foxex: Worked Over

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Friday's Headlines

1. U.S. markets plunge, then recover to end a wild week

2. Oil prices dive 10% as OPEC+ rejects cuts

3. Are we already in a recession?

4. What to expect next week

Markets Closed

Dow
25,864.78
−256.50 (-0.98%)

S&P
2,972.37
−51.57 (-1.71%)

Nasdaq
8,575.62
−162.98 (-1.87%)

VIX
41.94
+2.32 (+5.86%)

Bitcoin
$9,115.55
+29.30 (+0.32%)

US 10-Yr Yield
0.706
−0.22 (-23.76%)

Year-to-Date

Dow
25,864.78 -9.37%

S&P
2,972.37 -8%

Nasdaq
8,575.62 -4.42%

Russell 2000
1,449.2 -13.14%

Crude Oil
$43.91 -18.99%

US 10-Yr Yield
0.706 -63.21%

Markets Today

It started out as another one of those days as U.S. markets opened down 2.5% and continued to head lower, threatening to push stocks into another correction as coronavirus concerns overwhelmed investors. Then, with about 20 minutes to go before the close, markets rallied and clawed their way back to more modest losses (relatively speaking). All three major markets actually ended the week higher than where they began despite massive swings to the down and upside. When the smoke cleared, it looked like this:

chart courtesy YCharts

But it wasn't pretty for many sectors of the market. Energy stocks got absolutely clobbered as OPEC+, led by Russia, rejected production cuts of 1.5 million barrels/day to shore up prices. Oil prices fell 10%, sending shockwaves through the drillers, the exploration and production companies, and the oil services firms.

The global flight to the safety of government debt continued as investors piled into U.S. Treasuries and sent the yield on the 10-year note to record lows of 0.676%. At lows, the yield on the 30-year Treasury bond hit a fresh record low of 1.259%, the 5-year yield fell to 0.532%, and the 2-year yield dropped to 0.439%. That's all uncharted waters for investors.

The WHO erased any false hopes that the coronavirus will just disappear in the summer like the flu as the number of global cases raced past 100,000, with more than 3,400 dead.

It's been a wild week. Here are your headlines for Friday:

Headlines:

The White House is working on "timely and targeted" measures to address the economic impact of the coronavirus, adviser Larry Kudlow told Bloomberg. One option being considered is deferring taxes for the already-hit cruise, travel, and airline industries, although that has yet to be confirmed.
U.S. employers added 273,000 jobs to their payrolls in February, far more than expected. The coronavirus had yet to become a global economic threat last month, so the March and April reports might tell a very different story.
Oil prices plunged more than 10% to multi-year lows on Friday as OPEC's allies rejected additional production cuts that the organization proposed Thursday.
South by Southwest, the annual tech, film, and music conference held in Austin, Texas, has been canceled due to concerns surrounding the coronavirus outbreak. Local government officials announced the update at a press conference Friday afternoon discussing the status of the outbreak and events in the city.
Two Microsoft employees have contracted the coronavirus, according to the company. Both employees are located in Puget Sound near Seattle, the area that includes Microsoft's Redmond headquarters. CNBC reports that one of the employees works for LinkedIn, and the other is a contract employee who works remotely.
JPMorgan CEO Jamie Dimon, who has helmed one of the world's biggest banks for the past 15 years, underwent emergency heart surgery on Thursday after checking himself into a hospital complaining of chest pains. Dimon, 63, is expected to make a full recovery.
McDonald's has canceled its in-person biennial convention for its worldwide franchisees due to the coronavirus outbreak. The four-day event, scheduled for April, was supposed to take place in Orlando, Florida. It will now occur virtually.
The Vatican confirmed its first case of the coronavirus on Friday, Reuters reported, with health authorities confirming outpatient services in Vatican City clinics had been suspended to sanitize areas.

Recession Indicators

Everywhere I go, people keep asking me if we are already in a recession. The problem is that you rarely know you are in a recession when you are in the middle of one. Recessions are typically referred to as two consecutive quarters of negative GDP growth, and given that the U.S. economy grew 2.1% in the fourth quarter, we'd have to wait another two quarters to see if we fell into one over the course of the past couple of weeks in order to satisfy that definition. The probability of a recession has risen sharply, as noted by the chart above.

Others define recessions as slowdowns in the business cycle that are accompanied by slow or no hiring, a contraction in production and manufacturing, and other signs of economic stagnation. When economists look back on this time period, they may say that late February and early March were the peak of the expansion that began in June 2009. That would give it a longevity of 128 months, the longest in records maintained by the National Bureau of Economic Research going back to 1854.

While uncertainty is the dominant theme these days, Bank of America created a list of possible recession triggers to monitor the state of the markets and the economy:

U.S. consumer strength waning
Small business confidence collapses
Jobless claims climb above 250,000
Lower U.S. mortgage activity
Likelihood of President Trump being reelected dipping

So far, most of those triggers have not been pulled—not even close. However, if you look at what has happened to manufacturing activity in China over the past two months, it's not hard to imagine that economy falling into a recession and taking many of its neighbors and trading partners with it.

chart courtesy Bank of America Research

Money Flows

This week has seen more than $26 billion pulled from equity funds and ETFs, with most of it going to gold, government and corporate bonds and cash. Here's a look at flows so far this year:

What to Expect Next Week

Nothing is likely to break through the fear and anxiety surrounding the coronavirus and its spread around the world. Investors will need to hear that the number of new cases in countries outside of China is leveling off or declining before they are confident enough to get back into stocks in a meaningful way. That said, there are a few events worth focusing on in the coming week.

There are still a handful of companies reporting earnings next week. Among the most notable are Oracle and Dollar General, which both report results on Thursday. Investors will be paying close attention to their forecasts for the current quarter, which have undoubtedly been impacted by the spread of the coronavirus.

Here are some of the global economic events we will have an eye on during the week. For a more detailed list, see our friends over at TradingEconomics.com.

Sunday, March 8:

Japan GDP Q4, 2019

Monday, March 9:

Germany – Trade Balance (Jan.)
Canada – Housing Starts (Feb.)
U.S. – Consumer Inflation Expectations (Feb.)

Tuesday, March 10:

China – PPI
China – Inflation Rate
Eurozone – GDP 4Q'19

Wednesday, March 11:

Great Britain – GDP (Q1)
U.S. – Weekly Mortgage Applications
U.S. – EIA Oil Inventories

Thursday, March 12:

EuroZone – Industrial Production
EuroZone – Interest Rate Decision
U.S. Producer Price Index

Friday, March 13:

U.S. – Consumer Confidence
China – Vehicle Sales (Feb.)

More News:

When Will Travel Stocks Bottom Out?

Walt Disney Stock Fails 2019 Breakout

Quest Diagnostics Attempts Breakout After Coronavirus Testing News

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(chart courtesy YCHARTS)

Like Costco early this week, shares of Kroger are up by more than 8% as consumers flock to stores in order to buy items like hand sanitizer and nonperishable food in response to the coronavirus. Newmont has climbed to the top again this week, its stock price having increased by over 2%; today the gold mining company sold its 19.9% equity stake in Continental Gold.

Cruise line stocks continue to take hit after hit as coronavirus cases become more widespread; shares of Royal Caribbean (16%), Carnival (14%), and Norwegian Cruise Line (13%) have all declined. Airlines have fared no better during this global outbreak, with the stock prices of American Airlines (13%), United Airlines (13%), and Alaska Air (12%) also dropping.

Word of the Day

The Business Cycle

The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles are generally measured using the rise and fall in the real gross domestic product (GDP) or the GDP adjusted for inflation. The business cycle should not be confused with market cycles, which are measured using broad stock market indices. The business cycle is also different from the debt cycle, which refers to the rise and fall in household and government debt. The business cycle is also known as the economic cycle or trade cycle.

image courtesy: Richard Perlitz Foundation

Today in History

March 6, 1959:

At a press conference in New York City, Texas Instruments executives demonstrate a new device invented by one of the company's top engineers, Jack S. Kilby. They call their little new gadget the "integrated circuit." Today we know it as the microchip, the tiny cell that powers the Digital Age.

http://www.ti.com/corp/docs/company/history/vacation.shtml