Markets

Daily Markets: Fed Intervenes As Coronavirus Lockdowns Expand

U.S. Federal Reserve Chairman Jerome Powell
Credit: Kevin Lamarque - Reuters / stock.adobe.com

Today's Big Picture

The global shutdown from the coronavirus pandemic continues to spread, equity indices continue to drop, oil remains near its lows, and the strengthening of the US dollar remains a significant concern. Other than that, how was the play, Mrs. Lincoln? We are heading into what will likely be another volatile week with investors looking for governments to throw them a life preserver that would also help shore up a global economy that is quickly approaching a standstill.

US stock futures dropped sharply first thing this morning, with Dow futures down over 600 points at one point after Democrats in the Senate blocked passage of an economic rescue package, arguing it failed to protect workers. Just after 8 am ET, the Federal Reserve announced “limitless” asset purchases to keep the markets functioning, which left futures still in the red, but well off their lows. We are living through truly unprecedented times.

Countries across Europe are either in or moving towards total shutdown. Over the weekend, New York City became the new epicenter for North America, with 48.2% of all cases in the United States and has locked down all businesses that are not deemed essential. Its case count is already higher than that in France and South Korea.

States across the US are in various stages of lockdown, and President Trump has activated the National Guard in New York, California, and Washington state. Lockdowns are also spreading to other parts of the world, including New Zealand, India, and Australia. And new research suggests the coronavirus could return later this year during the autumn months and "could take its place in a calendar of seasonal epidemics that range from malaria, measles, and meningitis to tuberculosis and whooping cough."

The majority of the equity indices in Asia closed in the red today.

  • India's S&P BSE Sensex Index fell 13.2%, its biggest 1-day loss ever going back to 1979.
  • Singapore's Straits Times Index fell 7.5%.
  • Australia's ASX 200 lost 6.0%.
  • South Korea's Kospi lost 5.3%
  • China's Shenzhen composite fell 4.3%.
  • Japan's Nikkei 225 was the one bright spot, rising 2.0%.

By midday trading European equity indices were all in the red with the pan-European Stoxx 600 down 3.6%, Germany's DAX down 2.8%, the UK's FTSE down 3.7% and Italy's FTSE MIB down 2.9%.

Oil prices remain below $30 a barrel as Brent crude futures dropped 2.6% this morning, and we strongly suspect we will start to see meaningful guidance cuts as well as dividend cuts from members of the oil patch. The US dollar index is likely to break through its 2017 highs with its next milestone, the 2001 highs putting further pressure on creditors with dollar-denominated debt.

Data Download

The total number of coronavirus cases is over 340,000. It took 42 days for the global case count to rise from just over 1,000 to over 100,000, then 12 days to get above 200,000 and all of 3 DAYS to go over 300,000. We will reach half a million, most likely within the next 24-36 hours. There will be 1 million cases by the end of the week. The number of new cases at this point is limited only by the pace at which testing can be conducted.

Iceland is currently providing a profound level of insight into the nature of the pandemic. The tiny nation of 364,000 is testing its entire population for the virus, regardless of whether they have symptoms or not. So far, it has tested 3,787 people, which would equate to testing around 3.4 million in the US. What they have found is that about half who tested positive are asymptomatic. The town of Vo, Italy, with a population of about 3,300, also tested its entire population and found that the majority who tested positive also had no symptoms. This is how the virus can spread so rapidly - the majority have no idea that their very presence is making others ill.

The 2020 Olympics are likely to be canceled. Frankly, your authors are scratching their heads, wondering how the heck can they not be? To put that in context, the only other times the Olympics have been canceled were 1944 and 1940 for WWII and 1916 for WWI.

The past few weeks have seen historic moves within many of the major asset classes, from large-cap equities to oil and US Treasury bonds. Credit markets have essentially seized up as investors look to deleverage, which is making asset classes fluctuate wildly. The physical trading floors of the NYSE and CME are closed for the foreseeable future. The S&P 500 has seen the most consecutive days of 4%+ daily moves in its history. The 30 days it took for the S&P 500 to drop 30% is the fastest ever, faster than even in 1929 and 1987.

On March 16, the iShares 20+ years Treasury Bond ETF (TLT) saw its largest single-day gain on record of 6.5%, which was more than a full percentage point higher than its second-largest 1-day gain. The ETF's three largest 1-day declines all occurred between March 10 and March 18. The CBOE Volatility Index (VIX) saw its largest 1-day decline on record on March 13, and on March 20, its fifth-largest 1-day decline.

Eurozone banks have already accessed a record level of dollar funding via the ECB this week with an uptake that was bigger than during the worst of the Great Financial Crisis or anytime since. Record after record is being blown away.

On the economic front, there are only a handful of global data points to be had today, including the Bundesbank Monthly Report, the March Flash Consumer Confidence reading for the Eurozone, January Wholesale Sales in Canada and the Chicago Fed's National Activity Index for February in the US.

With the impact of the virus continuing to mount, resulting in wider shutdowns, economists are beginning to share updates to their GDP forecasts. JPMorgan (JPM) sees global GDP falling to -12% in the current quarter, down from its prior forecast of -1.5%. Inside its revised outlook, the firm calls for US GDP to fall 4.0% for the March quarter while Europe drops 15.0%.

Citing the unprecedented drop in US economic activity, Goldman Sachs (GS) expects an annualized 24% contraction in the US economy during the June quarter after a 6% drop in the first. Goldman now expects full-year growth in the US of -3.8% on an annual average basis. For some context, during the Great Financial Crisis, GDP in 2008 contracted by 0.1% and in 2009 by 2.5%. We have to go way back in history to find a contraction of this magnitude. In 1938 the US economy contracted 3.3%, and in 1931 it fell 6.4%.

Stocks to Watch

As the number of cases mushroomed over the weekend, leading tighter restrictions the list of companies closing their doors and warning investors about the impact of the virus on their business grew further over the weekend and into today. The latest additions include:

  • At Home Group (HOME)
  • Ross Stores (ROST)
  • TJX Companies (TJX)
  • Coca-Cola (KO)
  • Coca-Cola European Partners (CCEP)
  • Deere (DE)
  • GameStop (GME)
  • Gildan Activewear (GIL)
  • Nestle (NESN)
  • Orion Engineered Carbons (OEC)
  • J&J Snack Foods (JJSF)
  • Aaron's (AAN)
  • VF Corp. (VFC)

Other quick hits:

  • McDonald's (MCD) will close UK and Ireland stores amid coronavirus outbreak
  • Navistar (NAVis suspending production at its truck assembly plant in Ohio and has withdrawn its 2020
  • Ford Motor (F) is suspending production in India, South Africa, Thailand, and Vietnam
  • Scripps (SSP) has canceled the Scripps National Spelling Bee national finals
  • United (UAL) is reducing its international schedule by 95% for April
  • Hawaiian Holdings (HA) has suspended most long-haul passenger service due to new state restrictions
  • Delta Air Lines (DAL) warned its second-quarter revenue looks to drop 80%, or by $10 billion because of coronavirus
  • Boeing (BA) announced it will suspend its dividend until further notice

Facebook (FB)Apple (AAPL)Walt Disney (DIS) have joined Netflix (NFLX) and Google's (GOOGL) YouTube in cutting streaming quality in Europe to free up bandwidth for healthcare and education needs.

With people cocooning, businesses enabling work from home and education shifting online during the corona crisis, Zoom (ZM) has seen demand for its service skyrocket as has Microsoft's (MSFT) Teams, and Best Buy (BBY) reported a surge in demand across the US for products that people need to work or learn from home. Even so, Best Buy pulled its outlook for 2020 and shared it has drawn the full amount of its $1.25 billion revolving credit line and suspended all share buybacks in an effort to shore up its balance sheet.

Royal Philips (PHG) is increasing the production of patient vital signs monitors and portable ventilators and medical consumable as well as other critical care products and solutions to help diagnose and treat patients with the new coronavirus disease, and 3M (MMM) has doubled global production of N95 respirators to a rate of nearly 100 million a month, and in the US, it is producing 35 million ventilators a month, with more than 90% being designated for health care workers and the rest to other critical sectors.

After store closures peaked in February, with approximately 35% of restaurants closed, Yum China (YUMC) is gradually re-opening stores across China. The company previously disclosed same-store sales declined 40% to 50% during the Chinese New Year holiday period, compared to the comparable period in 2019. There was no word on when the company expects to have all of its stores up and running at pre-coronavirus levels. Hasbro (HAS) shared it sees China back at full capacity by the end of the week.

After US equity markets close today, only So-Young International (SY) is slated to report its quarterly results. Readers looking to get the lowdown on that report and others to be had this week, including Nike (NKE), Micron (MU), and others, should visit Nasdaq's earnings calendar page.

On the Horizon

  • Upcoming IPOs:
  • Dates to mark:
    • April 10: US equity markets closed for Good Friday
    • April 28-29: Federal Reserve FOMC meeting
    • April 30: European Central Bank rate decision
    • May 12-14: Google I/O Developer Conference
    • May 25: US stock market closed for Memorial Day

Thoughts for the Day

"Get some sleep, and you'll feel better in the morning" is the human version of "Did you try rebooting it?"

Disclosures

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Lenore Elle Hawkins

Lenore Elle Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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