Market Recap Week Ending March 13
Monday – Dow (2,014) to 23,851, NDAQ (624) to 7,950 and the S&P (225) to 2,746. The markets waited for exactly 3 minutes before proving my hypothesis on more muted volatility null and void. Circuit breakers were triggered almost immediately on the open with the S&P falling 7% (circuit breakers are triggered at S&P down 7%, 13%, and 20% with 15 minute breaks for each stoppage for the first two and a closing of the markets for the day once the third breaker is reached. Once trading is resumed, only the next circuit breaker will stop trading. In other words, like today, we triggered the 7% breaker and once trading resumed we would not have stopped again unless we hit the down 13% limit). Trading was halted for 15 minutes by rule and once trading resumed we rallied somewhat until we broke back down and hovered around the 7% loss for the balance of the day and finished just off the lows. Today was again the single worst point loss in the history of the Dow and broke into the the top 20 worst percentage down days (11th worst day in percentage terms)…As opposed to the last three weeks, the leading news was not Covid-19 but the crude oil markets. Talks between the Saudis and the Russians to limit production failed over the weekend and as a result the Saudis increased production and slashed prices to its preferred customers by $4-$7/barrel. Brent Crude, the global oil benchmark, closed down 22% @ $35.45/barrel, its worst day since the the start of the 1991 Gulf War…All US government paper traded below 1% yields for the first time in history with the benchmark 10 year Treasury closing at 0.57% (if you haven’t yet, and you have a mortgage, please refinance. A client of mine just locked 3.125% on a 30 yr FIXED)…Covid-19 update: Italy has banned travel across the entire country. The Grand Princess cruise ship that has been stranded off the coast of California, finally docked at the port of Oakland. All passengers and crew will be quarantined for 14 days at military bases across the country…Tomorrow we are expecting core CPI…According to Bespoke Investment Group there have been 24 incidences of the S&P dropping 5% or more and 6 months later the average return has been up 6.2%. We shall see.
Tuesday – Dow +1167 to 25,018, NDAQ +393 to 8,344 and the S&P +135 to 2,882. After rallying hard overnight in futures trading, the indices opened up sharply before falling back towards the even level and then rallying hard at the end of the day. Yields finally slumped a bit with the 30 year Treasury pushing back up over 1% to close at 1.17% yield. The 10 year rose to 0.67%. There wasn’t much news to explain the rally other than a hope that the Trump administration was preparing a package of stimulus measures. Most likely this was a relief rally in response to yesterday’s disaster…CDC director Robert Redfield stated that Gilead’s (GILD) Covid-19 treatment (Remdesivir) is already deployed in the state of Washington…Former VP Joe Biden is projected to have won Michigan, Mississippi and Missouri, placing the Democratic nomination in a near stranglehold….Despite the news from the Democratic primaries, the futures look ominous for tomorrow’s open, signaling a 500 point or 2% decline.
Wednesday – Dow (1465) to 23,553, NDAQ (392) to 7,952 and the S&P (140) to 2,741. The World Health Organization categorized Covid – 19 as a pandemic. That plunged all three indices lower and each has officially entered bear market territory (defined as a 20% retreat from the highs). Note that bear markets are generally short in nature: the Dow averages 206 trading days during said market and the S&P 146 trading days. Compare that to the bull market that just ended 2 days short of its 11th year anniversary this coming Monday…Of the 34 deaths in the U.S. as a result of the Covid – 19 pandemic, 23 of them occurred at the Life Care Center skilled nursing facility in Kirkland, Washington. Some fairly drastic actions were taken today; the Golden State Warriors will play to an empty arena tomorrow, the NCAA will play the March Madness tournament without fans, the NBA indefinitely suspended their season after All Star center Rudy Gobert tested positive for the virus; Tom Hanks and his wife Rita announced they have tested positive, the President addressed the nation and in a confusing statement noted that the virus didn’t originate here, that there would be a 30 day ban on travelers and products from Europe which later had to be clarified to mean that foreign nationals would be barred and that the ban would have no affect on trade…Boeing (BA) drew down the entirety of its $13 billion in loans to prepare for the double shock of their 737 Max problems and now the lack of demand due to the virus. BA traded down 18% and is now down 52.6% from its high of $398.66…The Dow futures are trading down another 3.5%. Given the amount of news out today and tonight, I would expect further extreme volatility this week (admitting how wrong, how very wrong I was regarding my prediction of lower volatility last Friday)…One last thing to leave you with…
I love the press but I feel like the television media is doing a very poor job of placing the Covid-19 into any kind of perspective. From the LA Times…(https://lnkd.in/gwP5Bye)
These are the COVID-19 mortality rates by age calculated by the Chinese CDC:
ages 10-19: 0.2%
ages 20-29: 0.2%
ages 30-39: 0.2%
ages 40-49: 0.4%
ages 50-59: 1.3%
ages 60-69: 3.6%
ages 70-79: 8%
80 and over: 14.8%
If you feel ill, stay home. If you have flu symptoms, especially if you have a fever or have travelled internationally within the last 14 days, call your doctor to receive instructions on how to proceed. If not, carry on. Wash your hands constantly. Use disinfectant. Stay away from large crowds. Do not panic.
Thursday – Dow (2,353) to 21,200, NDAQ (750) to 7,201 and the S&P (260) to 2,480. The indices, underwhelmed by the President’s address and travel ban, plunged again in historic fashion today. Today’s drop on the Dow was the worst in terms of points and 4th worst in terms of percentages. The next important level of support for the S&P is a retracement to the December 2019 low of 2351. That would represent a 30% drop from the high reached February 19, 2020 of 3,386…Covid – 19 updates: the NCAA cancelled it’s March Madness basketball tournament, MLB and NHL postponed and suspended their seasons respectively, Broadway will close as NYC banned gatherings of more than 500 people and all USA Disney parks were shuttered (although Shanghai Disney has partially reopened).
Friday – Dow +1985 to 23,185, NDAQ +673 to 7,875 and the S&P +230 to 2,711. Equities rallied strongly overnight reaching as high as +1200 in late evening, early morning futures trading on rumors of a bipartisan Covid-19 Congressional relief deal. However, when the markets opened it was the same old song and dance with sellers overwhelming the bargain hunters and bringing us within 100-200 points of breakeven on the day as no news was forthcoming. However, at 3pm EDT, the President took the stage and declared a national emergency under the Stafford Act which will free up almost $50 billion in Federal funding to states and cities to help combat the virus. On that news, the markets rallied strongly into the close with all three indices finishing up in excess of 9% for the day. Later in the day Speaker Pelosi announced that the House and the Administration had come to terms on the rumored deal. Though there was some confusion after the announcement, the President has come out in favor of it and urged the Senate to pass it for his signature. How this will play out when the markets reopen on Monday remains to be seen.
The week that was…Dow down 2,679 (10.3%), NDAQ down 700 (8.2%) and the S&P down 261 (8.8%). The VIX, which is widely regarded as a fear gauge, has a long term average of 19, although in the past several years the average is closer to 12 with sharp spikes. Today, an hour into trading, it topped 77, a level only exceeded during the financial crises in the fall of 2008! With the rally in the afternoon, it receded some, closing at 57. Have we seen the bottom? I honestly do not know but I believe there are some reasons to be positive; the release of Federal money to the states and the cities under the national emergency declared today by the President, the potential for a bipartisan bill to be signed by the President releasing additional aid, the fact that we did NOT retrace the December 2018 low on the S&P of 2351, and finally, the expectation that the Fed will drop the overnight rate next week to zero. These are all stimulative measures and while they can’t force people out of their homes to travel, eat out, and shop, they can perhaps more importantly, calm the markets. A reminder that we will be placing trades next week to rebalance portfolios as the market volatility has led most accounts to be overweight fixed income and underweight equities.
Michael J. Castro