| Tuesday's Headlines 1. US markets give up 4% gains to close in the red 2. Oil prices fall again as US cuts production 3. Bye, Bye, Buybacks 4. 1929 v. Today Markets Closed
 photo: Getty Images
Markets Today U.S. markets were on their way to 3–4% gains and the first meaningful back-to-back days in positive territory before 3 p.m. came along. Gains vanished and investors were left scratching their heads wondering what happened to the positive sentiment that had kicked off the week. There was no major news this afternoon that precipitated a reversal of sentiment, but some investors may have decided to book profits after some healthy gains. We'll never know.
The news on the health front has been improving. Some European cities reported a meaningful decline in new cases and fatalities. Deaths related to COVID-19 declined for the the first time in parts of Europe, and the City of Wuhan, where the virus originated, officially lifted its quarantine, effective tomorrow. Still, the economic road ahead is long and hard, and that will weigh on investors' psyches for months. Companies are also pulling back or not issuing profit and revenue guidance for the rest of 2020, removing any visibility from investors who want to make some long-term bets.
These are tricky times. Headlines:
 chart courtesy Goldman Sachs
Bye, Bye, Buybacks One of the main accelerants of the U.S. stock market's record rise in 2019 was stock buybacks, or share repurchases that occur when a company buys back its shares from the marketplace with its accumulated cash. The 2017 tax cuts put a lot more cash into companies' pockets and they deployed a fair amount of it towards stock buybacks and dividends. Since buybacks reduce the amount of shares available, the relative ownership stake of each investor increases. There's nothing illegal about it, and often times, share buybacks are the most efficient use of extra cash, especially if the stock rises in value from the purchase date.
However, between the CARES Act, which forbids companies from using stimulus money on share buybacks, and the fact that companies will most certainly have tighter balance sheets this year as sales suffer, buybacks are set to fall, and fall hard. That is going to put yet another dent into the overall profitability of companies and the market, as a whole. It will also lead to more volatility as some companies may have artificially been putting a floor or support level under their shares by buying them regularly.
Goldman Sachs estimates that buybacks will fall 50% this year. As the research team writes, "Reduced buyback spending means less downside support for equity prices since fewer firms will step in to repurchase shares if their stock prices fall. During the past 25 years, the 20th percentile return for stocks within the S&P 500 has averaged -27% annualized during buyback blackout periods compared with -16% when companies can freely repurchase their shares."
Fewer buybacks also means slower earnings per share growth. Since buybacks reduce the denominator (the share in earnings/share) earnings growth won't seem as robust.  chart courtesy BespokeInvestments
Volatility in Perspective Before today's rally in U.S. markets faltered, the S&P 500 was on pace for its 13th straight day of moving up or down 1% or more. According to Bespoke Investments, that's a longer streak than anything seen during the Financial Crisis and just two shy of the 15 straight days that occurred in Oct. 2002 at the lows of that bear market. Before that, though, the only other period where there was a longer streak of 1% daily moves was during the Great Depression.
What makes this current streak even more notable is that it would be the second 13-day streak of 1% moves in the last 27 trading days. In the last five weeks (25 trading days) the S&P 500 has seen a 1% move 24 times. The only other time that has occurred was during the Great Depression when there were two separate occurrences.
So... if your head is spinning, you now know why.  chart courtesy TheIrrelevantInvestor
Speaking of 1929... We've had a lot of readers coming to Investopedia in search of our definition of a depression and our historical articles about the Great Depression of 1929.
I completely understand the urge to do that given current circumstances. We are in no way in a depression right now, although we are in a nasty recession despite the fact that the NBER has yet to call it.
Michael Batnick, the Director of Research at Ritholtz Wealth Mgmt. and the blogger behind TheIrrelevantInvestor.com, assembled these stats on the Great Depression, and while staggering, they do help put things in context:
I highlighted the stocks fact because an 89% drop seems unfathomable. We've just experienced a 34% drop in the DJIA, which knocked the wind out of us. A 50% drop would really shake our trees. But a 90% drop might turn the world upside down.
2020 is not 1929.
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(chart courtesy YCHARTS)  Shares of PVH are up by more than 28% after the clothing company divested its Speedo North America business licenses, providing a $170 million boost to its liquidity. Capri Holdings' stock price rose by nearly 25% following the fashion company announcing several financial policy changes, such as lowering its board cash compensation and cutting overall salaries, in order to survive the ongoing pandemic.  Shares of Arconic are down by over 9% today; three of the lightweight metal manufacturer's employees were recently confirmed to have tested positive for the coronavirus. EOG Resources' stock price fell by more than 1% amid the hydrocarbon exploration company reporting that the coronavirus' impact on the oil industry will be reflected in its Q1 results. Word of the Day Trend trading is a trading style that attempts to capture gains through the analysis of an asset's momentum in a particular direction. When the price is moving in one overall direction, such as up or down, that is called a trend. Trend traders enter into a long position when a security is trending upward. An uptrend is characterized by higher swing lows and higher swing highs. Trend traders may opt to enter a short position when an asset is trending lower. A downtrend is characterized by lower swing lows and lower swing highs.  image courtesy: MOAF.org
Today in History April 7th, 1792: America's first market crash hits rock-bottom, as the price of 6% of United States bonds slumps to 100 in panicky Philadelphia trading, down from 127.50 on Jan. 31st, a 22% plunge in just 13 weeks.
David J. Cowen, "The First Bank of the United States and the Securities Market Crash of 1792," The Journal of Economic History, December, 2000 (Vol. 60, No. 4), pp. 1044, 1051.
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Tuesday, April 7, 2020
Vanishing Act
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