Stocks Hit New Lows As Oil’s Crash Continues

Trump administration’s planWikiImages / Pixabay

Commenting on today’s trading in which the details of trump administration’s plan for the economy dominated,  Gorilla Trades strategist Ken Berman said: 

Despite today’s new lows, there were a few positive signs ‘under-the-hood’, which could point to the weakening of the selling pressure. Today’s selloff was more selective than what we saw on Monday and last Friday, with fewer stocks hitting new 52-week lows, and these kinds of breadth-divergences often signal, at least a short-term bottom.

The major indices all hit new bear market lows today, despite the massive stimulus plans announced across the globe, but stocks finished the session well above their intraday lows thanks to a strong late-day rally.  The Dow was still down 1,338, or 6.9%, to 19,899, the Nasdaq lost 345, or 4.7%, to 6,990, while the S&P 500 fell by 130, or 5.2%, to 2,398. Decliners outnumbered advancing issues by a more than 19-to-1 ratio on the NYSE, where volume was extremely high again.

Another day, another sharp overnight reversal in risk assets, this time due to the doubts regarding the effectiveness of the bold moves by global governments and central banks to mitigate the Coronavirus pandemic’s impact. Long-dated U.S. Treasury yields spiked higher on the Trump administration’s plan to send out checks to U.S. households, but equity investors were not impressed, as the pandemic’s impact on corporate profits and balance sheets remains highly uncertain. Treasuries were also under pressure due to the scramble for cash among participants, as the widespread liquidations ‘infected’ the bond market too.

Markets fade Trump administration’s plan

The dollar funding crisis went mainstream today, with especially commodity-related currencies and the Great British pound getting hammered. The pound hit an all-time low, while several currencies traded at their lowest level in decades against the dollar, with even the Dollar Index (DXY) got close to its highest level since late-2002. The price of crude oil also hit an 18-year low, with the WTI contract plunging below $22 per barrel, triggering another massacre in the battered energy sector, which is down by 70% since last July, as measured by the popular XLE ETF.

While the lower number of new 52-week lows is a positive sign for bulls, small-caps remained under immense pressure today. The Russell 2000 fell below 1000 for the first time since early-2016, despite the Trump administration’s plan to provide aid for the coming months, as investors fear that the crisis will threaten the solvency of small corporations. The extent of the looming U.S. lockdowns remains unclear, but if the European situation is any indication, small businesses will face strong headwinds int eh second quarter.

Besides energy-related issues, which registered double-digit losses across the board, financials, and industrials suffered the biggest hit, severely lagging the broader market. We will have the Philly Fed Index coming out tomorrow, and judging by Monday’s dismal Empire State Index, industrials could get more bad news. The weekly number of new jobless claims will also be out, and even though analysts expect only a slight uptick in the measure, some participants think that we will already start to see the negative effects of the pandemic. Stay tuned!

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About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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