Commenting on the early impact of the coronavirus epidemic on the consumer economy and today’s trading Gorilla Trades strategist Ken Berman said:
Q4 2019 hedge fund letters, conferences and more
It's hard to find positives in today’s price action, since even the Fed’s unprecedented moves were not able to stop the bleeding, so the short-term outlook remains bleak. While yesterday credit markets were slowly normalizing the overnight developments led to another bloodbath on Wall Street, with even the usual safe-haven sectors, Treasuries, and gold being under pressure in the second half of the day. This occurred even though from a value standpoint, stocks are looking attractive.
A decade ago, no one talked about tail risk hedge funds, which were a minuscule niche of the market. However, today many large investors, including pension funds and other institutions, have mandates that require the inclusion of tail risk protection. In a recent interview with ValueWalk, Kris Sidial of tail risk fund Ambrus Group, a Read More
Major Indices Crash Yet Again
The major indices crashed once again, with the Dow registering its biggest daily decline since 1987, as the Trump administration’s travel ban from Europe together with the nationwide lockdowns in the Old Continent led to forced liquidations across asset classes. The Dow Jones Industrial Average (INDEXDJX:.DJI) was down 2,353, or 10.0%, to 21,201, the Nasdaq (INDEXNASDAQ:.IXIC) lost 750, or 9.4%, to 7,202, while the S&P 500 (indexsp:.inx) fell by 261, or 9.5%, to 2,481. Decliners outnumbered advancing issues decliners by a more than 45-to-1 ratio on the NYSE, where volume hit an all-time high!
Although the European Central Bank (ECB) held its monetary meeting today, it was the Fed that caused the strongest bounce in stocks. The Central Bank announced that it will increase its overnight "repo" lending facility by a whopping $1.5 trillion in one month to ease the financial system's liquidity crisis, while also pledging to buy coupon-Treasuries to boost funding conditions. The ECB, on the other hand, focused on fiscal stimulus and left its benchmark rate unchanged, disappointing investors in pre-market trading.
Wild Swing In Currency Markets
The Central Bank bonanza triggered wild swings in currency and bond markets globally, with all eyes on the dollar amid the rumors of a looming dollar-funding crunch. Despite the furious initial bounce, stocks quickly gave back their gains and finished near their intraday lows. Investors clearly doubt the effectiveness of the monetary and fiscal measures proposed by central banks and the governments, but a lot of analysts also point out that the economy could recover rapidly should the global outbreaks follow the timeline of the Chinese events.
The key sectors all had a terrible session, with even the best-performing healthcare stocks shedding over 7% compared to yesterday’s close. Tech stocks were also relatively strong, just as consumer staples, but virtually no stocks finished the day in the green. The fact that the defensive utilities sector was among the weakest, together with materials and industrials, describes the nature of today’s crash quite well. Investors sold everything, with a lot of funds likely being forced to do so, and these conditions almost always create bargains, as fundamental considerations are thrown out the window.
COVID-19's Impact On The Consumer Economy
While economic indicators had little-to-no impact on financial markets this weak, tomorrow's Michigan consumer sentiment number could give clues regarding the early impact of the epidemic on the consumer economy. With the quick escalation of the panic in mind, the consumer-related indicators will be very closely watched in the coming weeks, since the U.S. consumer economy has been the engine of global growth in the past couple of years.
Technical Corner: The unprecedented speed of the selloff of the past weeks, a "one-two punch" as legendary investor Warren Buffet put it, wreaked havoc among the key trend indicators, and we are now seeing bearish readings across the board. The major indices all remain well below their declining 50-day moving averages of 3,209 for the S&P 500, 9,148 for the Nasdaq, and 28,052 for the Dow, and the indices are now also well below 200-day moving averages of 8,422 for the Nasdaq, 3,050 for the S&P 500, and 27,210 for the Dow.
The major indices all entered bear market territory today, pulling back by more than 20% compared to their all-time highs. The Russell 2000 hit its lowest level since late-2016, as investors were forced out of risky assets. The Volatility Index (VIX) topped 75 in late trading, getting close to its highest level during the financial crisis of 2008. A lot of records were broken today and over the past couple of weeks, but looking at the historical precedents, one thing is clear, these market conditions rarely last long and almost always lead to great buying opportunities for investors. Stay tuned!