watching entitled populations melt down under the imposition of travel bans, quarantines, and other draconian measures.
As for stocks, well, their pathway will be all but assured. The Dow Jones Industrials bounced off a mark of declination on Tuesday when it bottomed out at 23,690.34. It was down 19.88% from the intraday high of 29,568.57, recorded on February 12 of this year. It was about to fall into bear market territory. The day's gains may have staved off capitulation for now, but it's coming, and soon. The end of the 11-year bull market and the beginning of what could be a prolonged bear market is at hand.
At the Close, Tuesday, March 10, 2020:
Dow Jones Industrial Average: 25,018.16, +1,167.14 (+4.89%)
NASDAQ: 8,344.25, +393.58 (+4.95%)
S&P 500: 2,882.23, +135.67 (+4.94%)
NYSE: 11,793.27, +494.84 (+4.38%)
Tuesday, March 10, 2020
Stocks Lose Record Amounts, Treasury Bond Yields Smashed As COVID-19 Begins Taking Its Toll
All of the major US indices posted record losses as coronavirus (COVID-19) continues to rage through 115 countries, with 114,595 confirmed cases and a death toll now over 4,000 (4,028).
Adding to market grief, Saudi Arabia, in an effort to harm other oil producers sent crude futures plunging as it unilaterally slashed prices and raised production output. WTI crude fell below $30 a barrel, recovering slightly to above $34.00 a barrel prior to Tuesday's opening bell. Still, the price cut was mammoth, on the order of a 24.6% decline. WTI closed at $41.28 Friday, finishing at $31.13 on Monday.
The Dow, S&P, NASDAQ, and NYSE all recorded record point losses, blowing away earlier marks. The Dow's 2,013.76 loss nearly doubled the previous record from February 27 of this year (−1,190.95). On The NASDAQ, the 624.94-point loss topped the list, easily surpassing the February 9 drop of −414.30.
Losing 225,81, the S&P vaulted over its previous mark of −137.63, also on February 27 of this year, less than two weeks ago.
The treasury bond complex was not spared, with yields falling across the entire curve by enormous amounts. The 30-year bond finished at 0.99% yield, the first time ever it has been below one percent. The day's decline was an unprecedented 26 basis points. At the other end, one-month bills dropped 22 basis points, from 0.79 to 0.57%.
Offering the lowest yield is the six-month bill, at 0.27%. The 10-year note was absolutely shattered, down 20 basis points, from 0.74 to 0.54%. In terms of curve, the complex is exceedingly flat, with just 72 basis points between the top and bottom yields.
Gold and silver both were higher initially, but were beaten down over the course of the day.
In the United States, the number of new, confirmed cases are rising rapidly as tests from the CDC begin arriving in massive quantities to state and local hospitals and labs. There are now 755 cases of coronavirus in the US, and 26 deaths.
After China, the US ranks 8th overall. Italy has reported 9,172 cases with 463 deaths. Italy's death figures are the highest outside mainland China, as are the number of cases. The Italian government closed its borders completely on Monday after efforts to contain the virus to the northern provinces failed.
The other countries topping the list of most infected are, in order, South Korea, Iran, France, Spain, and Germany, after which comes the United States. All of the aforementioned countries are reporting more than 1,000 cases. Confirmed cases outside China has exceeded those inside China for nearly the past week and are doubling every three to four days.
In addition to the human tragedy, large events are being canceled worldwide. Ireland has canceled all St. Patrick's Day parades, and around the world sporting events, concerts and other large-crowd gatherings are being put on hold or canceled, including the huge South-by-Southwest (SXSW) conference in Austin, Texas. The NCAA basketball tournament, commonly known as March Madness, which begins in a week, NBA basketball, and Major League Baseball, which opens its regular season on March 26, are all mulling the idea of playing games with no fans in the stands.
Businesses are gearing down due to the crisis, with many major firms instructing employees to work from home. School cancelations are on the rise globally, and will be widespread in the US in coming days and weeks.
The after-effects of the virus on the business community and the economy are just beginning to be felt according to many in finance, including hedge fund manager Kyle Bass, who believes the crisi will peak in about a month.
Even though the World Health Organization (WHO) is reluctant to call the worldwide spread of the pathogen a pandemic, it is surely one. The WHO does not want to use the world pandemic as it would trigger the default of "pandemic bonds," designed to provide $500 million to the organization should a pandemic be declared.
With less than an hour before the opening bell in the US, stocks seem to have caught a bid. Japan's NIKKEI was lower for most of the day but finished marginally higher on Tuesday. Other Pacific Rim bourses finished with gains of one to one-and-a-half percent, while European indices are currently sporting gains of around 2.5%.
US stock futures point to a higher open, as traders prepare for another stressful session. The so-called "dead cat bounce" applies, as the markets don't seem to have actually bottomed out. When all is said and done, many countries are going to report GDP losses for the first and likely, second quarters, plunging the world into what may be a prolonged recession.
At the Close, Monday, March 9, 2020:
Dow Jones Industrial Average: 23,851.02, -2,013.76 (-7.79%)
NASDAQ: 7,950.68, -624.94 (-7.29%)
S&P 500: 2,746.56, -225.81 (-7.60%)
NYSE: 11,298.43, -1,053.60 (-8.53%)
Adding to market grief, Saudi Arabia, in an effort to harm other oil producers sent crude futures plunging as it unilaterally slashed prices and raised production output. WTI crude fell below $30 a barrel, recovering slightly to above $34.00 a barrel prior to Tuesday's opening bell. Still, the price cut was mammoth, on the order of a 24.6% decline. WTI closed at $41.28 Friday, finishing at $31.13 on Monday.
The Dow, S&P, NASDAQ, and NYSE all recorded record point losses, blowing away earlier marks. The Dow's 2,013.76 loss nearly doubled the previous record from February 27 of this year (−1,190.95). On The NASDAQ, the 624.94-point loss topped the list, easily surpassing the February 9 drop of −414.30.
Losing 225,81, the S&P vaulted over its previous mark of −137.63, also on February 27 of this year, less than two weeks ago.
The treasury bond complex was not spared, with yields falling across the entire curve by enormous amounts. The 30-year bond finished at 0.99% yield, the first time ever it has been below one percent. The day's decline was an unprecedented 26 basis points. At the other end, one-month bills dropped 22 basis points, from 0.79 to 0.57%.
Offering the lowest yield is the six-month bill, at 0.27%. The 10-year note was absolutely shattered, down 20 basis points, from 0.74 to 0.54%. In terms of curve, the complex is exceedingly flat, with just 72 basis points between the top and bottom yields.
Gold and silver both were higher initially, but were beaten down over the course of the day.
In the United States, the number of new, confirmed cases are rising rapidly as tests from the CDC begin arriving in massive quantities to state and local hospitals and labs. There are now 755 cases of coronavirus in the US, and 26 deaths.
After China, the US ranks 8th overall. Italy has reported 9,172 cases with 463 deaths. Italy's death figures are the highest outside mainland China, as are the number of cases. The Italian government closed its borders completely on Monday after efforts to contain the virus to the northern provinces failed.
The other countries topping the list of most infected are, in order, South Korea, Iran, France, Spain, and Germany, after which comes the United States. All of the aforementioned countries are reporting more than 1,000 cases. Confirmed cases outside China has exceeded those inside China for nearly the past week and are doubling every three to four days.
In addition to the human tragedy, large events are being canceled worldwide. Ireland has canceled all St. Patrick's Day parades, and around the world sporting events, concerts and other large-crowd gatherings are being put on hold or canceled, including the huge South-by-Southwest (SXSW) conference in Austin, Texas. The NCAA basketball tournament, commonly known as March Madness, which begins in a week, NBA basketball, and Major League Baseball, which opens its regular season on March 26, are all mulling the idea of playing games with no fans in the stands.
Businesses are gearing down due to the crisis, with many major firms instructing employees to work from home. School cancelations are on the rise globally, and will be widespread in the US in coming days and weeks.
The after-effects of the virus on the business community and the economy are just beginning to be felt according to many in finance, including hedge fund manager Kyle Bass, who believes the crisi will peak in about a month.
Even though the World Health Organization (WHO) is reluctant to call the worldwide spread of the pathogen a pandemic, it is surely one. The WHO does not want to use the world pandemic as it would trigger the default of "pandemic bonds," designed to provide $500 million to the organization should a pandemic be declared.
With less than an hour before the opening bell in the US, stocks seem to have caught a bid. Japan's NIKKEI was lower for most of the day but finished marginally higher on Tuesday. Other Pacific Rim bourses finished with gains of one to one-and-a-half percent, while European indices are currently sporting gains of around 2.5%.
US stock futures point to a higher open, as traders prepare for another stressful session. The so-called "dead cat bounce" applies, as the markets don't seem to have actually bottomed out. When all is said and done, many countries are going to report GDP losses for the first and likely, second quarters, plunging the world into what may be a prolonged recession.
At the Close, Monday, March 9, 2020:
Dow Jones Industrial Average: 23,851.02, -2,013.76 (-7.79%)
NASDAQ: 7,950.68, -624.94 (-7.29%)
S&P 500: 2,746.56, -225.81 (-7.60%)
NYSE: 11,298.43, -1,053.60 (-8.53%)
Monday, March 9, 2020
Weekend Wrap: This Is Bad; Oil Crashes; Stock Futures Limit Down; Global Market Panic in Progress
Thanks to a late-day ramp on Friday afternoon, the week turned out to be mostly positive for the investor class, though it certainly didn't seem to be that way most as the days wore onward.
With a 600-point buying spree on the Dow Jones Industrial Average - which pulled all the other indices higher as well - stocks finished with gains instead of substantial losses. After a week of wild swings, the mood had turned ugly, accentuated by cascading drops on Thursday and Friday at the opening bells both days and concerted selling in airline stocks, banks, and hospitality.
As pronounced as the near-panic over the prior five trading sessions was, what's ahead on Monday will be worse by orders of magnitude.
Beginning with the coronavirus (COVID-19) decimating economies and social structure from China to Italy to South Korea, Iran, and beyond, slumping demand and forecasting of a bleak near-term future prompted extreme action from Saudi Arabia over the weekend. On Friday, when Russia refused to go along with a planned 1.5 million barrels a day reduction in crude production by OPEC+ nations, the Saudis decided to put the screws to everyone in the oil business by slashing their rates and ramping up production.
The impact of this momentous decision on Saturday was immediately felt across not just the oil futures markets but equity and credit markets around the world. With all major indices closed as usual on Sunday, focus was attuned to futures, which were being hammered lower by as much as seven percent in some cases. In the US, futures trading was halted when the Dow, S&P, and NASDAQ futures fell by five percent, otherwise known as limit down.
Crude futures were down by extreme amounts. WTI crude was last seen at $32.07 per barrel, a 22% loss from Friday, when it was selling in the low 40s per barrel.
Bonds were being battered as well, with reports that the benchmark 10-year note was trading with a yield below 0.48% (at one point yielding an all-time low of 0.31%) and other bond yields were being destroyed in markets that began to open, first in Japan, China and the Far East, then to Europe. If fear of COVID-19 contagion was palpable, the contagion from the economic fallout had become all to real.
With US markets set to open in an hour, the condition is dire.
A quick rundown of the carnage on major indices around the world:
Suppression of the precious metals, the only remaining asset class that may hold some value, continues unabated as global economies come under severe pressure. Gold gained marginally, to $1678.00 per ounce, following a banner performance last week. Silver is under even more pressure, trading at $16.83 on futures markets, making a mockery of the gold/silver ratio, which is nearly 100:1. In more measured times - as in all centuries prior to this one - the gold silver ratio was pretty steady at 12:1 to 16:1. The current measure is a bad joke on a bad day, told by bad people with nothing but evil intentions (central banks).
Silver would have to rise to $100 per ounce for the gold/silver ratio to be anywhere near historical norms. With gold on the verge of a major breakout above $2000 per ounce, silver should - some day, maybe - be worth over $150 per ounce or similar equivalent in some other currency.
Monday's open should be epic. The aftermath, and the expected coordinated response by central banks figures to be a complete clown show, highlighted by massive injections of cash, POMO, TOMO, market-neutral rates, negative rates, and eventually, some collapsing banks. Couldn't happen to a more deserving crowd.
Money Daily will provide updates as time allows. Panic is a mild term for what's about to occur.
At the Close, Friday, March 6, 2020:
Dow Jones Industrial Average: 25,864.78, -256.52 (-0.98%)
NASDAQ: 8,575.62, -162.97 (-1.86%)
S&P 500: 2,972.37, -51.57 (-1.71%)
NYSE: 12,352.03, -240.97 (-1.91%)
For the Week:
Dow: +455.42 (+1.79%)
NASDAQ: +8.25 (+0.10%)
S&P 500: +18.15 (+0.61%)
NYSE: -28.94 (-0.23%)
With a 600-point buying spree on the Dow Jones Industrial Average - which pulled all the other indices higher as well - stocks finished with gains instead of substantial losses. After a week of wild swings, the mood had turned ugly, accentuated by cascading drops on Thursday and Friday at the opening bells both days and concerted selling in airline stocks, banks, and hospitality.
As pronounced as the near-panic over the prior five trading sessions was, what's ahead on Monday will be worse by orders of magnitude.
Beginning with the coronavirus (COVID-19) decimating economies and social structure from China to Italy to South Korea, Iran, and beyond, slumping demand and forecasting of a bleak near-term future prompted extreme action from Saudi Arabia over the weekend. On Friday, when Russia refused to go along with a planned 1.5 million barrels a day reduction in crude production by OPEC+ nations, the Saudis decided to put the screws to everyone in the oil business by slashing their rates and ramping up production.
The impact of this momentous decision on Saturday was immediately felt across not just the oil futures markets but equity and credit markets around the world. With all major indices closed as usual on Sunday, focus was attuned to futures, which were being hammered lower by as much as seven percent in some cases. In the US, futures trading was halted when the Dow, S&P, and NASDAQ futures fell by five percent, otherwise known as limit down.
Crude futures were down by extreme amounts. WTI crude was last seen at $32.07 per barrel, a 22% loss from Friday, when it was selling in the low 40s per barrel.
Bonds were being battered as well, with reports that the benchmark 10-year note was trading with a yield below 0.48% (at one point yielding an all-time low of 0.31%) and other bond yields were being destroyed in markets that began to open, first in Japan, China and the Far East, then to Europe. If fear of COVID-19 contagion was palpable, the contagion from the economic fallout had become all to real.
With US markets set to open in an hour, the condition is dire.
A quick rundown of the carnage on major indices around the world:
- NIKKEI (Japan) -5.07%
- Straits Times Index (Taiwan, Pacific Rim) -6.03%
- SSE Composite (China) -3.01%
- Hang Seng (Hong Kong) -4.23%
- BSE Sensex (India) -5.17%
- All Ordinaries (Australia) -7.40%
- KOSPI (South Korea) -4.19%
- MOEX (Russia) -3.45
- Jakarta Composite (Indonesia) -6.58%
- FTSE Bursa (Malaysia) -3.97%
- DAX (Germany) -7.00%
- CAC-40 (France) -7.14%
- FTSE 100 (England) -6.93%
- EuroNext 100 (Europe composite) -7.50%
Suppression of the precious metals, the only remaining asset class that may hold some value, continues unabated as global economies come under severe pressure. Gold gained marginally, to $1678.00 per ounce, following a banner performance last week. Silver is under even more pressure, trading at $16.83 on futures markets, making a mockery of the gold/silver ratio, which is nearly 100:1. In more measured times - as in all centuries prior to this one - the gold silver ratio was pretty steady at 12:1 to 16:1. The current measure is a bad joke on a bad day, told by bad people with nothing but evil intentions (central banks).
Silver would have to rise to $100 per ounce for the gold/silver ratio to be anywhere near historical norms. With gold on the verge of a major breakout above $2000 per ounce, silver should - some day, maybe - be worth over $150 per ounce or similar equivalent in some other currency.
Monday's open should be epic. The aftermath, and the expected coordinated response by central banks figures to be a complete clown show, highlighted by massive injections of cash, POMO, TOMO, market-neutral rates, negative rates, and eventually, some collapsing banks. Couldn't happen to a more deserving crowd.
Money Daily will provide updates as time allows. Panic is a mild term for what's about to occur.
At the Close, Friday, March 6, 2020:
Dow Jones Industrial Average: 25,864.78, -256.52 (-0.98%)
NASDAQ: 8,575.62, -162.97 (-1.86%)
S&P 500: 2,972.37, -51.57 (-1.71%)
NYSE: 12,352.03, -240.97 (-1.91%)
For the Week:
Dow: +455.42 (+1.79%)
NASDAQ: +8.25 (+0.10%)
S&P 500: +18.15 (+0.61%)
NYSE: -28.94 (-0.23%)
Friday, March 6, 2020
Stocks Struck, Bonds Bought, Gold Soaring As COVID-19 Coronavirus Continues to Prompt Worldwide Response; Fed Powerless
While no records were broken on Thursday, US stocks gave back most of the gains made on Wednesday, as volatility remained elevated. The most-widely quoted measure of volatility, the VIX, spiked to 46.25, a level not seen since the onset of the Great Financial Crisis (GFC) in October 2008. A normal range for the VIX is between 12 and 18. The measure is currently indicating extreme stress in equity markets.
Another gauge of how severe this latest foray into and out of correction territory is the treasury yield curve and individual duration yields. The benchmark of the treasury complex is the 10-year note, which continues to be bought, sending the yield spiraling downward to unprecedented levels.
On Thursday, yields across the treasury complex were hammered lower. The 10-year-note fell from 1.02% on Wednesday to as low as 0.87% on Thursday, finally settling at another new record low of 0.92%. As long as equities remain under pressure - a timeline which could extend not just days or weeks, but months - bonds will be the safe haven and yields will fall.
The 30-year bond, which began the year at 2.33% and was at 2.09% as recently as February 12, crashed another nine basis points on the day, to a record low 1.56%. Shorter duration bills and notes were also being bought, sending yields skidding. The 2-year note was yielding 1.44% a month ago, closed out Thursday at 0.59%. The 1-year continues to offer the lowest yield, 0.48%, while the shortest duration, the 1-month bill yields 0.92. The short end is inverted, signaling economic chokepoints dead ahead.
All of this market turmoil has been the cause of the widely-spread coronavirus, or COVID-19, its official name. With worldwide cases now over 100,000, deaths over 3,400, and the increase in daily infections outside of mainland China now surpassing those from inside China, there's little doubt that the pandemic has reached crisis proportions.
The current hotspots continue to be South Korea (6,593 cases), Iran (4,747) and Italy (3,858), though countries in Europe are beginning to spike higher, especially in Germany, France, Spain, and Switzerland.
The United States is currently reporting 233 cases, though the lack of preparedness and test kits assures that the number is higher by orders of magnitude. With an asymptomatic (not showing obvious symptoms of infection) period of up to 27 days in which the carrier can spread the virus, the number of cases in the United States - as wel as everywhere else - is likely to spike higher within the next week or two. While this is speculation, it is based upon recognizable patterns of the virus, from evidence gathered in South Korea, Italy and on the cruise ship, Diamond Princess, which was ported in Japan for a month and served as a kind of petri dish for study of the disease.
With quarantine the most effective measure to mitigate the spread of coronavirus, the fear in markets is that entire communities will become isolated, workplaces shuttered, large events cancelled. Those scenarios and more have already been evidenced in China, South Korea, Italy and elsewhere. There's no escaping the realities of this global outbreak.
Along the lines of seeking out safe havens, gold has been a superstar, at a seven year high, $1,686.30 per ounce. Silver has lagged, but continues to appreciate, the current price $17.46 per ounce.
Crude oil continues to languish as global demand has collapsed. Even after OPEC announced a cut of half a million barrels a day, the price of WTI crude oil slipped further, currently at $44.06 per barrel.
In what has to be the most inconsequential data release in recent memory, the Labor Department released the February non-farm payroll report, which showed employers added 273,000 jobs nationwide, dropping the unemployment rate to 3.5%, though all of this data is viewed through a lens that was looking prior to the extreme global outbreak of COVID-19.
Markets will remain unsettled as long as the virus remains in its virulent form. With no good remedies or a vaccine readily available, fear will dominate financial markets and it is more likely to get worse before it gets any better. The United States has not yet seen the effects of widespread outbreak, which is all but certain to occur.
Even with Thursday's large losses, stocks are still ahead for the week from two to three percent, depending on the index in question. Bank stocks have suffered tremendous losses, as have airlines, but the damage to stocks has been pretty much an all-in matter. 90% of stocks on the S&P 500 are trading below their 10-day moving averages.
As of Friday morning, the Dow is still ahead by 2.80% on the week, but the market is poised for another down day and the near-term bottom of 24,681.01 (intraday) is certain to be tested in short order.
The Federal Reserve, which cut the federal funds rate by 50 basis points in an emergency cut on Tuesday, meets on March 17-18, with the market calling for a 50 to 75 basis point cut, which would bring the rate down below one percent. Even though the Fed will likely cut the rate at the meeting - and again at its April meeting - it is unlikely to offer much in the way of relief. The Fed cannot print a vaccine, nor halt the spread of an invisible, virulent virus which is rampaging around the world.
At the Close, Thursday, March 5, 2020:
Dow Jones Industrial Average: 26,121.28, -969.58 (-3.58%)
NASDAQ: 8,738.59, -279.49 (-3.10%)
S&P 500: 3,023.94, -106.18 (-3.39%)
NYSE: 12,593.03, -416.93 (-3.20%)
Another gauge of how severe this latest foray into and out of correction territory is the treasury yield curve and individual duration yields. The benchmark of the treasury complex is the 10-year note, which continues to be bought, sending the yield spiraling downward to unprecedented levels.
On Thursday, yields across the treasury complex were hammered lower. The 10-year-note fell from 1.02% on Wednesday to as low as 0.87% on Thursday, finally settling at another new record low of 0.92%. As long as equities remain under pressure - a timeline which could extend not just days or weeks, but months - bonds will be the safe haven and yields will fall.
The 30-year bond, which began the year at 2.33% and was at 2.09% as recently as February 12, crashed another nine basis points on the day, to a record low 1.56%. Shorter duration bills and notes were also being bought, sending yields skidding. The 2-year note was yielding 1.44% a month ago, closed out Thursday at 0.59%. The 1-year continues to offer the lowest yield, 0.48%, while the shortest duration, the 1-month bill yields 0.92. The short end is inverted, signaling economic chokepoints dead ahead.
All of this market turmoil has been the cause of the widely-spread coronavirus, or COVID-19, its official name. With worldwide cases now over 100,000, deaths over 3,400, and the increase in daily infections outside of mainland China now surpassing those from inside China, there's little doubt that the pandemic has reached crisis proportions.
The current hotspots continue to be South Korea (6,593 cases), Iran (4,747) and Italy (3,858), though countries in Europe are beginning to spike higher, especially in Germany, France, Spain, and Switzerland.
The United States is currently reporting 233 cases, though the lack of preparedness and test kits assures that the number is higher by orders of magnitude. With an asymptomatic (not showing obvious symptoms of infection) period of up to 27 days in which the carrier can spread the virus, the number of cases in the United States - as wel as everywhere else - is likely to spike higher within the next week or two. While this is speculation, it is based upon recognizable patterns of the virus, from evidence gathered in South Korea, Italy and on the cruise ship, Diamond Princess, which was ported in Japan for a month and served as a kind of petri dish for study of the disease.
With quarantine the most effective measure to mitigate the spread of coronavirus, the fear in markets is that entire communities will become isolated, workplaces shuttered, large events cancelled. Those scenarios and more have already been evidenced in China, South Korea, Italy and elsewhere. There's no escaping the realities of this global outbreak.
Along the lines of seeking out safe havens, gold has been a superstar, at a seven year high, $1,686.30 per ounce. Silver has lagged, but continues to appreciate, the current price $17.46 per ounce.
Crude oil continues to languish as global demand has collapsed. Even after OPEC announced a cut of half a million barrels a day, the price of WTI crude oil slipped further, currently at $44.06 per barrel.
In what has to be the most inconsequential data release in recent memory, the Labor Department released the February non-farm payroll report, which showed employers added 273,000 jobs nationwide, dropping the unemployment rate to 3.5%, though all of this data is viewed through a lens that was looking prior to the extreme global outbreak of COVID-19.
Markets will remain unsettled as long as the virus remains in its virulent form. With no good remedies or a vaccine readily available, fear will dominate financial markets and it is more likely to get worse before it gets any better. The United States has not yet seen the effects of widespread outbreak, which is all but certain to occur.
Even with Thursday's large losses, stocks are still ahead for the week from two to three percent, depending on the index in question. Bank stocks have suffered tremendous losses, as have airlines, but the damage to stocks has been pretty much an all-in matter. 90% of stocks on the S&P 500 are trading below their 10-day moving averages.
As of Friday morning, the Dow is still ahead by 2.80% on the week, but the market is poised for another down day and the near-term bottom of 24,681.01 (intraday) is certain to be tested in short order.
The Federal Reserve, which cut the federal funds rate by 50 basis points in an emergency cut on Tuesday, meets on March 17-18, with the market calling for a 50 to 75 basis point cut, which would bring the rate down below one percent. Even though the Fed will likely cut the rate at the meeting - and again at its April meeting - it is unlikely to offer much in the way of relief. The Fed cannot print a vaccine, nor halt the spread of an invisible, virulent virus which is rampaging around the world.
At the Close, Thursday, March 5, 2020:
Dow Jones Industrial Average: 26,121.28, -969.58 (-3.58%)
NASDAQ: 8,738.59, -279.49 (-3.10%)
S&P 500: 3,023.94, -106.18 (-3.39%)
NYSE: 12,593.03, -416.93 (-3.20%)
Thursday, March 5, 2020
A Day Without Coronavirus Headlines Produces Massive Rally, But It's Probably False Hope
With much of the news focus on the results from Super Tuesday's Democrat primaries and the Fed's 50 basis point cut to the federal funds rate, for a day, market participants had their heads turned toward something other than the evolving coronavirus crisis.
That little bit of relief allowed stocks to rise by roughly four percent across the major indices. The gains were not record-breaking, but they were close. The NASDAQ's 334-point rise was the third-best on record; the Dow's gain exceeded only by the 1,293.96 rip on Monday. The S&P's number was also the second-best day ever.
These kinds of wild swings, to both the upside and down, have become a trademark for not just US markets but many international stock indices since the outbreak of COVID-19 in China, but especially so since the virus has spread beyond the borders of the world's most populous nation. Most developed nations are currently flirting with 10 percent drops off recent highs, crossing the point of correction level at various times, above and below it.
Following Wednesday's romp, news on the coronavirus front just got worse and worse as the day turned to night and night to Thursday morning. A health screener at LA-X in Los Angeles tested positive for the virus; in New York, six more cases emerged. Seattle is quickly becoming an epicenter for an outbreak, and by morning, California had declared an emergency due to the treat from the spreading infection. 1000 people in New York are being screened for possible infection.
Schools are closing in various places across the country, Amazon and Microsoft employees are being advised to work from home, soccer games in Europe are being played in stadia devoid of fans, Italy has urged anyone over the age of 60 to stay home as much as possible to avoid contracting the virus. Despite the WHO's failure to officially declare a pandemic, COVID-19 has swept around the planet and is showing no signs of abating.
As for the World Health Organization failing to label the current condition a pandemic (it is, even according to their own standards), the reason may lie more in the ghastly world of finance rather than health. Unconfirmed reports say there are "pandemic bonds," which are bets against a pandemic outbreak declaration. If the WHO declares COVID-19 a pandemic, it will trigger bets made on a pandemic, as credit default swaps (CDS), along the lines of those which paid off magnificently when the sub-prime crisis blew up, will explode, blowing up the underpinnings of global finance.
If true, it would prove not only that bankers and financiers on Wall Street and elsewhere learned nothing from prior default events, but that they continue to make sickening, revolting wagers on extreme events. When coronavirus destroys the economy, the usual suspects will be found in lower Manhattan, probably toasting their bonuses, as they have in previous episodes of moral bankruptcy.
That said, anybody who has not taken action to remove their investments from the stock market casino over the past few weeks (if not sooner) is likely to suffer in the most severe economic manner possible over the next six to 12 months. There is no evidence of containing the virus and only the hope that its viability will be reduced with the advent of warmer and more humid weather. Unfortunately, it's only March. Warm mid-Spring weather is still months away in much of the developed world.
According to the painfully-slow-to-react CDC, there are 13 states that have identified persons infected. Those are New York, Vermont, Massachusetts, Wisconsin, Illinois, North Carolina, Georgia, Florida, Texas, Arizona, California, Oregon, and Washington. Add Rhode Island, New Jersey and Utah as of today, making it 16 with more to come. Already an even 1/3 of mainland states, there are no physical barriers to where the virus can spread. Eventually, it's likely that there will be high incidence of the virus in every state, with the exception of Hawaii and Alaska, due to their unique locations, far from mainland populations.
News on COVID-19 is developing quickly and reported cases are mounting now nearly by the hour. According to John Hopkins, there are 159 cases in the United States. A week ago there were fewer than 25. The same pattern of doubling every two to three days - as was the case in China early on - is becoming evident in European countries, especially Italy, followed by France, Germany, Spain, Switzerland, the UK, and Norway. South Korea and Iran have become epicenter outbreak areas with the number of cases exploding higher every day.
As the disease progresses, the news is likely to be substantially worse before it gets even slightly better. While it is possible that the health outcomes may not be as severe as predicted, the economic pain is almost certain to be severe.
It was more than a week ago that Money Daily advised to Sell. Everything. Now. Wednesday's upswing provided a late get-out-of-jail-free card for procrastinators or non-believers. After Thursday, it may be too late. A 2000-point decline Thursday is more than a passing possibility.
Late edit: With so much happening, let's not forget that gold is rising, silver also, but not to any great degree, oil demand has plunged and will slide further. WTI crude oil prices are at $46 and change per barrel. Treasury yields were stable on long-dated maturities with yields on the 2-year through 30-year issues all rising or falling four basis points or fewer. The 10-year note stabilized at 1.02%, but is again below 1.00% (0.95%) prior to the opening bell (1/2 hour). The short end of the curve, 1, 2, 3, 6-month and one-year bills cratered, the one-year sporting the lowest yield on the entire complex, dropping for 0.73 to 0.59 on Thursday.
Initial claims for state unemployment benefits slipped 3,000 to a seasonally adjusted 216,000 for the week ended Feb. 29, the Labor Department said on Thursday. Data for the prior week was unrevised.
At the Close, Wednesday, March 4, 2020:
Dow Jones Industrial Average: 27,090.86, +1,173.45 (+4.53%)
NASDAQ: 9,018.09, +334.00 (+3.85%)
S&P 500: 3,130.12, +126.75 (+4.22%)
NYSE: 13,009.96, +467.22 (+3.73%)
That little bit of relief allowed stocks to rise by roughly four percent across the major indices. The gains were not record-breaking, but they were close. The NASDAQ's 334-point rise was the third-best on record; the Dow's gain exceeded only by the 1,293.96 rip on Monday. The S&P's number was also the second-best day ever.
These kinds of wild swings, to both the upside and down, have become a trademark for not just US markets but many international stock indices since the outbreak of COVID-19 in China, but especially so since the virus has spread beyond the borders of the world's most populous nation. Most developed nations are currently flirting with 10 percent drops off recent highs, crossing the point of correction level at various times, above and below it.
Following Wednesday's romp, news on the coronavirus front just got worse and worse as the day turned to night and night to Thursday morning. A health screener at LA-X in Los Angeles tested positive for the virus; in New York, six more cases emerged. Seattle is quickly becoming an epicenter for an outbreak, and by morning, California had declared an emergency due to the treat from the spreading infection. 1000 people in New York are being screened for possible infection.
Schools are closing in various places across the country, Amazon and Microsoft employees are being advised to work from home, soccer games in Europe are being played in stadia devoid of fans, Italy has urged anyone over the age of 60 to stay home as much as possible to avoid contracting the virus. Despite the WHO's failure to officially declare a pandemic, COVID-19 has swept around the planet and is showing no signs of abating.
As for the World Health Organization failing to label the current condition a pandemic (it is, even according to their own standards), the reason may lie more in the ghastly world of finance rather than health. Unconfirmed reports say there are "pandemic bonds," which are bets against a pandemic outbreak declaration. If the WHO declares COVID-19 a pandemic, it will trigger bets made on a pandemic, as credit default swaps (CDS), along the lines of those which paid off magnificently when the sub-prime crisis blew up, will explode, blowing up the underpinnings of global finance.
If true, it would prove not only that bankers and financiers on Wall Street and elsewhere learned nothing from prior default events, but that they continue to make sickening, revolting wagers on extreme events. When coronavirus destroys the economy, the usual suspects will be found in lower Manhattan, probably toasting their bonuses, as they have in previous episodes of moral bankruptcy.
That said, anybody who has not taken action to remove their investments from the stock market casino over the past few weeks (if not sooner) is likely to suffer in the most severe economic manner possible over the next six to 12 months. There is no evidence of containing the virus and only the hope that its viability will be reduced with the advent of warmer and more humid weather. Unfortunately, it's only March. Warm mid-Spring weather is still months away in much of the developed world.
According to the painfully-slow-to-react CDC, there are 13 states that have identified persons infected. Those are New York, Vermont, Massachusetts, Wisconsin, Illinois, North Carolina, Georgia, Florida, Texas, Arizona, California, Oregon, and Washington. Add Rhode Island, New Jersey and Utah as of today, making it 16 with more to come. Already an even 1/3 of mainland states, there are no physical barriers to where the virus can spread. Eventually, it's likely that there will be high incidence of the virus in every state, with the exception of Hawaii and Alaska, due to their unique locations, far from mainland populations.
News on COVID-19 is developing quickly and reported cases are mounting now nearly by the hour. According to John Hopkins, there are 159 cases in the United States. A week ago there were fewer than 25. The same pattern of doubling every two to three days - as was the case in China early on - is becoming evident in European countries, especially Italy, followed by France, Germany, Spain, Switzerland, the UK, and Norway. South Korea and Iran have become epicenter outbreak areas with the number of cases exploding higher every day.
As the disease progresses, the news is likely to be substantially worse before it gets even slightly better. While it is possible that the health outcomes may not be as severe as predicted, the economic pain is almost certain to be severe.
It was more than a week ago that Money Daily advised to Sell. Everything. Now. Wednesday's upswing provided a late get-out-of-jail-free card for procrastinators or non-believers. After Thursday, it may be too late. A 2000-point decline Thursday is more than a passing possibility.
Late edit: With so much happening, let's not forget that gold is rising, silver also, but not to any great degree, oil demand has plunged and will slide further. WTI crude oil prices are at $46 and change per barrel. Treasury yields were stable on long-dated maturities with yields on the 2-year through 30-year issues all rising or falling four basis points or fewer. The 10-year note stabilized at 1.02%, but is again below 1.00% (0.95%) prior to the opening bell (1/2 hour). The short end of the curve, 1, 2, 3, 6-month and one-year bills cratered, the one-year sporting the lowest yield on the entire complex, dropping for 0.73 to 0.59 on Thursday.
Initial claims for state unemployment benefits slipped 3,000 to a seasonally adjusted 216,000 for the week ended Feb. 29, the Labor Department said on Thursday. Data for the prior week was unrevised.
At the Close, Wednesday, March 4, 2020:
Dow Jones Industrial Average: 27,090.86, +1,173.45 (+4.53%)
NASDAQ: 9,018.09, +334.00 (+3.85%)
S&P 500: 3,130.12, +126.75 (+4.22%)
NYSE: 13,009.96, +467.22 (+3.73%)
Wednesday, March 4, 2020
Fed Rate Cut Falls Flat, But Wait, Markets Set to Rebound; Super Tuesday Results Put COVID-19 On Back Burner
Super Tuesday lived up to its name, with a surprise rate cut from the Federal Reserve and a big night for Joe Biden, though Bernie Sanders scored enough delegates to keep the race close.
Mid-morning, the Fed cut the overnight federal funds rate by 50 basis points, from 1.50-1.75%, to 1.00-1.25%, actually settling for 1.10% as the official overnight rate, according to the Fed's implementation note.
What most people missed is that the rate cut does not take effect until March 4, or Wednesday, which may be why the market crumbled Tuesday, with a dull thud finish. Futures are pointing to a huge bump at the opening bell. Dow futures are up nearly 700 points as of this writing. The emergency rate cut was only the ninth time the Fed has acted outside the FOMC meeting framework, and the cut was probably unnecessary, though it is certain to give the market a bump, albeit a small one. The Fed's playbook has been seriously damaged since the 2008 crash. This move gives credence to those who argue that the Fed is a patsy to the stock market.
Stocks had been gyrating up and down until the Fed made its move. After a brief uptick, stocks sank, perhaps with the idea that if the Fed was cutting rates, then the brewing crisis over coronavirus may be worse than recognized. It also could be that banks and institutions are so tight, there just wasn't enough liquidity in the system to fend off waves of selling. The Fed's behind-the-scenes liquidity injections have done more to prop up the market than any rate cut possibly could, with their daily and weekly open market operations oversubscribed in recent days.
The bond market certainly wasn't buying into saving the stock market via rate cuts. The 10-year note dipped below the one percent threshold briefly on Tuesday, finally settling in at the close at another record low yield of 1.02%, a decline of eight basis points from Monday's reading. The short end of the curve was obliterated, with the shortest duration, 1-month bills, losing 30 basis points, down to a yield of 1.11% at the close.
Losing 13 basis points, the 2-year carries the lowest yield across the curve, which remains slightly inverted (1-and-2-month bills yielding higher than the 10-year). The 2-year note slipped from 0.84 to 0.71. The entire curve remains relatively flat at 93 basis points top to bottom, with the 30-year sliding just two basis points on Tuesday, to 1.64%.
Precious metals regained some of their shine after the rate cut announcement. Gold rocketed higher by nearly $50, closing the session in New York at $1644.40 per ounce. Silver advanced as well, though it is still quite depressed at a mere $17.19 per ounce.
The true "tell" throughout the day was crude oil. Both before and after the rate cut, WTI crude could scarcely muster a bid, finishing at $47.18 per barrel. Weakness in oil, the actual fuel of the world economy, speaks volumes and can be employed as a bleeding edge proxy for the general health or sickness of the word's financial condition.
Numbers to watch on Wednesday are pretty straightforward. Following a retreat of some 4725.74 points, the Dow ascended on Tuesday to the first Fibonacci retrace level (38%) at 26,476.79. The index actually floated beyond that point, gaining over 27,000 just after the open, but it settled in and remained below the initial Fibonacci level most of the day. If the Dow gains beyond that first retrace, the next stop would be the 62% level, at 27,610.97. Keep in mind that the intraday low was Friday's 24,681.01. If that level is breached to the downside, there's literally no support until around 22,445, the bottom of the December 2018 breakdown.
As for the Democrat race for the presidential nomination, Joe Biden was hailed on network TV as a rebounding hero, winning races in North Carolina, Texas, Tennessee, Virginia, Massachusetts and elsewhere, thanks to two moderates - Pete Buttigeig and Amy Klobuchar - bowing out and endorsing slow Joe on the eve of Super Tuesday. While Biden picked up most of the votes that would have gone to Mayor Pete and Senator Klobuchar, Bernie Sanders was held down by the insistence of Elizabeth Warren to stay in the race when she actually has no hope of winning anything but more negative nicknames. Mike Bloomberg picked off some delegates, giving his campaign enough life to carry forward, but the DNC is hellbent on eliminating Sanders, over fears that he might actually win the nomination.
The possibility of a consistent socialist carrying the Democrat banner into the fall is not the look the party perceives for itself, despite it being the closest to reality in what it represents. From here on out, all the media will be signing the praises of Joe Biden - a deeply flawed individual - and downplaying the power of Sanders' campaign, which has widespread support in the most liberal camps and generates the most excitement of any candidate, bar Trump.
What's interesting about a Sanders versus Trump race is that Sanders, a lifetime liberal and Senator for nearly three decades, will be portrayed as the outsider and Trump as the establishment. Perception is everything in elections, and it's likely that Trump would turn that notion on its head.
Finally, Tuesday was a day in which the coronavirus, or COVID-19 was pushed to the back of the headlines. The death toll in the US reached nine, but those three additional deaths were all from the nursing home in Washington state that had accounted for the six prior fatalities. Look, a tornado that ripped through Nashville, Tennessee early Tuesday morning (around 1:30 am) killed at least 25 people in minutes and left a path of devastation unlike many people have ever witnessed. That's a tragedy. Nine deaths of people all over the age of 63 from a virus that spreads quickly and has a high mortality rate for seniors is a fact of life.
At the Close Tuesday, March 3, 2020:
Dow Jones Industrial Average: 25,917.41, -785.91 (-2.94%)
NASDAQ: 8,684.09, -268.08 (-2.99%)
S&P 500: 3,003.37, -86.86 (-2.81%)
NYSE: 12,542.74, -285.25 (-2.22%)
Mid-morning, the Fed cut the overnight federal funds rate by 50 basis points, from 1.50-1.75%, to 1.00-1.25%, actually settling for 1.10% as the official overnight rate, according to the Fed's implementation note.
What most people missed is that the rate cut does not take effect until March 4, or Wednesday, which may be why the market crumbled Tuesday, with a dull thud finish. Futures are pointing to a huge bump at the opening bell. Dow futures are up nearly 700 points as of this writing. The emergency rate cut was only the ninth time the Fed has acted outside the FOMC meeting framework, and the cut was probably unnecessary, though it is certain to give the market a bump, albeit a small one. The Fed's playbook has been seriously damaged since the 2008 crash. This move gives credence to those who argue that the Fed is a patsy to the stock market.
Stocks had been gyrating up and down until the Fed made its move. After a brief uptick, stocks sank, perhaps with the idea that if the Fed was cutting rates, then the brewing crisis over coronavirus may be worse than recognized. It also could be that banks and institutions are so tight, there just wasn't enough liquidity in the system to fend off waves of selling. The Fed's behind-the-scenes liquidity injections have done more to prop up the market than any rate cut possibly could, with their daily and weekly open market operations oversubscribed in recent days.
The bond market certainly wasn't buying into saving the stock market via rate cuts. The 10-year note dipped below the one percent threshold briefly on Tuesday, finally settling in at the close at another record low yield of 1.02%, a decline of eight basis points from Monday's reading. The short end of the curve was obliterated, with the shortest duration, 1-month bills, losing 30 basis points, down to a yield of 1.11% at the close.
Losing 13 basis points, the 2-year carries the lowest yield across the curve, which remains slightly inverted (1-and-2-month bills yielding higher than the 10-year). The 2-year note slipped from 0.84 to 0.71. The entire curve remains relatively flat at 93 basis points top to bottom, with the 30-year sliding just two basis points on Tuesday, to 1.64%.
Precious metals regained some of their shine after the rate cut announcement. Gold rocketed higher by nearly $50, closing the session in New York at $1644.40 per ounce. Silver advanced as well, though it is still quite depressed at a mere $17.19 per ounce.
The true "tell" throughout the day was crude oil. Both before and after the rate cut, WTI crude could scarcely muster a bid, finishing at $47.18 per barrel. Weakness in oil, the actual fuel of the world economy, speaks volumes and can be employed as a bleeding edge proxy for the general health or sickness of the word's financial condition.
Numbers to watch on Wednesday are pretty straightforward. Following a retreat of some 4725.74 points, the Dow ascended on Tuesday to the first Fibonacci retrace level (38%) at 26,476.79. The index actually floated beyond that point, gaining over 27,000 just after the open, but it settled in and remained below the initial Fibonacci level most of the day. If the Dow gains beyond that first retrace, the next stop would be the 62% level, at 27,610.97. Keep in mind that the intraday low was Friday's 24,681.01. If that level is breached to the downside, there's literally no support until around 22,445, the bottom of the December 2018 breakdown.
As for the Democrat race for the presidential nomination, Joe Biden was hailed on network TV as a rebounding hero, winning races in North Carolina, Texas, Tennessee, Virginia, Massachusetts and elsewhere, thanks to two moderates - Pete Buttigeig and Amy Klobuchar - bowing out and endorsing slow Joe on the eve of Super Tuesday. While Biden picked up most of the votes that would have gone to Mayor Pete and Senator Klobuchar, Bernie Sanders was held down by the insistence of Elizabeth Warren to stay in the race when she actually has no hope of winning anything but more negative nicknames. Mike Bloomberg picked off some delegates, giving his campaign enough life to carry forward, but the DNC is hellbent on eliminating Sanders, over fears that he might actually win the nomination.
The possibility of a consistent socialist carrying the Democrat banner into the fall is not the look the party perceives for itself, despite it being the closest to reality in what it represents. From here on out, all the media will be signing the praises of Joe Biden - a deeply flawed individual - and downplaying the power of Sanders' campaign, which has widespread support in the most liberal camps and generates the most excitement of any candidate, bar Trump.
What's interesting about a Sanders versus Trump race is that Sanders, a lifetime liberal and Senator for nearly three decades, will be portrayed as the outsider and Trump as the establishment. Perception is everything in elections, and it's likely that Trump would turn that notion on its head.
Finally, Tuesday was a day in which the coronavirus, or COVID-19 was pushed to the back of the headlines. The death toll in the US reached nine, but those three additional deaths were all from the nursing home in Washington state that had accounted for the six prior fatalities. Look, a tornado that ripped through Nashville, Tennessee early Tuesday morning (around 1:30 am) killed at least 25 people in minutes and left a path of devastation unlike many people have ever witnessed. That's a tragedy. Nine deaths of people all over the age of 63 from a virus that spreads quickly and has a high mortality rate for seniors is a fact of life.
At the Close Tuesday, March 3, 2020:
Dow Jones Industrial Average: 25,917.41, -785.91 (-2.94%)
NASDAQ: 8,684.09, -268.08 (-2.99%)
S&P 500: 3,003.37, -86.86 (-2.81%)
NYSE: 12,542.74, -285.25 (-2.22%)
Tuesday, March 3, 2020
Mother of All Relief Rallies Sets Records For Wall Street
Whether it was animal spirits, a concerted effort by the PPT, or simply a matter of the market being temporarily oversold, Monday's rally on Wall Street was one for the record books.
Not only was the Dow's gain a record in terms of points, it's 5.09% rip was also the best percentage gain since the bottoming out from the the Great Financial Crisis (GFC) on March 23, 2009 (2009-03-23, 7,775.86, +497.48, +6.84). Readers should be informed that the two greatest percentage gains on the Dow Industrials came in the midst of a massive market meltdown in October, 2008. On the 13th the Dow gained 936.42 points for a percentage gain of +11.08% Just two weeks later, on the 28th, an 889.35-point rip to the upside produced a rise of 10.88 percent. The point is that the largest point and percentage gains usually are accompanied by the same on the other side of the ledger, and vice versa. No, this time is no different.
The gains follow what was the worst point loss in market history as the prior week produced the largest point loss along with the fourth and fifth largest.
Ditto for the NASDAQ, with a record point gain of +384.80, surpassing the prior mark of +361.44, from December 26, 2018, after Treasury Secretary Steven Mnuchin had purportedly made a number of calls to various members of the Fed and the President's Working Group on Financial Markets, aka, the PPT.
The S&P 500 also registered a record point gain, surpassing the +116.60 upside burst also marked on December 26, 2018. Reliable data was unavailable for the NYSE, though it can safely be assumed that if Monday wasn't a record point gain, it was certainly close.
Meanwhile, back in the real world, the number of Americans to die from complications (generally pneumonia) attributable to coronavirus reached six, four of them victims at a nursing home in Washington state. Health officials and other commentators have been sounding the alarm over outbreaks in clusters, and it appears that Washington, and possibly Oregon and California are about to experience clusters of cases arising at the community level.
COVID-19 is not going to slow down on its own, nor are government officials going to give the public the straight story (they almost never do in any crisis situation). In China, the government is variously telling its people that the virus came from outside the country (which it definitely did NOT) and that it has been defeated. Oddly enough, most Chinese citizens are not back to work, three to four weeks after the government began mass quarantines.
In the US and many European countries, including France and Germany, the issue is testing. The health departments of developed nations apparently see little need to test for the virus, which has the effect of showing the public vary few cases. Regardless, more testing is about to take place in the United States and elsewhere, and the number of new cases could skyrocket by the weekend.
In the interim, there will be much jawboning over what are effective measures to take against the virus but much of the focus will be on the expanding spread of the disease.
Bonds weren't completely buying into the rally. After dipping as low as 1.03%, the yield on the 10-year note closed out the session at 1.10%, another record low. The curve is inverted at the very low end. There is just 15 basis points separating the yield on a 1-month bill (1.41%) and the 30-year bond (1.66%). Figure that one out.
The low point is at the 2-year (0.84%), making the whole trip across the treasury complex a voyage of just 82 basis points, or 0.82%. It's not a pretty sight for bankers, yet interest rates on credit cards are still averaging around 14-18%, while mortgage rates have dropped to fresh lows. A 30-year fixed rate is hovering in a range of 3.15% to 3.40%, while a 15-year fixed can be had at under three percent generally across the country.
With the huge relief rally now comfortably on the books, Wall Street and the world must brace for the next shock from COVID-19. This isn't over. Not by a long shot. In many ways, in various countries around the world, it's just getting started.
At the Close, Monday, March 2, 2002:
Dow Jones Industrial Average: 26,703.32, +1,293.96 (+5.09%)
NASDAQ: 8,952.17, +384.80 (+4.49%)
S&P 500: 3,090.23, +136.01 (+4.60%)
NYSE: 12,827.99, +447.02 (+3.61%)
Not only was the Dow's gain a record in terms of points, it's 5.09% rip was also the best percentage gain since the bottoming out from the the Great Financial Crisis (GFC) on March 23, 2009 (2009-03-23, 7,775.86, +497.48, +6.84). Readers should be informed that the two greatest percentage gains on the Dow Industrials came in the midst of a massive market meltdown in October, 2008. On the 13th the Dow gained 936.42 points for a percentage gain of +11.08% Just two weeks later, on the 28th, an 889.35-point rip to the upside produced a rise of 10.88 percent. The point is that the largest point and percentage gains usually are accompanied by the same on the other side of the ledger, and vice versa. No, this time is no different.
The gains follow what was the worst point loss in market history as the prior week produced the largest point loss along with the fourth and fifth largest.
Ditto for the NASDAQ, with a record point gain of +384.80, surpassing the prior mark of +361.44, from December 26, 2018, after Treasury Secretary Steven Mnuchin had purportedly made a number of calls to various members of the Fed and the President's Working Group on Financial Markets, aka, the PPT.
The S&P 500 also registered a record point gain, surpassing the +116.60 upside burst also marked on December 26, 2018. Reliable data was unavailable for the NYSE, though it can safely be assumed that if Monday wasn't a record point gain, it was certainly close.
Meanwhile, back in the real world, the number of Americans to die from complications (generally pneumonia) attributable to coronavirus reached six, four of them victims at a nursing home in Washington state. Health officials and other commentators have been sounding the alarm over outbreaks in clusters, and it appears that Washington, and possibly Oregon and California are about to experience clusters of cases arising at the community level.
COVID-19 is not going to slow down on its own, nor are government officials going to give the public the straight story (they almost never do in any crisis situation). In China, the government is variously telling its people that the virus came from outside the country (which it definitely did NOT) and that it has been defeated. Oddly enough, most Chinese citizens are not back to work, three to four weeks after the government began mass quarantines.
In the US and many European countries, including France and Germany, the issue is testing. The health departments of developed nations apparently see little need to test for the virus, which has the effect of showing the public vary few cases. Regardless, more testing is about to take place in the United States and elsewhere, and the number of new cases could skyrocket by the weekend.
In the interim, there will be much jawboning over what are effective measures to take against the virus but much of the focus will be on the expanding spread of the disease.
Bonds weren't completely buying into the rally. After dipping as low as 1.03%, the yield on the 10-year note closed out the session at 1.10%, another record low. The curve is inverted at the very low end. There is just 15 basis points separating the yield on a 1-month bill (1.41%) and the 30-year bond (1.66%). Figure that one out.
The low point is at the 2-year (0.84%), making the whole trip across the treasury complex a voyage of just 82 basis points, or 0.82%. It's not a pretty sight for bankers, yet interest rates on credit cards are still averaging around 14-18%, while mortgage rates have dropped to fresh lows. A 30-year fixed rate is hovering in a range of 3.15% to 3.40%, while a 15-year fixed can be had at under three percent generally across the country.
With the huge relief rally now comfortably on the books, Wall Street and the world must brace for the next shock from COVID-19. This isn't over. Not by a long shot. In many ways, in various countries around the world, it's just getting started.
At the Close, Monday, March 2, 2002:
Dow Jones Industrial Average: 26,703.32, +1,293.96 (+5.09%)
NASDAQ: 8,952.17, +384.80 (+4.49%)
S&P 500: 3,090.23, +136.01 (+4.60%)
NYSE: 12,827.99, +447.02 (+3.61%)
Sunday, March 1, 2020
Coronavirus (COVID-19) Crushes Stocks, Commodities, Oil, Gold, Silver; Crisis Appears To Be Accelerating
(Simultaneously published at Downtown Magazine)
As ugly goes, this past week ranks right up there with bearded lady or three-eyed ogre status.
Over the course of just five trading sessions, stocks lost more than ten percent on all the main indices. The Dow topped the list with a drop of 12.36%. The week and the preceding Thursday and Friday (all but the NASDAQ are sporting seven-day losing streaks marked the fastest that stocks fell into correction territory, officially designated as a 10% slide.
What's worse - if there's anything worse than shaving a couple trillion off the American market cap balance sheet - is that the rush to sell hardly seems to be over. The last week of February looks more like the beginning of something more severe, and with the spread of the coronavirus (COVID-19) just beginning to make an impact in the United States, there isn't much talk about "buying the dip" at this particular juncture.
Just because everybody loves numbers, here are the current losses from the respective tops and the levels needed to reach down to a 20% loss, the designated level at which would kick in a bear market. Bear in mind that stocks recently hit all-time highs.
Dow: Top: 29,551.42 (2/12/20); Current: 25,409.36 (-14.02%); Bear Market (-20%): 23,641.14
NASDAQ: Top: 9,817.18 (2/19/20); Current: 8,567.37 (-12.74%); Bear Market(-20%): 7,853.74
S&P 500: Top: 3,386.15 (2/19/20); Current: 2,954.22 (-13.76%); Bear Market (-20%): 2,708.92
NYSE: Top: 14,183.20 (1/17/20); Current: 12,380.97 (-12.71%); Bear Market (-20%): 11,346.56
The potential for a bear market are palpable for more reasons than just the threat of COVID-19 spreading across the great expanse of the United States. A widespread outbreak, like the one in China, would be devastating, but already there are strong indications that community transmission has already taken place in the state of Washington, in Chicago, and in California.
Widespread infections that close schools and businesses would only be the tip of the issue. Large public gatherings - and that is a concern with baseball's regular season less than a month away - would carry warnings to the public. Many would likely stay away just out of personal caution, but hope is that the department of Heath and Human Services (HHS), CDC and Vice President Pence's executive branch team will keep community outbreaks well contained. However, France and Switzerland have banned large gatherings over 5,000, and cancelled all sporting events. Imagine the same for the United States in just a few weeks. It could happen. It may not.
Possibly also working against the virus is time. Many similar viruses, like the flu, die off naturally or lose their effectiveness and ability to transmit and spread.
On he other hand, the aftereffects from China's production slowdown have not been fully felt and won't be evident until companies report first quarter results. That's early April and beyond, giving the markets more than a month to navigate whatever trend emerges.
Stocks were significantly overvalued when the slide began; today they are less so, though still hanging in the high end in the valuation regimen. There is more room on the downside. All through 2019, companies were not reporting robust results. The S&P was generally flat on earnings yet stocks rose. Capacity Utilization and Productivity have also shown signs of a slowdown, even prior to the coronavirus event.
While unemployment remains a bright spot, business expansion has been slow to nearly nothing. A slew of variables - in effect the market's wall of worry - are mixed and unresolved. With sentiment now having shifted violently from greed to fear, any bad or marginal data is going to get the bum's rush, encouraging more selling.
Elsewhere, crude oil took a massive hit during the week. WTI crude closed at $54.88 on February 20, but by Friday of this week had dropped to $44.76 per barrel, a slide of 18.45%.
Precious metals abruptly went negative midweek after rallying for the better part of the last month. The silver continuous contract closed Friday at $16.46, the lowest price since last July. Gold topped out at $1691.70 per ounce on Monday, but by Friday could be purchased for $1566.70, more than a hundred dollar discount. Four straight down days snapped a rally in gold that started in late November, 2019. The gold price remains elevated, having only caught down to a price that was last seen the first week of February.
Particularly telling was action in the treasury market and bonds overall. The entire yield curve was decimated with the benchmark 10-year note checking in at an all-time low of 1.13%. The 30-year bond also posted a record low yield at 1.65% on Friday. With inversion on the short end - the 6-month bill is yielding 1.11 - the 2-year, 3-year, and 5-year are yielding 0.86%, 0.85%, and 0.89%, respectively.
With everybody from President Trump on down calling on the Federal Reserve to get into the act, rumors began circulating late Thursday that the Fed would coordinate with other central banks for some kind of symmetric cuts in overnight rates as early as Sunday, though as of this writing, nothing has come of it. The Fed is virtually guaranteed to cut by at least 25 basis points at its next FOMC meeting, on March 17-18, though for many in the markets, that seems a long time off and may in fact be too late to have much influence.
It wasn't just treasuries feeling the heat. According to Doug Noland's Credit Bubble Bulletin, "There were no investment-grade deals for the first time in 18 months, as $25bn of sales were postponed awaiting more favorable market conditions."
If credit markets begin to seize up, which appears to be the evolving case, the Fed will have no choice but to lower the federal funds rate prior to the meeting. 50 basis points would appear appropriate if the virus continues to spread not just in the US, but around the world. More than 60 countries have at least one case of the virus and the United States, Australia, and Thailand have reported their first deaths just in the past 24 hours.
Preparedness is the key to surviving whatever form the crisis takes, be it medical or economic. Households should have on hand at least a three-week supply of food and other essentials at the minimum. Investors should have moved money into safe havens, as many did. Money market funds and bonds provide some relief from the roller coaster of stocks. Precious metals usually provide some protection, but, as was the case in 2008, gold and silver fell off dramatically as stores of the metals were sold in order to shore up cash liquidity. Back then, they were the first commodities to recover, besting the markets by a number of months, though right now, they don't appear to be stunning buying opportunities.
If the worst case scenario occurs and there are wide ranging quarantines, travel restrictions and cancelation of public gatherings, expect nothing short of a complete meltdown of the financial system and conditions which have never been seen before. A stock market decline of 60-70 percent would be a real possibility. The entire rip to the downside could take as long as 18 months or as little as six.
That's not to say that a total collapse will occur. There may be mitigating factors in the interim, plus the advent of warmer weather with higher humidity might slow down the virus, but market direction has turned violently to the negative. Now is not the time to jump in a buy equities as most rallies will likely be met with strong resistance and more selling.
Presently, everything is up in the air, including the virus and the world's finances.
At the Close, Friday, February 28, 2020:
Dow Jones Industrial Average: 25,409.36, -357.28 (-1.39%)
NASDAQ: 8,567.37, +0.89 (+0.01%)
S&P 500: 2,954.22, -24.54 (-0.82%)
NYSE: 12,380.97, -166.29 (-1.33%)
For the Week:
Dow: -3583.05 (-12.36%)
NASDAQ: -1009.22 (-10.54%)
S&P 500: -383.53 (-11.49%)
NYSE: -1594.81 (-11.41%)
As ugly goes, this past week ranks right up there with bearded lady or three-eyed ogre status.
Over the course of just five trading sessions, stocks lost more than ten percent on all the main indices. The Dow topped the list with a drop of 12.36%. The week and the preceding Thursday and Friday (all but the NASDAQ are sporting seven-day losing streaks marked the fastest that stocks fell into correction territory, officially designated as a 10% slide.
What's worse - if there's anything worse than shaving a couple trillion off the American market cap balance sheet - is that the rush to sell hardly seems to be over. The last week of February looks more like the beginning of something more severe, and with the spread of the coronavirus (COVID-19) just beginning to make an impact in the United States, there isn't much talk about "buying the dip" at this particular juncture.
Just because everybody loves numbers, here are the current losses from the respective tops and the levels needed to reach down to a 20% loss, the designated level at which would kick in a bear market. Bear in mind that stocks recently hit all-time highs.
Dow: Top: 29,551.42 (2/12/20); Current: 25,409.36 (-14.02%); Bear Market (-20%): 23,641.14
NASDAQ: Top: 9,817.18 (2/19/20); Current: 8,567.37 (-12.74%); Bear Market(-20%): 7,853.74
S&P 500: Top: 3,386.15 (2/19/20); Current: 2,954.22 (-13.76%); Bear Market (-20%): 2,708.92
NYSE: Top: 14,183.20 (1/17/20); Current: 12,380.97 (-12.71%); Bear Market (-20%): 11,346.56
The potential for a bear market are palpable for more reasons than just the threat of COVID-19 spreading across the great expanse of the United States. A widespread outbreak, like the one in China, would be devastating, but already there are strong indications that community transmission has already taken place in the state of Washington, in Chicago, and in California.
Widespread infections that close schools and businesses would only be the tip of the issue. Large public gatherings - and that is a concern with baseball's regular season less than a month away - would carry warnings to the public. Many would likely stay away just out of personal caution, but hope is that the department of Heath and Human Services (HHS), CDC and Vice President Pence's executive branch team will keep community outbreaks well contained. However, France and Switzerland have banned large gatherings over 5,000, and cancelled all sporting events. Imagine the same for the United States in just a few weeks. It could happen. It may not.
Possibly also working against the virus is time. Many similar viruses, like the flu, die off naturally or lose their effectiveness and ability to transmit and spread.
On he other hand, the aftereffects from China's production slowdown have not been fully felt and won't be evident until companies report first quarter results. That's early April and beyond, giving the markets more than a month to navigate whatever trend emerges.
Stocks were significantly overvalued when the slide began; today they are less so, though still hanging in the high end in the valuation regimen. There is more room on the downside. All through 2019, companies were not reporting robust results. The S&P was generally flat on earnings yet stocks rose. Capacity Utilization and Productivity have also shown signs of a slowdown, even prior to the coronavirus event.
While unemployment remains a bright spot, business expansion has been slow to nearly nothing. A slew of variables - in effect the market's wall of worry - are mixed and unresolved. With sentiment now having shifted violently from greed to fear, any bad or marginal data is going to get the bum's rush, encouraging more selling.
Elsewhere, crude oil took a massive hit during the week. WTI crude closed at $54.88 on February 20, but by Friday of this week had dropped to $44.76 per barrel, a slide of 18.45%.
Precious metals abruptly went negative midweek after rallying for the better part of the last month. The silver continuous contract closed Friday at $16.46, the lowest price since last July. Gold topped out at $1691.70 per ounce on Monday, but by Friday could be purchased for $1566.70, more than a hundred dollar discount. Four straight down days snapped a rally in gold that started in late November, 2019. The gold price remains elevated, having only caught down to a price that was last seen the first week of February.
Particularly telling was action in the treasury market and bonds overall. The entire yield curve was decimated with the benchmark 10-year note checking in at an all-time low of 1.13%. The 30-year bond also posted a record low yield at 1.65% on Friday. With inversion on the short end - the 6-month bill is yielding 1.11 - the 2-year, 3-year, and 5-year are yielding 0.86%, 0.85%, and 0.89%, respectively.
With everybody from President Trump on down calling on the Federal Reserve to get into the act, rumors began circulating late Thursday that the Fed would coordinate with other central banks for some kind of symmetric cuts in overnight rates as early as Sunday, though as of this writing, nothing has come of it. The Fed is virtually guaranteed to cut by at least 25 basis points at its next FOMC meeting, on March 17-18, though for many in the markets, that seems a long time off and may in fact be too late to have much influence.
It wasn't just treasuries feeling the heat. According to Doug Noland's Credit Bubble Bulletin, "There were no investment-grade deals for the first time in 18 months, as $25bn of sales were postponed awaiting more favorable market conditions."
If credit markets begin to seize up, which appears to be the evolving case, the Fed will have no choice but to lower the federal funds rate prior to the meeting. 50 basis points would appear appropriate if the virus continues to spread not just in the US, but around the world. More than 60 countries have at least one case of the virus and the United States, Australia, and Thailand have reported their first deaths just in the past 24 hours.
Preparedness is the key to surviving whatever form the crisis takes, be it medical or economic. Households should have on hand at least a three-week supply of food and other essentials at the minimum. Investors should have moved money into safe havens, as many did. Money market funds and bonds provide some relief from the roller coaster of stocks. Precious metals usually provide some protection, but, as was the case in 2008, gold and silver fell off dramatically as stores of the metals were sold in order to shore up cash liquidity. Back then, they were the first commodities to recover, besting the markets by a number of months, though right now, they don't appear to be stunning buying opportunities.
If the worst case scenario occurs and there are wide ranging quarantines, travel restrictions and cancelation of public gatherings, expect nothing short of a complete meltdown of the financial system and conditions which have never been seen before. A stock market decline of 60-70 percent would be a real possibility. The entire rip to the downside could take as long as 18 months or as little as six.
That's not to say that a total collapse will occur. There may be mitigating factors in the interim, plus the advent of warmer weather with higher humidity might slow down the virus, but market direction has turned violently to the negative. Now is not the time to jump in a buy equities as most rallies will likely be met with strong resistance and more selling.
Presently, everything is up in the air, including the virus and the world's finances.
At the Close, Friday, February 28, 2020:
Dow Jones Industrial Average: 25,409.36, -357.28 (-1.39%)
NASDAQ: 8,567.37, +0.89 (+0.01%)
S&P 500: 2,954.22, -24.54 (-0.82%)
NYSE: 12,380.97, -166.29 (-1.33%)
For the Week:
Dow: -3583.05 (-12.36%)
NASDAQ: -1009.22 (-10.54%)
S&P 500: -383.53 (-11.49%)
NYSE: -1594.81 (-11.41%)
Friday, February 28, 2020
All Major US Indices Post Record Losses On Coronavirus (COVID-19) Shocks
This is how it always ends. A pileup on the interstate. Panic at the disco.
And this is only the beginning of the end of a bull market that's survived long past its sell-by date, the final six months being kept upright by oodles of fake bucks from the Fed via the repo market.
Prior to that it was stock buybacks and more Fed printing. It's over. Get used to it.
A couple of friends yesterday were in the first stage of he Kubler-Ross five levels of grief, denial, saying that the stock market would come back. This, despite evidence right in front of their faces of massive losses and still they won't move their money to a safer place.
Smart money will be making more all the way down. Most money will simply disappear.
All of the major indices suffered yesterday their worst point losses in stock market history. That's right, the worst ever.
The Dow Jones Industrials managed to dispose of 1,190.96 points, edging out the 1,175.21 trashing on February 5, 2018. The NASDAQ put down a marker that is likely to stand for a long time (if it's not broken sometime during the next few months), dropping 414 points, bettering the former record of -355.49 from April 4, 2000, by some 59 points. That's a lot.
The S&P 500 also crushed its previous record, ripping off 137.63 points, topping the old mark of -113.19 from February 5, 2018.
It's been a bad week for stocks as the coronavirus (COVID-19) continues to spread across the globe.
Oddly enough, but with some historical precedence, precious metals have been bashed down over the past few days as well, just as they were at the height of the global meltdown of 2008. Everything lost value then. Same now.
Crude oil took another bump lower, with WTI crude as low as $45.25 pr barrel. Yield on the ten-year note fell to yet another record low, checking in at 1.30% at the end of the day. The 30-year was at 1.79%.
With the final trading day of the week on deck, there isn't much more to say than glad it's over, but the tide has turned, with all the major indices already - in the span of just five days - in correction territory, donw by more than 10%. Unless something changes quickly, there's a bear market staring investors in the face.
Cant say that it hasn't been apparent. This is no surprise. All the market needed was a good scapegoat and it found one in coronavirus and its aftereffects.
At the Close, Thursday, February 27, 2020:
Dow Jones Industrial Average: 25,766.64, -1,190.96 (-4.42%)
NASDAQ: 8,566.48, -414.29 (-4.61%)
S&P 500: 2,978.76, -137.63 (-4.42%)
NYSE: 12,547.25, -499.35 (-3.83%)
And this is only the beginning of the end of a bull market that's survived long past its sell-by date, the final six months being kept upright by oodles of fake bucks from the Fed via the repo market.
Prior to that it was stock buybacks and more Fed printing. It's over. Get used to it.
A couple of friends yesterday were in the first stage of he Kubler-Ross five levels of grief, denial, saying that the stock market would come back. This, despite evidence right in front of their faces of massive losses and still they won't move their money to a safer place.
Smart money will be making more all the way down. Most money will simply disappear.
All of the major indices suffered yesterday their worst point losses in stock market history. That's right, the worst ever.
The Dow Jones Industrials managed to dispose of 1,190.96 points, edging out the 1,175.21 trashing on February 5, 2018. The NASDAQ put down a marker that is likely to stand for a long time (if it's not broken sometime during the next few months), dropping 414 points, bettering the former record of -355.49 from April 4, 2000, by some 59 points. That's a lot.
The S&P 500 also crushed its previous record, ripping off 137.63 points, topping the old mark of -113.19 from February 5, 2018.
It's been a bad week for stocks as the coronavirus (COVID-19) continues to spread across the globe.
Oddly enough, but with some historical precedence, precious metals have been bashed down over the past few days as well, just as they were at the height of the global meltdown of 2008. Everything lost value then. Same now.
Crude oil took another bump lower, with WTI crude as low as $45.25 pr barrel. Yield on the ten-year note fell to yet another record low, checking in at 1.30% at the end of the day. The 30-year was at 1.79%.
With the final trading day of the week on deck, there isn't much more to say than glad it's over, but the tide has turned, with all the major indices already - in the span of just five days - in correction territory, donw by more than 10%. Unless something changes quickly, there's a bear market staring investors in the face.
Cant say that it hasn't been apparent. This is no surprise. All the market needed was a good scapegoat and it found one in coronavirus and its aftereffects.
At the Close, Thursday, February 27, 2020:
Dow Jones Industrial Average: 25,766.64, -1,190.96 (-4.42%)
NASDAQ: 8,566.48, -414.29 (-4.61%)
S&P 500: 2,978.76, -137.63 (-4.42%)
NYSE: 12,547.25, -499.35 (-3.83%)
Thursday, February 27, 2020
Stock Rally Sizzles, Fizzles As COVID-19 Fear Spreads Globally Sell. Everything. Now.
From the outset, it looked like US stock investors were going to shed the fear of coronavirus effects and get back to the greed side of the equation, as all major indices roared back after a string of losses.
By midday, however, the rally lost steam as news from around the world indicated that the virus was continuing to spread, inflicting people in far-away lands as well as within the borders of the United States. When President Trump announced he was giving a press briefing at 6:00 pm ET (later moved to 6:30 pm ET) on the government's response to the virus, stocks faltered badly, as all but the NASDAQ gave up gains and ended in the red.
So much for hope, false hope, bravado, and confidence. COVID-19 already is worse than MERS or SARS in the number of inflictions and deaths, and there seems to be no stopping it. Even employing extreme measures such as travel bans and quarantines, is unlikely to completely halt the spread of this pathogen; governments are hoping at least to contain it and prevent it from becoming an overwhelming medical crisis as it already has become in China, and soon, South Korea, Japan, Italy, and elsewhere.
Underpinning the obvious threat to health and well-being, Wall Street and investment centers around the world are focused on the after-effects. Idled workers, slowing production, chinks in the supply chain, and slack demand are all tied to efforts to contain the virus and will certainly have adverse effects on the bottom lines of many companies.
Now, almost two months since the crisis began in China, fears of a near-global shutdown of financial and business activity is becoming a frightful scenario.
As one pundit wrote to friends yesterday, "Sell. Everything. Now. You may curse me today, tomorrow, and even next week, but a couple of months down the road, you'll see why I am telling you to get out of stocks now."
This is precisely the sentiment Wall Street hopes would never surface, but it's becoming more and more evident to more and more people that COVID-19 presents an existential threat to global commerce.
Oil was down sharply on the day, as WTI crude futures broke below $50 per barrel and fell into the $47 price range Thursday morning. The treasury yield curve continued its flat-to-inverted pathway, the yield on the 10-year note losing another two basis points before returning to its prior level at 1.33%, the lowest level in history.
At the Close, Wednesday, February 26, 2020:
Dow Jones Industrial Average: 26,957.59, -123.77 (-0.46%)
NASDAQ: 8,980.77, +15.16 (+0.17%)
S&P 500: 3,116.39, -11.82 (-0.38%)
NYSE: 13,046.62, -97.10 (-0.74%)
By midday, however, the rally lost steam as news from around the world indicated that the virus was continuing to spread, inflicting people in far-away lands as well as within the borders of the United States. When President Trump announced he was giving a press briefing at 6:00 pm ET (later moved to 6:30 pm ET) on the government's response to the virus, stocks faltered badly, as all but the NASDAQ gave up gains and ended in the red.
"Sell. Everything. Now. You may curse me today, tomorrow, and even next week, but a couple of months down the road, you'll see why I am telling you to get out of stocks now."At the press briefing, the president appeared confident, though cautious, appointing Vice President Mike Pence to spearhead the federal government's response.
So much for hope, false hope, bravado, and confidence. COVID-19 already is worse than MERS or SARS in the number of inflictions and deaths, and there seems to be no stopping it. Even employing extreme measures such as travel bans and quarantines, is unlikely to completely halt the spread of this pathogen; governments are hoping at least to contain it and prevent it from becoming an overwhelming medical crisis as it already has become in China, and soon, South Korea, Japan, Italy, and elsewhere.
Underpinning the obvious threat to health and well-being, Wall Street and investment centers around the world are focused on the after-effects. Idled workers, slowing production, chinks in the supply chain, and slack demand are all tied to efforts to contain the virus and will certainly have adverse effects on the bottom lines of many companies.
Now, almost two months since the crisis began in China, fears of a near-global shutdown of financial and business activity is becoming a frightful scenario.
As one pundit wrote to friends yesterday, "Sell. Everything. Now. You may curse me today, tomorrow, and even next week, but a couple of months down the road, you'll see why I am telling you to get out of stocks now."
This is precisely the sentiment Wall Street hopes would never surface, but it's becoming more and more evident to more and more people that COVID-19 presents an existential threat to global commerce.
Oil was down sharply on the day, as WTI crude futures broke below $50 per barrel and fell into the $47 price range Thursday morning. The treasury yield curve continued its flat-to-inverted pathway, the yield on the 10-year note losing another two basis points before returning to its prior level at 1.33%, the lowest level in history.
At the Close, Wednesday, February 26, 2020:
Dow Jones Industrial Average: 26,957.59, -123.77 (-0.46%)
NASDAQ: 8,980.77, +15.16 (+0.17%)
S&P 500: 3,116.39, -11.82 (-0.38%)
NYSE: 13,046.62, -97.10 (-0.74%)
Wednesday, February 26, 2020
Bloodbath Continues As Stocks Respond To Coronavirus Fears; Bond Yields Achieve Fresh Lows; A Black Swan Moment?
So, is this "the big one?"
Is this the beginning of the inevitable late-stage bull market crash?
It very well could be, with the coronavirus taking up residence in market perceptions as the black swan, the mythical entity so eloquently devised and demonstrably argued in Nassim Nicholas Taleb's book by the same name in 2007.
To those unfamiliar with the concept, black swans are rare, some say even non-existent, and Talib posits that rare, unpredictable events do happen, and their appearance can manifest itself in positive or negative ways.
Thus, the coronavirus (COVID-19) qualifies as a black swan event, as it appeared almost from nowhere, without warning, without announcement, and without restraint. It could be said that the virus itself is not the black swan, but what turned it into a major event for markets and economies was the fumbled handling of it and attempts to contain it in its early days of spread in China.
Had the virus been less contagious, less virulent, better contained, it might have had little to no effect on markets, but, as has been seen over the past two months, it managed to spread across almost all of mainland China, escaped its borders and eventually has been contracted in now forty countries, as far-flung as Sri Lanka, Bahrain, Finland, and the United States.
It is out there, it is virulent, it is deadly in some cases. Invisible, untouchable, it is an ideal psy-op by which the mainstream and financial media can whip up fear into a tornado of emotion, to whirl about Wall Street and global financial centers and create a panic.
The truth - and there have been more than enough variants of that to render objective opinion nearly moot - is that the virus is apparently not as deadly as other natural disasters might be. It is not even keeping pace with deaths by accident or from the more common flu, but the media coverage and government response to it has been nothing short of ghastly and draconian. Mass quarantines are not something most people alive today have ever experienced, but the world is getting a first-hand view - albeit somewhat clouded by China's command - of entire cities and provinces on lockdown, now followed by similar experience in South Korea and Italy and elsewhere, and possibly, we have been warned, coming to a neighborhood near you.
So, while fear is stoked in the general populace over the chance of catching the disease, possibly dying from it and possibly having to live isolated for weeks, the financial world sees disruption to the normal conduct of business, anathema of the first order.
Starting with the supply lines for parts to finished products out of China and ending with entire huge swaths of populations unable to transact in an orderly manner, the spread of the virus has the potential of putting the entire planet on hold, unable to work, pay bills, advance production, build, grow. COVID-19 is the potion, media and government the ice and the straw that sirs the drink (hat tip to Mr. October, Reggie Jackson for the apropos analogy), and it is all connected.
Whether or not the spread of the virus, its immediate health effects and reaction to it will be enough to send economies into reverse is still unknown, though it's looking more and more likely that whatever carnage it is producing is not about to stop soon and will continue until either it mutates itself out of existence or is contained to a level at which people can work, travel, and interact freely without fear.
So far, it has not been contained to any satisfactory level and appears to be spreading further into the general population in many countries.
With what we know, and the reaction thus far - by China first and the rest of the world after that - COVID-19 may not decimate the world's population, but the fear of it, the media coverage of it, and various government responses to it have the potential to crash markets around the world.
The financial environment has quickly shifted from greed over to fear and fear is not backing down. Investors are seeking safety rather than profit. Companies are reviewing disaster plans and procedures rather than seeking expansion and growth. These conditions will likely prevail for months, long enough to send stocks spiraling into a death trap, bonds soaring, and eventually gold and silver to unforeseen levels (though precious metals took a thumping on Tuesday thanks to the unseen hands of interlopers in the paper markets).
On Tuesday, the Dow took another huge step down, as did the NASDAQ, S&P, and other indices around the world, especially in Europe, which after China, looms the most precarious. Europe was already been on edge, close to recession, prior to the emergence of the coronavirus threat and they may be reeling uncontrollable into an abyss should the population experience widespread or even minor contraction.
In the United States, the slowdown has begun, with automakers concerned about parts en route from China and whether such essential production parts will arrive in an orderly manner. It's probable that they will not. Other industries have a similar connection to China and elsewhere, and anecdotal evidence suggests that slowdowns and possible layoffs lie straight ahead.
Bond yields have cratered like a failed bundt cake. Yield on the 10-year note crashed through its all-time low, stopping finally at 1.33%, two basis points below the prior low from July 5th and 8th of 2016 (1.37%). The 30-year bond dipped to 1.80%. The three and five-year notes mark the bottom of the treasury curve at 1.16, dangerous levels for capital markets.
In conclusion, unless events somehow take a radical turn for the better, conditions exist in spades for massive market turmoil to the downside. Beyond the idea that most liquid equity markets and individual securities have been extremely overbought and propped up by Fed injections and corporate buybacks, the effect from coronavirus and reaction to it should continue to offer nothing good in terms of upside impetus for the foreseeable future, though the first quarter and well into the second.
Global recession or worse is a viable consideration.
At the Close, Tuesday, February 25, 2020:
Dow Jones Industrial Average: 27,081.36, -879.44 (-3.15%)
NASDAQ: 8,965.61, -255.67 (-2.77%)
S&P 500: 3,128.21, -97.68 (-3.03%)
NYSE: 13,143.73, -390.37 (-2.88%)
If all this is too much for you to bear, then sit back, relax, and enjoy music from a better time, the Beatles' Revolver album.
Is this the beginning of the inevitable late-stage bull market crash?
It very well could be, with the coronavirus taking up residence in market perceptions as the black swan, the mythical entity so eloquently devised and demonstrably argued in Nassim Nicholas Taleb's book by the same name in 2007.
 |
| Talib's tome is on the mark. |
To those unfamiliar with the concept, black swans are rare, some say even non-existent, and Talib posits that rare, unpredictable events do happen, and their appearance can manifest itself in positive or negative ways.
Thus, the coronavirus (COVID-19) qualifies as a black swan event, as it appeared almost from nowhere, without warning, without announcement, and without restraint. It could be said that the virus itself is not the black swan, but what turned it into a major event for markets and economies was the fumbled handling of it and attempts to contain it in its early days of spread in China.
Had the virus been less contagious, less virulent, better contained, it might have had little to no effect on markets, but, as has been seen over the past two months, it managed to spread across almost all of mainland China, escaped its borders and eventually has been contracted in now forty countries, as far-flung as Sri Lanka, Bahrain, Finland, and the United States.
It is out there, it is virulent, it is deadly in some cases. Invisible, untouchable, it is an ideal psy-op by which the mainstream and financial media can whip up fear into a tornado of emotion, to whirl about Wall Street and global financial centers and create a panic.
The truth - and there have been more than enough variants of that to render objective opinion nearly moot - is that the virus is apparently not as deadly as other natural disasters might be. It is not even keeping pace with deaths by accident or from the more common flu, but the media coverage and government response to it has been nothing short of ghastly and draconian. Mass quarantines are not something most people alive today have ever experienced, but the world is getting a first-hand view - albeit somewhat clouded by China's command - of entire cities and provinces on lockdown, now followed by similar experience in South Korea and Italy and elsewhere, and possibly, we have been warned, coming to a neighborhood near you.
So, while fear is stoked in the general populace over the chance of catching the disease, possibly dying from it and possibly having to live isolated for weeks, the financial world sees disruption to the normal conduct of business, anathema of the first order.
Starting with the supply lines for parts to finished products out of China and ending with entire huge swaths of populations unable to transact in an orderly manner, the spread of the virus has the potential of putting the entire planet on hold, unable to work, pay bills, advance production, build, grow. COVID-19 is the potion, media and government the ice and the straw that sirs the drink (hat tip to Mr. October, Reggie Jackson for the apropos analogy), and it is all connected.
Whether or not the spread of the virus, its immediate health effects and reaction to it will be enough to send economies into reverse is still unknown, though it's looking more and more likely that whatever carnage it is producing is not about to stop soon and will continue until either it mutates itself out of existence or is contained to a level at which people can work, travel, and interact freely without fear.
So far, it has not been contained to any satisfactory level and appears to be spreading further into the general population in many countries.
With what we know, and the reaction thus far - by China first and the rest of the world after that - COVID-19 may not decimate the world's population, but the fear of it, the media coverage of it, and various government responses to it have the potential to crash markets around the world.
 |
| Note the variance between the rise in price (up) and the bottom panel. That is the correlation with the S&P 500, which the Dow underperformed all through 2019 and into 2020. |
On Tuesday, the Dow took another huge step down, as did the NASDAQ, S&P, and other indices around the world, especially in Europe, which after China, looms the most precarious. Europe was already been on edge, close to recession, prior to the emergence of the coronavirus threat and they may be reeling uncontrollable into an abyss should the population experience widespread or even minor contraction.
In the United States, the slowdown has begun, with automakers concerned about parts en route from China and whether such essential production parts will arrive in an orderly manner. It's probable that they will not. Other industries have a similar connection to China and elsewhere, and anecdotal evidence suggests that slowdowns and possible layoffs lie straight ahead.
Bond yields have cratered like a failed bundt cake. Yield on the 10-year note crashed through its all-time low, stopping finally at 1.33%, two basis points below the prior low from July 5th and 8th of 2016 (1.37%). The 30-year bond dipped to 1.80%. The three and five-year notes mark the bottom of the treasury curve at 1.16, dangerous levels for capital markets.
In conclusion, unless events somehow take a radical turn for the better, conditions exist in spades for massive market turmoil to the downside. Beyond the idea that most liquid equity markets and individual securities have been extremely overbought and propped up by Fed injections and corporate buybacks, the effect from coronavirus and reaction to it should continue to offer nothing good in terms of upside impetus for the foreseeable future, though the first quarter and well into the second.
Global recession or worse is a viable consideration.
At the Close, Tuesday, February 25, 2020:
Dow Jones Industrial Average: 27,081.36, -879.44 (-3.15%)
NASDAQ: 8,965.61, -255.67 (-2.77%)
S&P 500: 3,128.21, -97.68 (-3.03%)
NYSE: 13,143.73, -390.37 (-2.88%)
If all this is too much for you to bear, then sit back, relax, and enjoy music from a better time, the Beatles' Revolver album.
Tuesday, February 25, 2020
Coronavirus (COVID-19) Takes a Bite Out of Europe and Wall Street
COVID-19 continues to rage, and on Monday, it took a bite out of global markets, especially in Europe and the Americas, with stock indices falling in a range around 3.5% on the day.
For the Dow Jones Industrial Average, it was the biggest decline in two years and the third biggest point drop in the history of the index, closing just short of the #2 all-time drop, −1,032.89 on February 8, 2018 a decline of 4.15%. Monday's rip was a 3.65% decline.
The S&P's 111.89-point loss was the second-worst ever on that index, nearly topping a 113.19 loss, also from February 8, 2018. The NASDAQ's 355.31-point decline was the second biggest on record. The worst day for the NASDAQ was on April 14, 2000, when the index plummeted nine percent, posting a loss of 355.49, kicking off what would be known as the dotcom bust.
There's a general theme around these kinds of outsized losses. Usually, there's follow-up, but it doesn't always come the very next day. It's usually another day later. That's likely because investors have become so accustomed to "buying the dip" that any major loss is seen as a buying opportunity, and this may well be, but it's probably going to be better to sit and watch on Tuesday and be ready to jump in (or out) on Wednesday or Thursday.
Another wave will come, and it's not going to be pretty. as pointed out in our Weekend Wrap, investors aren't concerned with the spread of the coronavirus per se, they're worried about the effect it is going to have on businesses, particularly, in this case, those with supply chains emanating out of mainland China, and there are plenty of them in addition to the airlines and cruise ship companies which have already been hard hit by the tail of the virus.
The after-effects from COVID-19 aren't going to emerge for months. Less than two months into the pandemic, the virus has yet to unleash its most virulent strain upon a host of countries outside China, but the list of countries seeing the number of new infections growing is getting larger. Italy, South Korea, Iran, Hong Kong, and Japan are the current hotspots, with cases doubling every day or two.
It will take some months for this to slow down and eventually be contained, but it's going to be very disruptive to the normal flow of business for some time. This is definitely not a time to be bullish, though the second half of the year may be.
With stocks battered around the world, bonds rallied, with yield on the 10-year note dropping eight basis points, from 1.46% to 1.38%. The 30-year bond hit another all-time low yield at 1.84%.
The yield curve remains inverted at the short to middle, with 1, 2, 3, and 6-month bills all posting yields higher than the 10-year, though the 2s-10s remained constant at a 12 basis point difference, the 2-year ending the day at 1.26. The curve is nearly flat, with 1.60% at one end (1-month) and 1.84% at the other, on the 30-year. A soft underbelly in the middle, with a 1.21% yield on the 3s and 5s, makes the entire trip one of just 63 basis points, or just more than one half of a percent. That's FLAT!
Oil hit the skids, with WTI dropping to 51.43 per barrel, though that's still higher than what is likely coming in months ahead, especially if widespread quarantines become fashionable in developed countries, particularly speaking of Europe and the USA.
Gold and silver were well bid, but smashed down at the end of the day. It's not yet the time for the almighty dollar to suffer. The yen and euro must submit first, along with China's yuan. When these fiat currencies are exposed, when negative interest rates are more an essential element than an experimental one, then the metals will soar. The world isn't there yet and nobody will be adequately prepared when that eventuality occurs, which could be six months from now or six years. It's looking like it may be closer to the latter, as the global machinery of finance isn't as fragile as it may appear on the surface.
Keeping a sharp eye out for emerging hotspots and especially on the US mainland, stocks ripe for shorting may be in the entertainment, hospitality, and dining segments.
At the Close, Monday, February 24, 2020:
Dow Jones Industrial Average: 27,960.80, -1,031.61 (-3.56%)
NASDAQ: 9,221.28, -355.31, (-3.71%)
S&P 500: 3,225.89, -111.86 (-3.35%)
NYSE: 13,534.12, -441.66 (-3.16%)
For the Dow Jones Industrial Average, it was the biggest decline in two years and the third biggest point drop in the history of the index, closing just short of the #2 all-time drop, −1,032.89 on February 8, 2018 a decline of 4.15%. Monday's rip was a 3.65% decline.
The S&P's 111.89-point loss was the second-worst ever on that index, nearly topping a 113.19 loss, also from February 8, 2018. The NASDAQ's 355.31-point decline was the second biggest on record. The worst day for the NASDAQ was on April 14, 2000, when the index plummeted nine percent, posting a loss of 355.49, kicking off what would be known as the dotcom bust.
There's a general theme around these kinds of outsized losses. Usually, there's follow-up, but it doesn't always come the very next day. It's usually another day later. That's likely because investors have become so accustomed to "buying the dip" that any major loss is seen as a buying opportunity, and this may well be, but it's probably going to be better to sit and watch on Tuesday and be ready to jump in (or out) on Wednesday or Thursday.
Another wave will come, and it's not going to be pretty. as pointed out in our Weekend Wrap, investors aren't concerned with the spread of the coronavirus per se, they're worried about the effect it is going to have on businesses, particularly, in this case, those with supply chains emanating out of mainland China, and there are plenty of them in addition to the airlines and cruise ship companies which have already been hard hit by the tail of the virus.
The after-effects from COVID-19 aren't going to emerge for months. Less than two months into the pandemic, the virus has yet to unleash its most virulent strain upon a host of countries outside China, but the list of countries seeing the number of new infections growing is getting larger. Italy, South Korea, Iran, Hong Kong, and Japan are the current hotspots, with cases doubling every day or two.
It will take some months for this to slow down and eventually be contained, but it's going to be very disruptive to the normal flow of business for some time. This is definitely not a time to be bullish, though the second half of the year may be.
With stocks battered around the world, bonds rallied, with yield on the 10-year note dropping eight basis points, from 1.46% to 1.38%. The 30-year bond hit another all-time low yield at 1.84%.
The yield curve remains inverted at the short to middle, with 1, 2, 3, and 6-month bills all posting yields higher than the 10-year, though the 2s-10s remained constant at a 12 basis point difference, the 2-year ending the day at 1.26. The curve is nearly flat, with 1.60% at one end (1-month) and 1.84% at the other, on the 30-year. A soft underbelly in the middle, with a 1.21% yield on the 3s and 5s, makes the entire trip one of just 63 basis points, or just more than one half of a percent. That's FLAT!
Oil hit the skids, with WTI dropping to 51.43 per barrel, though that's still higher than what is likely coming in months ahead, especially if widespread quarantines become fashionable in developed countries, particularly speaking of Europe and the USA.
Gold and silver were well bid, but smashed down at the end of the day. It's not yet the time for the almighty dollar to suffer. The yen and euro must submit first, along with China's yuan. When these fiat currencies are exposed, when negative interest rates are more an essential element than an experimental one, then the metals will soar. The world isn't there yet and nobody will be adequately prepared when that eventuality occurs, which could be six months from now or six years. It's looking like it may be closer to the latter, as the global machinery of finance isn't as fragile as it may appear on the surface.
Keeping a sharp eye out for emerging hotspots and especially on the US mainland, stocks ripe for shorting may be in the entertainment, hospitality, and dining segments.
At the Close, Monday, February 24, 2020:
Dow Jones Industrial Average: 27,960.80, -1,031.61 (-3.56%)
NASDAQ: 9,221.28, -355.31, (-3.71%)
S&P 500: 3,225.89, -111.86 (-3.35%)
NYSE: 13,534.12, -441.66 (-3.16%)
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