FINANCIAL MARKET UPDATE 3.10.2020

STORY OF THE WEEK

PERSPECTIVE ON A LARGE ONE-DAY MARKET DECLINE

To say the stock market had a rough start to the week would be an understatement. Newsflow related to the coronavirus continued to deteriorate over the weekend, and Saudi Arabia’s recent decision to cut oil prices added to market stress (see Week in Review section below). Nobody knows how these events will transpire, and market hates uncertainty. As a result, stocks accelerated lower on Monday.

How much lower? See the front page headline of just about any major financial publication following the closing bell:

  • Stocks Fall More Than 7% in Dow’s Worst Day Since 2008 (Wall Street Journal)
  • Dow Tumbles More than 2,000 points, marks worst day since 2008 as coronavirus fears rock stocks (Market Watch)
  • Dow Sinks 2,000 points in worst day since 2008, S&P 500 drops more than 7% (CNBC)

As it turns out, it was the largest single day drop for U.S. stocks since the Financial Crisis. Associating Monday’s market action with the experience of 2008 is sure to resurrect some uncomfortable memories for investors who experienced it. This is not a coincidence. The anxiety generated by sensational headlines and references to past crises keeps readers engaged. News outlets need eyeballs to attract advertising dollars, and fear sells.

It’s not enough for the media to tell you how scary things are. To really deliver that visceral feeling of fear, they have to show you. Queue the photo of the random agonized NYSE trader. How can you not be scared about your investments? This guy is a pro, literally on the floor of the exchange. He is feeling it (or maybe they just caught him mid sneeze?). Finish it off with: #Stocks Plunge, #Fear, #Coronavirus, #WAR. Done. Print it.

Source: CNBC

At the risk of vilifying the media too much, know that there is nothing wrong with staying abreast of what is happening in the market. In-light of recent events, it is also perfectly normal to be feeling uncomfortable. The critical challenge is to not let short-term news flow (noise) knock you off of your long-term plan.

The chart below adds a little more perspective to Monday’ move. Of the 20,000+ trading days since the late 1920s, yesterday’s decline ranked as the 19th largest. Despite this large drop, investors should be prepared for the possibility that we have not yet seen the bottom. On several occasions a large decline in the chart below was within a few days or weeks of another. It’s entirely possible we could add another day (or more) to the list before calm returns. It is ok if that happens.

Source: CNBC

The biggest take-away from the chart is that there have been 18 days that were worse than Monday. Some of them were significantly worse. The market has recovered after every one of them. Despite all of the past outbreaks, scandals, natural disasters, nuclear disasters, wars, terrorist attacks, depressions, asset bubbles, and financial market collapses, the market has recovered and continued to grow. Just a few weeks ago, stocks were at all-time highs. The market will recover from this bout of volatility too, we just don’t know when. In the meantime, the best thing an investor can do is stick to their plan.

WEEK IN REVIEW

  • The decline in oil prices has accelerated, with the U.S. oil benchmark declining 24.6% yesterday from Friday’s levels. The sharp drop follows the failure of Saudi Arabia and Russia to agree to further production cuts last Friday. Instead, Saudi Arabia announced price cuts and a planned increase in production in order to increase its market share. This comes at a time oil prices were already under pressure as fear related to the coronavirus has sapped energy demand. If oil prices persist at these low levels, there will likely be some defaults in the U.S. shale industry. This could also have knock-on effects for adjacent industries.
  • The market recouped some of yesterday’s losses on the news that the government may deploy some fiscal measures to combat the economic impact of the coronavirus. The WSJ reported that White House Officials are scheduled to meet with lawmakers today to discuss some potential fiscal measures, including a payroll-tax cut as well as help for hourly wage earners.
  • Despite escalating fear related to the coronavirus, recent economic data releases have generally been strong. Last Friday’s Job’s report showed the three months ending in February was the strongest three month period of job growth since 2016. Additionally, the Institute for Supply Management (ISM) published an update on service sector activity, which increased at the fastest pace in a year. The coronavirus is likely going to bring these figures down in the weeks and months ahead, but it is important to remember that coming into this the economy was likely growing at a solid pace.

HOT READS

Markets

  • Yes, Bonds Could Still Rally, Even with Yields Below 1% (Barron’s)
  • The U.S. economy’s service sector grew in February at fastest pace in a year, but angst over coronavirus grows (Market Watch)
  • Coronavirus Spread Could Halt Robust U.S. Job Gains (WSJ)

Investing

  • What Benjamin Graham Would Tell You to Do Now: Look in the Mirror (Zweig)
  • Don’t Panic! (Ritholtz)
  • The Market’s Crazy. Get Excited! (Morningstar)

Other

  • The Best Summary of How to Win Friends and Influence people (Farnam Street)
  • Don’t Jump to Conclusions When America’s Coronavirus Iceberg Emerges (WSJ)

ECONOMIC CALENDAR

Source: MarketWatch

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

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ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

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JOSH JENKINS, CFA + SENIOR PORTFOLIO MANAGER & HEAD OF RESEARCH

Josh Jenkins is a Senior Portfolio Manager & Head of Research at Lutz Financial with over nine years of investment experience. He is responsible for assisting clients in the construction, selection, and risk assessment of their investment portfolios. In addition, Josh will provide on-going research and trade support.

AREAS OF FOCUS
  • Asset Allocation & Portfolio Management
  • Investment & Market Research
  • Trading
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst (CFA)
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

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