Closing Bell: The Market Beatings Continue, Morale Immaterial

There are some days that the stock market just cannot close quickly enough. That was the case on Monday, March 16, 2020. After the Federal Reserve took an unprecedented action on Sunday with full 1-point cut and announced $700 billion in bond buying, how can one put the market drop politely? Frankly, there is no way to put this kindly. Ditto for a $1 trillion backstop commitment to the global economy by the IMF. The economy has now spun out of the control of the powers that be at this time and a recession might still be avoided in the classical sense of two negative quarters of GDP. That said, this is going to feel like a recession even if the formality is somehow avoided — and a “helicopter drop of money” is now going to be needed to fend off worse than a normal garden-variety recession.

While it would be easy to just say all pessimistic things here, there may be a light at the end of the tunnel (see below). The good potential news is just very contrarian.

Late in the day, a Presidential briefing from President Trump issued new guidelines and new warnings. The aggressive response may last for months, here are some of the guidelines — avoid bars and restaurants, avoid gatherings of 10 people or more, try to do schooling at home… and the U.S. economy may be heading into a recession, with a tremendous surge once the situation comes to an end.

Needless to say, stocks cratered at the end of the trading day. After hitting new all-time highs in mid-February, the sell-off went from an overdue correction to a bear market, and now a crummy stock market has managed to turn into nothing short of a crappy stock market in short order. Here is the market closing levels, along with how bad it has been from the peak:

  • DJIA 20,188.52 (-2,997.10; -12.93%)… -31.7% from its FEB high of 29,568.57
  • S&P 500  2,386.13 (-324.89; -11.98%)… -29.7% from its FEB high of 3,393.52
  • NASDAQ 6,904.59 (-970.28; -12.32%)… -29.8% from its FEB high of 9,838.37
  • 30YR-T/BOND 1.33% (-0.21%)
  • 10YR-T/NOTE 0.73% (-0.22%)

Coordinated central bank actions are supposed to help the markets and are supposed to offer stability to the economy. That said, the U.S. Federal Reserve, the European Central Bank, the Bank of England, the Swiss National Bank, the Bank of Japan, and the Bank of Canada have issued some coordinated responses to the coronavirus pandemic’s impact on the global economy. The last things that have to fall into place will be small business guarantees and stipends handed out to the millions of workers who have been or are about to face long interruptions as their work is interrupted by the spreading coronavirus measures.

Until further notice, economic readings from the prior month will quite simply have no bearing whatsoever. If a company hasn’t updated their financial guidance, the best they can do at this point is to withdraw their guidance. And if a company has not at least started its assessment of a recessionary economy, they have waited too long.

If there is any bright spot that can be taken here from historical references, these are some lessons from history:

  • It’s usually closer to a bottom by the time readers see attitudes like this being written;
  • The CBOE-VIX closed at 83.56 for a 25.73 point (+44.5%) rise and entering very uncharted waters;
  • when statements such as “There are only 8 more days at this pace before the stock market hits zero” it is also has been near capitulation;
  • and how long can the market sell-off on the same news keep getting worse before it gets better?

Again, there is some good news but it’s all quite contrarian in nature.