foxex: Bear Trap

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Friday's Headlines

1. US markets sell-off breaking three-day win streak

2. Congress passes $2 trillion stimulus bill

3. Trump orders GM to make more masks

4. Surveying the damage to global markets

5. What to expect next week

Markets Closed

Dow
21,636.78
−915.39 (-4.06%)

S&P
2,541.47
−88.60 (-3.37%)

Nasdaq
7,502.38
−295.16 (-3.79%)

VIX
65.54
+4.54 (+7.44%)

Bitcoin
$6,665.28
−$75.89 (-1.13%)

US 10-Yr Yield
0.749
−0.062 (-7.64%)

Year-to-Date

Dow
21,636.78 (-24.18%)

S&P
2,541.47 (-21.34%)

Nasdaq
7,502.38 (-16.39%)

Russell 2000
1,131.99 (-32.15%)

Crude Oil
$21.57 (-63.10%)

US 10-Yr Yield
0.749 (-60.97%)

Markets Today

U.S. markets' three-day rally was stopped short as the major indexes sold-off to end a dizzying week. Despite the DJIA falling more than 4% and the S&P 500 falling 3% today, U.S. markets ended up higher for the week but are still down 20% or more from recent highs.

The $2 trillion U.S. stimulus bill, officially called the CARES Act, was officially passed by Congress and signed by President Trump this afternoon. It's the largest spending package in U.S. history. (Full details can be found here.) While that should provide some measures of relief to small businesses, the unemployed, and key industries, many are already saying it's not nearly enough to stem the crisis. Expect more fiscal and monetary policy measures in the coming weeks.

While individual investors are still trying to opportunistically buy stocks and ETFs that have been devastated in the sell-off, big institutional money continues to flee risky assets. Investors poured $259.8 billion into money market funds, a third consecutive week of record inflows, according to Refinitiv Lipper. At the same time, stock-based funds saw $13.7 billion in outflows. Taxable bond funds saw $62 billion in outflows while municipal bond funds lost $13.7 billion, both records for two weeks in a row.

While we saw sizable rallies this week, they are very common in bear markets when volatility is high and sentiment is sour.

Stay alert and safe.

SPONSORED BY PERSONAL CAPITAL
Are You Worried About Today's Volatile Market?
One day the market goes down, the next, it's back up. What does that mean for your retirement plans? These insights can help you weather the storm.
Read More »

Headlines:

The U.S. House of Representatives passed a $2 trillion coronavirus relief bill on Friday which was signed by President Trump. The plan, which includes one-time payments to individuals, strengthened unemployment insurance, additional healthcare funding, and loans and grants to businesses to deter layoffs, got through the Senate unanimously on Wednesday night.
President Trump has ordered General Motors to make ventilators under the Defense Production Act after criticizing the company for not acting quickly enough to produce the supplies amid the coronavirus pandemic. The Korean War-era statute can force certain American companies to produce materials that are in short supply in the face of the growing outbreak.
Four passengers died aboard Holland America's "Zaandam" cruise ship and two people on board tested positive for the coronavirus, the company announced Friday. The company, which is owned by parent Carnival Corp., did not say how many passengers and crew were tested, but it said 53 passengers and 85 crew members are exhibiting symptoms consistent with the coronavirus. There are more than 1,800 people aboard the ship, the company said, adding that four doctors and four nurses are also onboard.
U.K. Prime Minister Boris Johnson has tested positive for the coronavirus. He has mild symptoms and will self-isolate in Downing Street. He will still be in charge of the government's handling of the crisis, according to the BBC.
Apple has developed a new website and app that will provide a screening tool for COVID-19 symptoms as well as up-to-date information from trusted sources about the coronavirus outbreak. The software announced Friday was developed in partnership with the Centers for Disease Control, the White House-led coronavirus task force, and the Federal Emergency Management Agency.
Tesla plans to slash on-site staff at its Nevada battery plant by around 75% due to the coronavirus pandemic, the local county manager said on Thursday. The move comes after its Japanese battery partner Panasonic said it would scale down operations at the Nevada factory this week before closing it for 14 days.
The Gap is taking precautionary actions to strengthen financial flexibility. The company is drawing down the entire $500 million on its revolving credit facility, suspending dividends for the rest of 2020, reducing capital expenditures by $300 million, and reviewing all operating expenses.
Toyota is seeking a 1 trillion yen ($9 billion) line of credit from Sumitomo Mitsui Banking Corp. and MUFG Bank Ltd., according to Bloomberg. Although Japan's biggest automaker has the strongest credit profile among the country's car manufacturers, its cost of credit is going up. On Thursday, Moody's Investors Service cut Toyota's credit rating to A1 from Aa3 and put it under review for a further downgrade.
The G20 says it is injecting over $5 trillion into the global economy as part of targeted fiscal policy, economic measures, and guarantee schemes to counteract the impact of COVID-19. The group held an emergency video conference summit on Thursday for leaders of the biggest economies in the world.
The total assets on the Federal Reserve's balance sheet has crossed $5 trillion for the first time. The central bank bought assets worth a little over half a trillion dollars last week, which is double the next-largest weekly increase that took place in 2008. You can view the entire breakdown below.

Global Markets in the Downturn

Nearly every developed market has faced steep losses in the past month. While several indexes recovered some ground this week, the trend has been steep declines around the world as the economic impacts of the coronavirus move westward. The chart below shows how those markets have performed this month using country ETFs as a proxy.

chart courtesy YCharts

While the U.S., European, and Asian markets get all the attention given their size, the Latin American indexes have been devastated since the beginning of March. Brazil's Bovespa, the worst-performing global index in the world, fell 20% in one day in the past two weeks and continues to be under pressure. Brazil was one of the best performing markets in the world until mid-February, but growth in Latin America's biggest country is set to plunge. Mexico, which is heavily reliant on the U.S. for trade, has also seen its stock market plunge more than 35% as the country closed its borders last week.

Japan and the U.S. have bounced back the most in the past week as global investors seek safer havens for their money, and U.S. lawmakers have greenlit a $2 trillion spending package.

chart courtesy Bank of America

Shipping Blues

We've written about signs to watch out for to identify that we are in a recession, and when we might come out. Many of those are tied to classic leading economic indicators like manufacturing, production, consumer spending, and unemployment. They are all flashing warning signs now and will likely get worse over the next two months.

Another leading indicator that has a longer lens is shipping, cargo, and freight demand. Since freight requires careful supply chain management in addition to both long and short lead times, it's a pretty good forecaster of how the overall economy is expected to perform.

In Bank of America's most recent freight forecast, which surveys cargo companies on their 6–12 month outlooks, demand has fallen to a four-year low. That could change if the spread of the coronavirus is contained sooner, rather than later, but that is a big "if."

What to Expect Next Week

Here's a look at how different asset classes have been doing:

Here's a list of economic events for the week ahead:

Monday, March 30th:

U.K. Housing Price Index (February)
Spanish Preliminary Consumer Price Index (CPI) (March)
German Preliminary CPI (March)
U.S. Pending Home Sales (February)
Japanese Preliminary Industrial Production (February)
Japanese Retail Sales (February)
Chinese Manufacturing Purchasing Managers' Index (PMI) (March)

Tuesday, March 31st:

U.K. Gross Domestic Product (GDP) (Q4)
French Preliminary CPI (March)
French Consumer Spending (February)
German Unemployment Rate (March)
Spanish GDP (Q4)
U.K. Business Investment (Q4)
Italian Preliminary CPI (March)
Eurozone Preliminary CPI (March)
Brazilian Unemployment (March)
Canadian GDP (January)
U.S. Chicago PMI (March)
U.S. S&P/CS Housing Price Index (January)
U.S. CB Consumer Confidence (March)

Wednesday, April 1st:

German Retail Sales (February)
Italian Manufacturing PMI (March)
French Manufacturing PMI (March)
German Manufacturing PMI (March)
Eurozone Manufacturing PMI (March)
U.K. Manufacturing PMI (March)
Eurozone Unemployment Rate (February)
Brazilian Industrial Production (February)
U.S. ISM Manufacturing PMI (March)

Thursday, April 2nd:

Market Holiday in Indian for Ram Navami
Brazilian IPC-Fipe Inflation Index (March)
U.K. Construction PMI (March)
U.S. Trade Balance (February)
Canadian Trade Balance (February)
U.S. Factory Orders (February)
Chinese Caixin Services PMI (March)
Japanese Services PMI (March)
U.S. Initial Jobless Claims

Friday, April 3rd:

Reserve Bank of Indian Interest Rate Decision
Eurozone Services PMI (March)
Spanish Services PMI (March)
Italian Services PMI (March)
French Services PMI (March)
German Services PMI (March)
U.K. Services PMI (March)
Eurozone Retail Sales (February)
U.S. Nonfarm Payrolls (March)
U.S. Labor Force Participation Rate (March)
U.S. Unemployment Rate (March)
U.S. Market Services PMI (March)

Purchasing Managers' Indexes
Countries all over the world are reporting manufacturing purchasing managers' indexes this week. China is reporting on Monday, while the Eurozone and the U.S. report on Wednesday. As we often mention, purchasing managers' indexes can be an important leading indicator to tell how firms are doing around the world, especially for manufacturing. This is doubly important for manufacturing-dependent economies like China or Germany. With the COVID-19 epidemic continuing to disrupt supply lines across the globe, keep an eye on how factory managers are feeling.

U.S. Unemployment Claims
You may have heard last week that a record 3.3 million Americans filed to claim unemployment insurance. For context, that is nearly five times the previous record of 695,000, set in 1982. While we normally don't highlight weekly events here, people should watch to see how high the number of claims stays, both this week and in the next few weeks. This will help give an idea if this was an anomalous one-off or if this will be a continuing trend. In addition, the U.S. monthly employment rate is announced at the end of March, and it will give some idea as to how this has affected the overall employment market.

More News:

Mcdonald's Stock Likely to Hit New Lows

Market Peaks and Valleys Amid the COVID-19 Crisis

Procter & Gamble Stock Could Offer Relief for Battered Portfolios

Participate in Our Investing Survey!

(chart courtesy YCHARTS)

Shares of Coty are up by over 24% as the company begins production of hydro-alcoholic gel for use as hand sanitizer. Sysco's share price rose by more than 17% today after the foodstuffs distributor announced it would open its St. Cloud distribution center on Friday and Saturday to sell food to the public; the company ordinarily sells to restaurants and other foodservice businesses.

Shares of Macy's fell by more than 10% amid reports that the department store chain has roughly five months of available cash left, putting it at significant risk if the current crisis continues unabated. Norwegian Cruise Line's share price fell by over 7%, seemingly in response to cruise lines being left out of the now-passed $2 trillion stimulus bill.

Word of the Day

Bear Trap

A bear trap is a technical pattern that occurs when the performance of a stock, index, or other financial instrument incorrectly signals a reversal of a rising price trend. A bull trap is thus a false reversal of a declining price trend. Bear traps can tempt investors into taking long positions based on anticipation of price movements which do not end up taking place.

image courtesy cnbc.com

Today in History

March 27th, 2000:

On the same day, technology stocks set a record for industry representation in the Standard & Poor's 500-stock index, at 34.9%, and Cisco Systems Inc. becomes the world's most valuable corporation, with a total market value of $548 billion. Never before has any single industry sector accounted for so much of the stock market, and never has a company become the world's largest in so short a time. Over the next year, however, technology shrinks to just 17% of the S&P 500 as tech stocks lose more than half their value, and Cisco sheds over $425 billion—the fastest and biggest fall in market value any stock has ever suffered.

The Wall Street Journal, March 28th, 2000.