Archive for March, 2020

• Investors Sell Everything
  Eddy Elfenbein, March 18th, 2020 at 6:14 pm

  Today was another terrible day for the market. The Dow closed below 20,000 for the first time in three years. The S&P 500 was down “only” 5.18%, but the index managed to finish the day just above Monday’s close. That could be a good sign.

  Today was unusual in that investors were selling everything, including areas we normally think of as safe havens. The yields on Treasury bonds maturing more than three years out all rose by more than 10 basis points while the yields on anything maturing in less than six months dropped to nearly 0%.

  Since March 9, the yield on the 30-year Treasury has risen from 0.99% to 1.77%. Gold and crude oil both dropped sharply today. Oil fell 24% for its third-worst day on record. It hit an 18-year low.

  The small-cap Russell 2000 index fell more than 10%. The TED Spread closed at a 10-year high.

  On our Buy List, Hormel Foods (HRL) made a new high. Not on our Buy List, so did Walmart (WMT). Shares of Stepan (SCL) managed to close higher again today. This time, they rose by 2.50%.

• Morning News: March 18, 2020
  Eddy Elfenbein, March 18th, 2020 at 6:26 am

  Surging U.S. Dollar is Next Big Headache for World Economy

  Stocks, Oil Sliding Again In ‘Irrevocably Changed’ Markets

  U.S. Crude Hits 17-Year Low as Lockdowns, Restrictions Spread

  Fallout From Turmoil in Global Credit Markets Is Spreading

  Trump Told Mnuchin to Go Big, and a $1 Trillion Stimulus Emerged

  Fed Unveils Emergency Lending Programs as Companies Struggle to Raise Cash

  Coronavirus Sends Travel Business and Millions It Employs Into All-Out Crisis

  Glued to TV for Now, but When Programming Thins and Bills Mount …

  Tesla Stock Drops After Hours as County Says Fremont Factory is Not An ‘Essential Business’

  Ben Carlson: The Historic Sell-Off & a Game of Expectations

  Michael Batnick: How To Fight Hindsight Bias

  Nick Maggiulli: How the Coronavirus Crash is Different From 2008

  Jeff Carter: Uff Da

  Roger Nusbaum: How I Am Navigating Through The Coronavirus

  Howard Lindzon: Panic With Friends – Etoro Founder Yoni Assia

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• The S&P 500 Gains Back 6%
  Eddy Elfenbein, March 17th, 2020 at 7:14 pm

  The stock market had a decent recovery today. The S&P 500 gained 6.00%. Of course, we’re still a long way in the hole. The market was helped today by the Federal Reserve announcing “it would launch a lending facility to support short-term commercial-debt markets.”

  Ryan Detrick tweeted out a great stat. Officially seven consecutive days the S&P 500 changed at least 4% (up or down) on a closing basis. This tops the previous record of six days from November 1929.

  At one point today, the Dow dipped below 20,000. This was an odd day in that defensive stocks led a big up day. The top-performing sector today was utilities which were up 13.11%. That’s amazing.

  Our Buy List had another strong day in terms of relative strength. We beat the S&P 500 by more than 1.5%. Yesterday, we beat the index by nearly 2%. It’s unusual that we part ways so strongly from the broader market, but these are unusual times.

  Stepan (SCL) was up over 20% for us today. In the last three days, SCL has gained over 39%.

  

• Morning News: March 17, 2020
  Eddy Elfenbein, March 17th, 2020 at 7:11 am

  Surging Borrowing Costs, Vanishing Buyers: More Pain Ahead For European Junk Bonds

  ‘D’ Word Rears Head as Coronavirus-Hit Markets Brace for Recession

  U.S. Futures Fluctuate Amid Dollar-Funding Stress

  As Market Convulses, Big Banks Plan to Borrow Funds From Fed

  Goldman Sachs Sees the S&P 500 Hitting 2000 — But Then Bouncing Back

  In Coronavirus Testing Ramp-Up, U.S. Called Private Sector in Late

  Coronavirus Fight Lays Bare Education’s Digital Divide

  So We’re Working From Home. Can the Internet Handle It?

  Airlines’ $58 Billion Bailout Request Puts Scrutiny on Past

  Volkswagen to Suspend Production in Europe, Warns of ‘Very Difficult’ Year

  Joshua Brown: Six Steps for Leadership in a Crisis

  Howard Lindzon: Momentum Monday….Ya Right! What Happens After The Stock Market Falls

  Ben Carlson: Why You Can’t Always Swing at the Fat Pitch During a Crisis

  Michael Batnick: It Takes a Village & Talk Your Book: Positive and Negative Compounding- Trading Direxion Leveraged ETFs

  Jeff Carter: Sheer Panic

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• Wall Street Lays an Even Bigger Egg
  Eddy Elfenbein, March 16th, 2020 at 8:10 pm

  

  Today was an extraordinarily difficult day for Wall Street. This was one of the worst days in market history.

  Let’s review some of the damage.

  The S&P 500 fell by 11.98%. The Dow was off 12.93%. Today was the Dow’s second-biggest loss in its history. It edged our Black Tuesday, the legendary crash on October 28, 1929.

  

  The headline of Variety proclaims “Wall St. Lays An Egg” after the October 29, 1929 crash of the Stock Market. (Photo by Library of Congress/Corbis/VCG via Getty Images)

  The Nasdaq fell 12.32% for its biggest one-day loss in history.

  In the S&P 500, 339 stocks made new lows today. Not one made a new high.

  Just 10 stocks in the S&P 500 closed higher today. One was Hormel.

  It may seem like an odd consolation, but our Buy List beat the markets by nearly 2% today. We were down “only” 10%.

• Morning News: March 16, 2020
  Eddy Elfenbein, March 16th, 2020 at 7:16 am

  China’s Economy Suffers Historic Slump Due to Virus Shutdown

  Global Central Banks Pull Out All Stops As Coronavirus Paralyzes Economies

  Fed Brings Out Big Guns, Investors Fear the Worst

  These Charts Show How Markets Are Reacting to the Fed Bazooka

  What Do the Fed’s Latest Moves Mean For U.S. Consumers?

  Coronavirus Cost to Businesses and Workers: ‘It Has All Gone to Hell’

  ‘There Is Plenty of Food in the Country’

  Airlines Slash Flights Across Globe as Demand Evaporates

  Airlines Seek Emergency Aid As Coronavirus Brings Industry to Near-Halt

  Fishing Presents a Vexing Snag in Brexit Talks

  Cullen Roche: It’s Time to Declare War on COVID-19

  Jeff Miller: Weighing the Week Ahead: A Pundit’s Paradise – Anyone Can Play

  Jeff Carter: Penalizing Failure

  Ben Carlson: Levels of Losing in the Stock Market & How Long Does it Take to Make Your Money Back After a Bear Market?

  Michael Batnick: The Psychology of Bear Markets & What Happens After the Stock Market Falls?

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• The Fed Goes to 0%
  Eddy Elfenbein, March 15th, 2020 at 5:14 pm

  In a surprise Sunday announcement, the Fed has cut interest rates to a range of 0% to 0.25%, and announced a $700 billion QE program.

  The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States. Global financial conditions have also been significantly affected. Available economic data show that the U.S. economy came into this challenging period on a strong footing. Information received since the Federal Open Market Committee met in January indicates that the labor market remained strong through February and economic activity rose at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending rose at a moderate pace, business fixed investment and exports remained weak. More recently, the energy sector has come under stress. On a 12‑month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation have declined; survey-based measures of longer-term inflation expectations are little changed.

  Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range for the federal funds rate to 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. This action will help support economic activity, strong labor market conditions, and inflation returning to the Committee’s symmetric 2 percent objective.

  The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

  The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals. To support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion. The Committee will also reinvest all principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Open Market Desk has recently expanded its overnight and term repurchase agreement operations. The Committee will continue to closely monitor market conditions and is prepared to adjust its plans as appropriate.

  Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Randal K. Quarles. Voting against this action was Loretta J. Mester, who was fully supportive of all of the actions taken to promote the smooth functioning of markets and the flow of credit to households and businesses but preferred to reduce the target range for the federal funds rate to 1/2 to 3/4 percent at this meeting.

  In a related set of actions to support the credit needs of households and businesses, the Federal Reserve announced measures related to the discount window, intraday credit, bank capital and liquidity buffers, reserve requirements, and—in coordination with other central banks—the U.S. dollar liquidity swap line arrangements. More information can be found on the Federal Reserve Board’s website.

• CWS Market Review – March 13, 2020
  Eddy Elfenbein, March 13th, 2020 at 7:08 am

  ”The system is not really geared to what we need right now.” – Dr. Anthony Fauci

  This week has been one of the most dramatic in Wall Street history. The entire world is waking up to the fact that the coronavirus is a serious public-health challenge for everyone, and that includes the world of markets.

  The stock market has been getting crushed. Thursday was the fourth-worst day for the Dow in percentage terms in its 124-year history. Poetically, the Dow fell by 9.99%. The only days worse than that came in 1929 and 1987.

  

  Twice this week, trading was halted after the S&P 500 fell 7%. Under the rules of the New York Stock Exchange, trading is halted for 15 minutes after a 7% decline. Trading is halted again after a 13% decline. If the market falls 20% in one day, then the exchange is shut down for the day. These “circuit breakers” are designed to stem a runaway market. I’m doubtful that they can be effective, but we’ll see.

  The First Bear Market in Eleven Years

  I’m looking over the numbers, and it’s truly been a gruesome time for the market. Over the last six sessions, the S&P 500 has fallen over 20%. On Thursday, the S&P 500 closed down more than 20% from its all-time highest close from just three weeks ago. That’s the unofficial definition of a bear market. As it turns out, Monday was the eleventh anniversary of the bull market that started in 2009. It is no more.

  While it’s true that the stock market is not the economy, they are related. In the last 93 years, the Dow has had 13 bear markets. Only twice did the economy not go into a recession. This is also the fastest bear market in history. We’ve had faster 20% declines but not from the peak.

  The stock market is clearly on edge. Traders weren’t reassured by President Trump’s remarks on Wednesday, nor were they comforted by the Fed’s actions on Thursday. The indexes just continued to fall. I’m afraid the Fed is pouring gasoline into a car that doesn’t have wheels.

  

  I think it’s very likely that the U.S. economy has entered a recession. The problem is that the economic numbers we get tend to be lagging. I suspect that over the next few months, we’ll see a drop-off in production for U.S. businesses. Unfortunately, that will also lead to a rise in unemployment. I’ll be keeping a close eye on the jobless-claims reports.

  Here are same stats: On Wednesday, the S&P 500 fell by 5%, making it one of the worst days for the market in history. Remarkably, it’s been the least volatile day of this week thus far. On the NYSE, there were 2,376 new lows on Thursday and just two new highs. The Volatility Index, or VIX, got up to 76 on Thursday. That’s the highest in history.

  Here’s a quick quiz for you. Guess how many stocks in the S&P 500 are currently more than 10% off their 52-week high?

  The answer: 502.

  That’s not a misprint. Nor are my math skills failing me. There are 500 companies in the index but 505 stocks. (Side note: I did have my math corrected this week by Nassim Taleb.)

  On Thursday, 338 stocks in the S&P 500 reached a new 52-week low. Not one got to a new 52-week high. In particular, energy stocks have been creamed of late. I sent you a special alert after Monday’s dramatic decline. That selloff was sparked by the price war for oil between Russia and Saudi Arabia. At one point on Monday, West Texas Crude was going for $27.34 per barrel. That’s down from $65 per barrel earlier this year.

  It’s not over. In fact, I think we could see a major oil company go under. Or they might be forced into a merger. As bad as the energy stocks have performed, they’ve been a gold mine compared with the cruise industry. Those stocks have been absolutely decimated.

  The impact on the bond market has been quite dramatic. At one point, the entire U.S. Treasury yield curve was under 1%. The Federal Reserve cut interest rates on Monday. On Thursday, the Fed said it would inject liquidity to prevent “unusual disruptions” in the markets.

  Every day we hear something new. The World Health Organization has officially called it a pandemic. The NBA has suspended its season. Baseball probably will do the same. Broadway has shut down. Ireland canceled St. Patrick’s Day, if you can imagine that. There was even a conference on the coronavirus that was canceled due to the coronavirus. I think schools will soon close. Heck, the entire country of Norway has basically shut down. Jim Cramer said the government should suspend all taxes.

  What About Our Buy List?

  What about our stocks? Well, there’s been very little company-specific news for us. I’m happy to say that our Buy List has been largely outperforming the market. Of course, we don’t have any energy or cruise stocks, so that helps. Also, our stocks tend to be much higher quality. On Thursday, our Buy List beat the S&P 500 by 1.13%. That’s pretty good for a single day.

  Fiserv (FISV) said this week that it will postpone its investor conference scheduled for March 25. The company said it expects to have greater synergies from its First Data acquisition.

  Fiserv also stood by its previous guidance for internal revenue growth of 6% to 8% and EPS growth of 23% to 27%. CEO Jeffery Yabuki said, “We remain comfortable with our outlook for the full year based on the diversity and resilience of our business along with our current view of the market.”

  The stock has outpaced the market each day this week.

  Moody’s (MCO) reaffirmed its 2020 guidance range of $9.10 to $9.30, but Moody’s now expects to be toward the lower end of that range.

  “We are revising Moody’s Investors Service’s full-year 2020 revenue guidance from mid-single-digit to low-single-digit percent growth reflecting ongoing uncertainty related to the coronavirus,” said Raymond McDaniel, President and Chief Executive Officer of Moody’s. “We will continue to monitor and proactively manage our response to the situation as we work to meet stakeholder expectations.”

  Moody’s is down 28% over the last six sessions, but it may be due for a bounce soon.

  Disney (DIS) said that Disneyland is closing down through the end of March.

  Shares of Globe Life (GL) are down more than 42% over the last three weeks. That’s very surprising, since the stock is normally so quiet and well-behaved.

  AFLAC (AFL) closed Thursday at $31.42 per share. That’s an extraordinary bargain. The stock now yields over 3%.

  Our best-performing stock this year is Hershey (HSY) and that’s down 9.6%.

  Eagle Bancorp (EGBN) is now half of its 52-week high. EGBN is down 29% over the last six trading sessions.

  The selloff has largely wrecked all our Buy Below prices. I plan to gradually adjust them back to reality, but that may take some time. Have patience with our stocks. This, too, shall pass.

  What to Expect from Here

  The market will remain volatile. You can expect to see big swings. Bear-market rallies are common, so don’t get too happy when the market zooms on a day with little news. It may not last.

  I think the Fed will soon go to negative interest rates. There’s a meeting next week, and they’ll almost certainly cut rates again.

  Well-run companies tend to adapt well to a new environment. That’s what I’ll be curious to see.

  Things will get better once the coronavirus starts losing. It won’t be the Fed or politics that causes the turn. The economy will be hurt as consumers start avoiding masses of people. We may have to spend a few weeks riding out the storm. From what I understand, the people of South Korea have already showed signs of beating the virus. I hope we’ll do the same!

  That’s all for now. Next week will be another hectic week for stocks. The Federal Reserve meets on Tuesday and Wednesday. The Fed will also update its economic projects for the next few years. I think Fed members will be much more cautious with their estimates. On Tuesday, we’ll get the retail sales report for February. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

  – Eddy

• Morning News: March 13, 2020
  Eddy Elfenbein, March 13th, 2020 at 7:04 am

  Europe’s Central Bank’s Steps to Stem Coronavirus Damage Leave Investors Cold

  Italy’s Nightmare Offers a Chilling Preview of What’s Coming

  Bitcoin Drops 50% in Epic Two-Day Tumble

  The Pitiful Oil Market the Saudis and Russia Are Fighting Over

  Buffett Bet That Infuriated Icahn Is Hit Hard by Oil Crash

  Texas Shale Heartland Rattled by Coronavirus and Oil Price War

  Clamor Grows for Trump to Cut China Tariffs in Coronavirus Response

  Fed’s Economic Forecasts to Give Window Into Extent of Coronavirus Fears

  Airlines Cancel Flights and Lay Off Workers as Stocks Plummet

  Late-Night Shows From New York Will Go Dark Next Week

  Nick Maggiulli: 3 Things I Learned from the Coronavirus Crash

  Joshua Brown: Hello Darkness My Old Friend

  Howard Lindzon: Panic With Friends – A Chat With Brian Norgard …and Some Signs Of Selling Exhaustion

  Michael Batnick: Animal Spirits Emergency Podcast: Preparing For a Recession & Everybody’s Talking About It

  Ben Carlson: Creating an Overreaction Plan for the Coronavirus

  Be sure to follow me on Twitter.

• Morning News: March 12, 2020
  Eddy Elfenbein, March 12th, 2020 at 7:07 am

  Global Stock Rout Continues and Heads for Bear Market

  With Trump’s Europe Travel Ban, World Economy Takes Another Hit

  Dow Ends 11-Year Bull Market as Coronavirus Defies Economic Remedies

  Trump’s Error-Laden ‘Foreign Virus’ Speech Has Investors Spooked

  Trump’s Payroll Tax Cut Would Dwarf the 2008 Bank Bailout

  Corporate Credit Risk Heightens as Coronavirus Impact Spreads

  Insurers Face Double Whammy from Coronavirus Crisis

  Why Energy Experts Are Watching Crypto as Oil Wars Emerge

  PepsiCo Agrees to Buy Rockstar Energy for $3.85 Billion

  Joshua Brown: The 9/11 Analog & Biden Can Win

  Howard Lindzon: Panic With Friends – Jim O’Shaughnessy

  Roger Nusbaum: Market Crash Aphorisms

  Jeff Carter: Recent Data Bringing the Wrong Conclusion

  Ben Carlson: The Relationship Between Recessions and Market Crashes

  Michael Batnick: Bear Market Rallies & Animal Spirits: Oil’s 1987 Moment

  Be sure to follow me on Twitter.