It’s a Real Bear of a Market

Market News | Week of March 9th, 2020

It’s been a hell of a week. Let’s unpack it.

Monday: The markets hit record lows. Oil had it’s worst day since 1991 when OPEC failed to reach a decision on production. Later that afternoon, President Trump had a quick press briefing that mentioned some semblance of a stimulus package forming. By the market’s closing on Monday, Dow futures were up 400 points.

Tuesday: Tuesday was a high note for the week. The market ‘rallied’ and our outlook was steadying.

And then Wednesday happened and boy did it happen hard. The Dow Jones Industrial and S&P 500 index plummeted and the Dow dropped 1,400 points, or 20% from last month’s record close, after the WHO announced we’re experiencing a pandemic. The mega-drop from our previous 52-week high now places us into what is known as a ‘Bear Market.’ By Wednesday evening, CME Chicago announced they plan to close their trading floor on Monday (switching to a WFH, remote-based model for the foreseeable future); the NCAA announced March Madness is canceled, for the first time ever; President Trump became the first president to address the nation in a format similar to one for the War on Terror; the NBA schedule was suspended indefinitely after two Jazz members tested positive for COVID-19; Tom Hanks and his wife proved even Forest isn’t immune to infection, and you’ll likely need to postpone your European Spring Break plans for the next 30 days as the US has some serious restrictions returning from Europe.

Thursday: The Fed intervened after the White House failed to calm investors’ fears. The Federal Reserve Bank of New York announced that it will offer at least $1.5 trillion worth of short-term loans to banks today and tomorrow. It also plans to change the structure of its ongoing asset purchase program. By Thurday’s close, Wall Street officially marked its worst day since 1987.

Friday: There’s a lot that happened through the weekend. The Fed dropped rates to 0 in an effort to support the economy. While many remote-centric platforms are faring better than say, energy or industrials, digital office communication platform, Slack saw a drop of 20%. And crypto crashes without the relief of a halt.

A Walk Down Wall Street

Based on that exhausting overview of the US weekly news, I suspect you might know what’s coming here…

You guessed it, coronavirus is shaking up every industry and market. From unknown forecasts and stimulus packages, this week was like swimming through open water. You know it’s going to be choppy but you don’t know what’s waiting for you below the surface, waiting to attack.

While last week was a rollercoaster, this past week felt more like a haunted house. Let’s break it down.

The Stock Market: 3 Key Points

There are 3 key points shaking the markets. The first, of course, is the spreading coronavirus. Fear and paranoia are driving retail investor trades. And honey, that’s not good for anyone. With growing travel cancellations and bans from Europe, big companies across indexes are finding it impossible to project earnings estimates and many are turning to major lines of credit (see Boeing in Energy, Industrials & Materials below). Meanwhile, a growing number of people are finding themselves away from work, with children out of school, and a growing desire to purchase all non-perishable goods available.

Second, the energy sector is giving us all an added headache. Due to the decreasing demand for energy-producing goods like oil, this once strong section of an investor’s portfolio is taking a real hit. People are selling amidst an assumption of over-production with no one out there to buy the millions of barrels produced per day. See our Energy Sector below for more.

Third, we’re all not-so-patiently waiting for news of a stimulus package. We don’t know the size of the package or when the release of said funds may become available, thus keeping investors nervous and sell-happy. President Trump did seem to address plans to support small businesses, which will likely be most impacted by this virus. The stimulus package plans to provide capital and liquidity to impacted small businesses, providing economic loans across states and territories.

The Bond Market:

U.S. Treasury yields came off their lows on Thursday even as major stock indexes entered a bear market, raising questions around whether investors reeling from losses in the past few weeks were selling Treasuries to free up cash.

What’s driving Treasuries?

Stocks sold off after President Trump announced a ban on travel from Europe to stem the spread of the coronavirus outbreak, adding to worries that the move could hurt cross-border economic activity.

The lack of an aggressive fiscal response has weighed on investor sentiment this week. But the selling in equities on Thursday did not spark bidding for the haven of government paper, drawing puzzlement among investors and traders, who suggested the counter-intuitive action may have been a result of some investors selling Treasuries to free up cash to handle redemptions or to deal with margin calls.

Corona Confusion: Nav.igating the Terms

  • Stimulus: In economics, stimulus refers to attempts to use monetary or fiscal policy to stimulate the economy. Stimulus can also refer to monetary policies like lowering interest rates and quantitative easing.
  • Bear Market: A bear market is a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment. 
  • Central Bank Interest Rates: Interest rates are the cost of borrowing money and represent what creditors earn for lending money. Central banks raise or lower short-term interest rates to ensure stability and liquidity in the economy.
  • Futures: Derivative financial contracts that obligate the parties to transact an asset at a predetermined future date and price.
  • Credit risk: The risk of default on a debt that may arise from a borrower failing to make required payments.

Movers & Shakers | This Week’s Business Breakdown

Energy, Materials, Industrials

Energy: If you’ve been keeping up these last few weeks, you’ve probably grown a strong understanding for how critical the energy sector is to market news. The coronavirus is the perfect example of how one key public health crisis can impact travel, community interaction and consumption = all things pertinent to a healthy demand for energy producers. So, how’s the industry responding to the pandemic? Not well, of course. Russia and Saudi Arabia are in a price war as Saudi Arabia refuses to lessen production in fears of crippling their economy. As demand lessens, OPEC and non-OPEC oil producers are inclined to decrease the number of barrels produced each day, which in turn, support the level of demand and keep prices competitive. However, the group failed to meet a consensus on policy on Monday, leading stock prices of US shale producers to crash on Monday. Top that off with Trump’s announcement to ban European travel and we have the perfect storm.

Finally, we’re a little hesitant to talk about gold but we’ll mention it briefly. Gold appears to be holding its ground as the disruption to the global economy from the coronavirus pandemic intensifies. On Wednesday, gold fell as some investors were likely prompted to sell the metal to cover margin calls with the Dow collapsing into a bear market, ending its historic bull run.

Industrials: We never aim to sound like a broken record. So, all we’ll say is: the airlines are bound to take a massive hit to earnings until this thing is controlled. Less travel and more social-distancing leaves an immediate sting to (frankly all) industry, but it will be much more damning for all things travel if left uncontrolled. You should, however, know that Boeing is planning to draw on its total loan, a whopping $13 billion, in the wake of the virus and its already hard-hit issues with that 737 Max.

Consumer Discretionary (Cons Disc) & Staples (Cons Stpl)

Cons Disc: Again, at the risk of repeating ourselves, there’s not much good news to report. Cruise lines fall under this group and we’ve all probably heard enough from them for a while. These companies are working closely with the White House to help keep passengers safe. They’ve suggested banning all passengers with preexisting conditions and/or over age 70. The government is planning to provide them some kind of relief in the wake of mass cancellations.

Stpl: Have you started stock-piling yet? We always like a trickle of entertainment during these times of doom and gloom. Here are the S&P stocks that are outperforming. Also, in the midst of panic, Pepsi just purchased energy drink company, Rockstar. What a time to be alive and hyper-caffeinated.

Health Care

Some are saying the WHO’s announcement on Wednesday was a little too late. But, hospitals in the US are expected to ramp-up testing sites. A key to this plan? Moving testing sites away from the hospital doors in hopes to contain the spread and protect those who have come in with symptoms related to other types of flu. This hospital is the first to bring in outside tents.

Financials

Where do we even begin here? Banks across the globe are turning to their governments for support. Something we can’t stress enough? This is a public health crisis, not a financial crisis. We are still within the window where this is simply a blemish on the market’s projections and graphs. But the next few weeks will be critical. Meaning, the Fed just came in with $175 billion in relief funding. The Fed will come in to take on some of the risk to the economy.

Light at the end of the tunnel? Goldman Sachs released an updated 2020 outlook that revealed the bull market would end this year but mostly recover by year’s end. Although negative growth is expected in Q2 and Q3, Q4 is probably going to get better and growth is expected in Q1 of 2021. Our fingers are crossed.

Technology & Communication Services

When times get tough, tech turns it up. Many have called on the government to do more (more quickly) as infection rates rise. Some big tech firms are taking it upon themselves to combat the spread. Amazon is hitting headlines as the ‘Zon just launched a $25 million relief fund for drivers and seasonal employees. They are also considering a partnership with the Gates Foundation to distribute health kits locally in Seattle.

Real Estate 

Ready to refinance? It seems like you’re in good company. The total volume of applications is up 55% compared to the previous week. It’s the highest demand since April 2009. What’s the deal? Well, the average rate on a 30-year fix fell 3.47% for conforming loans with 20% down. We’re anxious to see how lenders continue to meet demand.

Is the virus interrupting your personal and professional plans? What about your pocketbook? Let us know in the comments or hop over to our app and join our community of money mavens working through the new normal.

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