The Market Today

Stocks Have Worst Day Since 1987 on Growing Fears

by Craig Dismuke, Dudley Carter

Coronavirus Update:  The mayor of San Francisco, a city and region hard-hit by the coronavirus, announced a stay-at-home quarantine through April 7 yesterday which will also apply to several surrounding counties.  The restrictions are expected to affect 6.7 million people.  Mayor Breed stated, “The new public health order that we’re announcing will require San Franciscans to remain at home with exceptions only for essential outings.”  According to an NBC News report, “Pharmacies, grocery stores, banks, gas stations and essential government services will remain open, as will restaurants, but only for takeout and delivery orders…. Bars and gyms will close.” U.K. PM Johnson told citizens to stop all non-essential public contact and travel. Canada closed its borders with a temporary exemption for U.S. residents. Also yesterday, President Trump and the Coronavirus Task Force held a press conference imploring Americans to practice social distancing.  Their new recommendations ask people not to congregate in groups of more than ten.  The President said that his team was hoping the virus would be contained by July or August.

Since yesterday’s data from the W.H.O. was reported, Johns Hopkins is reporting an additional 15,845 cases globally.  The growth rates in Italy and Spain appear to be slowing, although they remain high.  To access the PWPT version of our Coronavirus Chartbook: Coronavirus Chartbook (PWPT). For the PDF/Mobile version: Coronavirus Chartbook (PDF/Mobile).



Retail Sales Disappoint Showing Less Momentum Heading into Coronavirus Event: Retail sales surprisingly fell 0.5% in February on weak core sales, a 2.8% MoM decline in gasoline sales, a 1.3% drop in building materials, and a 0.9% decline in auto sales.  The drop in gas was due to falling oil prices and is a net positive.  However, those gasoline savings did not result in strong ex-gas sales.  The drop in building materials was not unexpected after a 3.3% jump in January.  The decline in autos was a bit of a surprise and discouraging.  Across the report, almost every category showed declines with the exceptions of sporting goods (+0.1%), miscellaneous items (+1.4%), and on-line sales (+0.7%).  While other indicators pointed to stronger sales activity, this report shows the consumer headed into the coronavirus event with less momentum.

Manufacturing Activity, Job Openings, and Homebuilder Confidence: The February report on Industrial Production, including monthly manufacturing output, is scheduled for 8:15 a.m. CT.  Also on the calendar today are the January job openings report, the March homebuilder confidence survey, and the January business inventories data.  Homebuilder confidence may take a hit in the March report after the NAR reported softer selling conditions amidst the uncertainty from the virus.


Fed Actions Can’t Cure Market’s Virus Worries: As expected, markets remained volatile Monday following the Fed’s weekend emergency actions aimed at shoring up financial market functioning and pushing back against the effects of the coronavirus, which has “harmed communities and disrupted economic activity in many countries, including the United States.” Treasury yields dropped sharply when foreign markets opened on the announcement of $700B in new asset purchases, with the 10-year yield down as many as 36 bps to 0.54% at the lows. While the Fed did what they could, and was surrounded by coordinated actions from many other major central banks, global equities slumped at the open of Asian trading as the dire economic realities of the current situation took hold. U.S. futures were limited down after a 5% drop in the first fifteen minutes of the overnight session.

Stock Sell-off Resumed as Virus Response Became Even More Restrictive: True to the early-morning trend of a popular S&P 500 ETF, which was down double digits just before the U.S. session, equities were halted for trading for 15 minutes after the opening tick chopped 7% off of the major indexes. They fell further once trading resumed, with the S&P 500 down as much as 11.4% before briefly trimming the tumble by mid-morning. However, the selling regained momentum before lunch as the flow of global headlines reflecting unprecedented effects from COVID-19 reached an overwhelming pace. Malaysia announced a country-wide quarantine. The EU proposed a ban on entry of all foreign persons. U.K. PM Johnson told citizens to stop all non-essential public contact and travel. Canada closed its borders with a temporary exemption for U.S. residents. San Francisco announced a requirement that all residents “stay home except for essential needs.” Heading into the Presidential Task Force’s afternoon briefing, the S&P 500 had drifted back to lower to down 8.7% on the day after having cut its loss to just 5.5%.

Powell, Trump Admit Recession Risk has Risen: Despite a couple of positive points during the briefing – the first dose of a phase-one vaccine trial was administered earlier in the day and the number of tests available could reach 1.9MM by the end of the week – the market sell-off intensified into the close. On Sunday evening, Fed Chair Powell had said in a post-decision press conference that economic contraction is likely in the second quarter, and the outlook beyond that is “hard to say” and heavily dependent on the path of the virus, which he later described as “unknowable.” A more somber-sounding President Trump also admitted that the U.S. “may be” in for a recession because of the “invisible [virus] enemy” and the associated response. The selling accelerated after he described more stringent containment measures recommended by the CDC for the next 15 days, including no gatherings of more than 10 people and a recommendation to stop going to restaurants and cease unnecessary travel. Of most concern, the President indicated his medical experts said that the virus could last until “August, it could be July, could be longer than that.” With the outlook for the economy and markets almost entirely contingent on virus containment, the day’s developments cemented steep losses for risk assets.

Stocks Post Worst Day Since 1987 Crash, Most Volatile Two Weeks Since Great Depression: The Dow plunged 13% while the S&P 500 tumbled nearly 12%, both the biggest daily declines since the market crash of October 1987. Within the S&P 500, all eleven sectors slumped with nine of those falling more than 10%. To put the recent turmoil in an historical context, the S&P 500 has registered an average daily change of 6.0% over the last ten sessions, the most volatile ten-day period since early in the Great Depression (see Chart of the Day). Treasury yields tumbled as equities slid, although the curve ended up off the lows. The 2-year yield dropped 13 bps to 0.36% while the 10-year yield fell 24.2 bps to 0.72%. Reinforcing the unique nature of the times, gold actually fell 1.0% with analysts continuing to point to investors indiscriminately selling what they can to stockpile cash.


Global Markets Remain Shaky: Global markets are mixed on Tuesday following Monday’s sell-off that handed Wall Street investors their biggest losses in over three decades. A small number of markets in Asia rose and European indexes were mixed after an upbeat open. The Stoxx Europe 600 jumped 3.7% at the open before reversing to fall to down 3.3% within an hour. S&P 500 futures hit limit-up levels a couple of times overnight before falling back to trade down more than 1%. More recently those European stocks were modestly negative while U.S. futures recovered to reflect modest gains. The lack of direction and conviction comes as investors continue to fret over the depth and duration of the economic and market slumps caused by the COVID-19 global health crisis. Global equities have recently plummeted into a bear market in anticipation of shockingly weak economic data in the months ahead.

European Confidence Craters: With Europe now the current global hot spot for coronavirus cases, a record plunge in European economic confidence was no surprise. The ZEW survey of expectations in the Eurozone dropped nearly 60 points in March, the largest drop in the series’ history, to -49.5, the weakest level since the depths of the European credit crisis. The implications of the sharp drop in expectations align with a Reuters analysis that showed the yield on an index tracking junk-rated European corporate bonds has spiked to more than 7% this week after trading around 2.70% on February 20, just before COVID-19 exploded outside of China. Yields on European sovereigns were also on the rise Tuesday, with 10-year yields on peripheral-country debt up nearly 20 bps to lead smaller increases in France (+14 bps) and Germany (+7 bps). European banks took more than 100B euro of 98-day financing from the ECB’s newly announced interim financing facilities.

U.S. Assets Signal Some Stability After Monday’s Melee: Major U.S. banks also announced last night that they would secure funding from the Fed’s Discount Window in order “to reassure financial institutions of all sizes that they should use the facility to meet client liquidity needs during this difficult period,” according to a Statement. The Discount Window has historically carried a stigma of a lack of soundness for those who access it. Just before this morning’s U.S. economic data, S&P 500 futures were 0.8% higher, the 2-year yield was 0.3 bps lower, and the 10-year yield had risen 7.2 bps.

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2022
This is a publication of Vining-Sparks IBG, LLC
775 Ridge Lake Blvd., Memphis, TN 38120