Things you need to know:
- Global markets attempting to rally (a little)
- Investors go bargain hunting across all sectors
- Russia stands pat saying that $30 oil is fine with them (Laughable)
- We all want some comfort – try the potato and eggs!
KENNY POLCARI, Editor, Chief Market Strategist and Consultant
Circuit breaker limits today
- Level 1 – S&P – 192 pts
- Level 2 – S&P – 357 pts
- Level 3 – S&P – 549 pts.
It’s a WAR out there! Global stocks come under attack. Oil collapses – falling nearly 25%, as the Saudis slash oil prices and ramp up production as they punish Russia (and every other oil producing nation for that matter), for not playing nice in the sandbox. The XLE losing 20% mirroring the losses in the oil market. High-Yield debt market pricing in numerous US defaults resulting in a collapse of the debt in the energy space with some bonds losing as much as 50% of their value. Financials – XLF take it on the chin losing 10% as investors try to price in what that means for the markets. Investors/traders/and algos around the world react violently, sending stocks careening out of control. Market centers around the world under ex- treme pressure. Stocks in the US were not spared at all, as futures hit “limit down” overnight leaving many to question what the opening would look like. Market wide circuit breakers prepared to halt trading (for the first time since they were created post the 1987 market crash) when the S&P registered a loss of 7%, which was expected essentially as stocks opened. It actually happened at 9:34:14 am, with one ring of the famous bell at 11 Wall Street. Just to add more drama to the coronavirus outbreak, Italian PM Giuseppe Conte declares the whole of Italy a “red zone” (quarantined the entire country – 60 million people). By now you know what happened to global markets, and here at home, it was a disaster as well! At the closing bell – the Dow lost 2013 pts or 7.8%, the S&P gave up 225 pts or 7.6%, the Nasdaq lost 624 pts or 7.3% and the Russell fell 135 pts or 9.3%!
In all of this – the US bond market surged as investors sought shelter from the storm sending yields plum- meting to levels never seen since the dawn of time. The 30-year bond piercing 1% while the 10-year treasury yield fell to 0.31% before ending the day at 0.65%. Donny trying to make some sense of the col- lapse saying that lower oil prices are “good for the consumer” and that falling bond yields would help the housing market recover! After dinner – about 6:30 pm EST – Donny took to the airwaves announcing some “major economic news” (which he didn’t really announce he only alluded to some major economic news) that might include a payroll tax cut and some kind of help for Americans impacted by the corona- virus. Stand by, more to come.
As you might expect – every sector got smashed, led by energy and financials as noted above. Not one sector was spared the knife. By the end of the day – the Dow, S&P and Nasdaq are all now off almost 19% from the most recent highs – only two weeks ago – suggesting that a bear market is knocking on the door. Recall that a bear market is defined as losses of 20%+ from an indexes high. So for right now, we are still in “correction territory” which is defined as a move lower off the highs between 10% – 20%. Stocks are trading back at levels last seen in May 2019 – which is also the same level as September 2018 – be- fore that collapse that saw the market plunge into year-end 2018. The question is: What’s next?
Trump’s announcement of a major economic plan is causing futures to surge – but let’s not kid our- selves – a payroll tax cut is not going to suddenly make everything “ok,” so do not expect the market to take back all of its losses on this headline at all. US Dow futures are up 600 pts or 2.3% in the pre-market, while the S&P is up 2.6%, the Nasdaq appearing to move higher by 3% and the Russell ahead by 2.6%.
Oil – is also in the plus column after registering is major losses yesterday as well. WTI is up $1.42 or 4.3% as investors sift through the damage, in what is more than likely just a bounce for now. Russia does not appear to be budging and has made it clear that they are ok with oil prices in the $30s (which they are not – but until Vlad can find a way to save face – do not expect oil to surge, as the Saudis will keep up produc- tion and therefore the pressure). Do not discount the damage that this will do the US energy industry – damage that both the Saudis and the Russians secretly (or not) want! Vlad has seen the US emerge as an energy powerhouse pushing him and the Russian oil industry into third position. So a little pain for him is fine if we suffer more! And with oil in the $30 range – we can expect it to hit the US energy industry hard. Texas, Oklahoma and North Dakota will be the poster children of this latest assault by the Saudis.
Recall what I said yesterday:
“The oil price collapse has the ability to upend life as we know it – Hi Yield credit will come under pressure causing defaults and layoffs across the energy industry something we have not seen since the GFC (Great Financial Crisis). Some even suggesting that if oil prices remain at this range for more than a week or two- those defaults and collapse in Hi Yield will happen quickly, causing continued ripple effects throughout the economy.”
“Quickly” being the operative word.
US futures are higher this morning in what would be expected to be a “bounce” after the drubbing yester- day. But do not forget – they closed the market on its lows of the day and that does not usually translate into anything good. So – we might get a bounce before they test it again. Just beware. Remember – there has been a fair amount of internal damage done to the markets. This will take time to fix itself. But it will fix itself. This too shall pass. Take the time to discuss with your advisor and identify where the opportunities are for your portfolio, because in all of this mayhem – there is opportunity.
The S&P closed at 2746, a level last seen in May 2019 and then the fall of 2018. Will this be support? Too early to tell – but if it isn’t – then look for the lows of December 2018 to be the next level. That is 2350-ish. Much of the next move will be what the macro data begins to look like starting this month. Will we see the effects of the virus coming through in our data? What about earnings and guidance – all of which will play a role. Sit tight – take it one day at a time.
Economic data today includes nothing, but tomorrow we will get CPI for February, expectations of 0% and 0.2% ex food and energy. Year-over-Year expectations of 2.2%, all in line with prior months. But hon- estly – no matter what – the markets need time to regroup. Patience is a virtue.
Gold – which like treasuries is a safe haven investment is trading down $12 at $1662/oz. – after running up and through $1700 yesterday. Many suggesting that the weakness this morning in gold is due to trad- ers ringing the cash register after the surge over the past month, and investors selling gold to meet margin requirements etc. Either way –as long as the mood is what it is – do not expect gold to fall anytime soon. I suspect it will remain in the $1650/$1700 range for now.
Take good care
Kenneth Polcari
Chief Market Strategist, Consultant
kpolcari@slatestone.com
Potato and Eggs
After the move yesterday, many investors just want to find some comfort… and what better way than Po- tatoes and Eggs?
This is one of those basic yet classic dishes that never goes out style… you can eat for breakfast, lunch or dinner – Enjoy.
For this you need: Eggs, potatoes, garlic, onion, s&p, butter, olive oil, fresh grated Parmegiana Cheese and if you prefer a pinch of Italian seasoning.
Preheat the broiler (oven) to high.
Peel a couple of russet potatoes and then slice – now toss into a pot of boiling water – bring the pot back to a boil and blanch for 3 – 5 mins… Remove – strain and set aside.
In a large bowl – crack 6 to 8 eggs – Beat well – add a splash of whole milk (or half and half), season with s&p (and if you like a pinch of the Italian seasoning). Add a handful of grated cheese. Mix well – set aside.
In a large oven safe frying pan – melt a dab of butter, add a squirt of olive oil and heat. Now add in chopped garlic and sauté. Next add some sliced onions and sauté – until soft and golden… add back the potatoes and brown on both sides. Next – pour the egg mixture into the pan and allow to set. Twirl the pan to allow the egg to spread and cook. Once the edges begin to pull away – place the pan into the oven un- der the broiler… Watch as it quickly cooks the top of the “frittata.” Remove and slide onto a large serving platter – cut like a pizza.
Have toasted slices of Italian bread on the table for your guests to make a sandwich. Serve with Ice Cold whole milk.
Buon Appetito.
