foxex: Record Depths

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Monday's Headlines

1. U.S. markets tumble as stimulus measures fall flat

2. Oil prices fall 9% as demand evaporates

3. The Fed adds more to its repo market purchases

4. Bank of America says the cyclical bear market was here long ago

5. Truck cargo loads foretell an even steeper dip

Markets Closed

Dow
20,188.52
−2,997.10 (-12.93%)

S&P
2,386.13
−324.89 (-11.98%)

Nasdaq
6,904.59
−970.28 (-12.32%)

VIX
82.69
+24.86 (+42.99%)

Bitcoin
$4,995.94
−$338.32 (-6.34%)

US 10-Yr Yield
0.728
−0.223 (-23.45%)

Markets Today

Another historic sell-off roiled financial markets today as investors sold risk assets despite massive stimulus efforts by the U.S. Federal Reserve, other central banks and governments, and the International Monetary Fund. The DJIA plunged 2,999 points, its biggest daily point decline in history, while the S&P 500 and Nasdaq also sank 12% or more.

In addition to the Fed's 1% rate cut on Sunday and its pledge to spend up to $700 billion in quantitative easing measures, the Fed announced an additional $500 billion in repo operations this afternoon. It's the central bank's latest targeted move to keep money flowing through the financial system. This is on top of the $1.5 trillion the Fed offered last week.

These, and other measures, are designed to help the economy recover once it unfreezes from the economic shocks brought on by the coronavirus. That freeze, according to President Trump, could last until August. That news knocked another 4% off of U.S. markets as it was announced 20 minutes before the market close. The President also asked Americans to limit gatherings to 10 people or less to stop the spread of the virus. The U.K. asked people to refrain from non-essential touching. Canada closed its borders.

We are living through history. Hang in there.

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Headlines:

U.S. airlines are seeking government assistance of more than $50 billion, including a mix of direct aid and loan guarantees. Airlines for America, a lobbying group that represents 10 U.S. passenger and cargo airlines requested the aid Monday. If received, it would be the industry's first broad bailout since the wake of the Sept. 11, 2001, attacks. President Trump said a bailout is likely, which reversed the drop in airline stocks.
Fiat Chrysler, PSA Group, and Renault on Monday announced the closure of 35 manufacturing facilities in total across Europe. Together, the three companies sold roughly 12 million cars last year and employ nearly 14 million people.
Canada's central bank widened the list of securities it will accept in its term repo operations beyond those directly issued or guaranteed by the government or by a provincial government. The central bank also said it "stands ready" to purchase Canadian mortgage bonds if needed to support that market. See the list of acceptable securities here.
Apple (AAPL) has been fined $1.2 billion by the French antitrust watchdog for anti-competitive behavior in its distribution and sales network. The iPhone maker has been accused of getting its wholesalers, Tech Data and Ingram Micro, to agree on prices. It can appeal the decision.
Alphabet's (GOOGL) life sciences unit, Verily, has launched a website to help residents in California's Bay Area get tested for COVID-19. Users will need a Google account to register and be screened. If eligible for testing, they will receive further instructions.
Amazon (AMZN) suffered a technical glitch Sunday affecting online grocery orders through its Whole Foods and Amazon Fresh delivery services. The disruption also affected Prime Now orders, according to an internal memo obtained by Bloomberg.
Eight major U.S. banks have temporarily suspended share buybacks for the remaining period of the first quarter and the second quarter of 2020. The banks include Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JP Morgan Chase, Morgan Stanley, State Street, and Wells Fargo. "The decision on buybacks is consistent with our collective objective to use our significant capital and liquidity to provide maximum support to individuals, small businesses, and the broader economy through lending and other important services," said the Financial Services Forum statement.
United Airlines will cut capacity 50% in April and May. The company has seen one million fewer customers this month compared with last year and is projecting that revenue for March will be $1.5 billion lower. "We also now expect these deep cuts to extend into the summer travel period. Even with those cuts, we're expecting load factors to drop into the 20–30% range—and that's if things don't get worse," it said.
51% of U.S. economists on the Chicago Booth IGM ForumEconomic Experts Panel believe COVID-19 will cause a major recession even if its mortality rate is similar to the flu. Twenty-six percent are uncertain and 5% believe there will not be a recession. On the European panel, a bigger majority agreed that a major recession is likely: 48% strongly agreed, 34% agreed, 13% were uncertain, and 4% disagreed.

chart courtesy MorganStanley

Is this as Bad as it Gets?

This may fall on deaf ears today, but in a research note this morning, Morgan Stanley says the bear market we are in today was a natural progression from a 'cyclical bear market' that began when the Fed started tightening monetary policy in 2018. (Yes—you can have a cyclical bear market inside a secular bull market). To be sure, this bear market was aggravated by the one-two punch of the coronavirus turning into a global pandemic and the oil price shock from the split between OPEC and OPEC+, but it has been in the making since the Fed started raising rates two years ago.

While the economic fallout from the coronavirus will be deep and around for a long time, the bank's research team notes that the sell-off in stocks is far steeper than even the worst case earnings estimates for S&P 500 companies. That's what happens in an emotion-led market like the one we are in today.

The good news for investors, according to Morgan Stanley, is that a U.S. recession should mark the end of the cyclical bear market, and not the beginning of one. In other words, there is light at the end of the tunnel... we just don't know how long the tunnel is.

chart courtesy Bank of America

Highway Blues

The signs of an economic slowdown are everywhere we look right now. Businesses are closed, travel has come to a standstill and restaurants are empty. But the slowdown for the trucking industry started years ago as the U.S. and China began their trade war. It's only trended lower since, and it's about to head into a very fast decline. Cargo, especially trucking and shipping, are leading indicators of economic health, as we know. That's why the Dow Transports are so important to pay attention to.

Bank of America's proprietary Truck Shipper Survey fell 10% from February to March to its lowest level ever recorded. That was before the coronavirus brought business to an abrupt standstill. The March to April declines will be even steeper.

And, how are those Dow Transports doing?

chart courtesy YCharts

More News:

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Global Markets Tank Despite Fed Rate Cuts and QE Measures

Participate in Our Investing Survey!

(chart courtesy YCHARTS)

Shares of State Street are up by a whopping 22% percent; the financial services company announced today that it is suspending its common stock repurchase program through June 2020 in response to the coronavirus outbreak. The stock price of another financial services company, Northern Trust, has risen by nearly 21%; the company also made an announcement today, detailing a decrease of its prime rate from 4.25% to 3.25%—effective March 16.

Shares of Newmont plummeted by more than 11%; the gold mining company was hit hardest today as a result of the decline in the price of gold. The stock price of Capri Holding has decreased by almost 3% due to a sharp fall in retail traffic as more and more consumers self-quarantine to avoid potential exposure to the coronavirus.

Word of the Day

Bailout

A bailout is the act of a business, an individual, or a government providing money and resources (also known as a capital injection) to a failing company. These actions help to prevent the consequences of that business's potential downfall, which may include bankruptcy and a default on its financial obligations.

Businesses and governments may receive a bailout which may take the form of a loan, the purchasing of bonds, stocks or cash infusions, and it may require the recused party to reimburse the support, depending upon the terms. Bailouts traditionally occurred in industries or businesses which are no longer viable or that have sustained huge losses. However, even seemingly stable sectors such as banks are susceptible to failure, as seen during the 2008 financial sector bailout.

image courtesy loc.gov

Today in History

March 16, 1933:

President Franklin D. Roosevelt takes the U.S. off the gold standard, removing the yellow metal from coinage and circulation, even banning it as a collectible.

The United States had been on a de facto gold standard since the 1830s and a de jure gold standard since 1900. In 1913, the gold standard was built into the framework of the Federal Reserve. The law required the Federal Reserve to hold gold equal to 40% of the value of the currency it issued (technically termed the Federal Reserve Note but colloquially called the dollar) and to convert those dollars into gold at a fixed price of $20.67 per ounce of pure gold.

source: https://www.federalreservehistory.org/essays/roosevelts_gold_program