A different kind of March Madness

Roller-coaster central 

If you’re a basketball fan and looking for something else to fill your NBA and NCAA entertainment void, I highly recommend watching business TV (CNBC, Bloomberg, etc.) because WOW unending madness happening in the stock market right now. Here’s a summary of the week that took ~10 years off my life expectancy:

Monday: Over the weekend, a conflict between Saudi Arabia and Russia on market share for oil led to plummeting oil prices (over -20% type of plummeting), which added another major blow to the already coronavirus-plagued stock markets. US stocks tumbled so much as soon as the market opened on Monday morning that trading was halted for 15 minutes. Stocks closed down 8% after the worst trading session in 12 years on Monday. 

Tuesday: Stocks tried to rebound from the prior day Tuesday morning, wiped out all the gains by noon, and then rallied hard in the final hour to close up 5% as rumors for various economic stimulus packages made the headlines (Trump proposed 0% payroll taxes for the rest of the year). Separately, Biden solidified his lead by winning a few more primaries this week. 

Wednesday: Futures were pointing lower to start the day as fiscal stimulus plans became more uncertain, the Bank of England followed the Fed’s lead and cut interest rates by 0.5%, and the US coronavirus case count surpassed 1k. During the day, the World Health Organization declared the coronavirus outbreak a global pandemic and the Fed increased their overnight lending to banks by $175b. The panic began to set into the minds of Main Street as San Fran and Seattle banned large gatherings and major US sporting events were being impacted. Stocks closed down 5% for the day. 

Thursday: Overnight, stocks digested Trump’s travel ban on Europe and stocks fell precipitously as the market opened and triggered another halt in trading. The list of cancelled events in the wake of the panic increased (MLS, MLB, PGA, NHL) and the Fed announced they would be pumping over $500b into short-term bank funding to boost liquidity in the market. Stocks reacted well to this Fed announcement but the relief was short-lived and stocks ended down 10% for the worst day since the 1987 market crash. 

Friday: Rumors out of Washington were indicative of the White House and Congress getting close to some sort of coronavirus bill and stocks rebounded dramatically after the worst day in over 30 years. Stocks closed up 9% for the day but 9% lower for the week.  

Moral of the story: Broad-based school closures and sporting event cancellations brought the coronavirus panic to main street this week. Grocery stores were empty by Thursday night from panic buying. But I foresee the stock market volatility of this week continuing for another few weeks until we truly understand the scope of the coronavirus impact on the US consumer and economy. While some companies have weathered the storm a little better, those companies most impacted by travel bans – airlines, cruises, etc. – have seen their stocks crash in the last few weeks. Royal Caribbean Cruises is down 76%, American Airlines is down 53%, it’s getting rough out there. 

Bye, inflation

Consumer prices increased slightly in February, bringing year-over-year core inflation up to 2.4%. Inflation has been sitting in this 2.3%-2.5% range for literally two years. Panic buying has led to increases in the prices for some goods (the empty grocery stores have been quite eerie), but the major force here is going to be the decreasing demand from the quarantine lifestyle.

Moral of the story: This report still doesn’t show the impact from the falling energy prices or cheap flight tickets available these days. Companies are going to have to cut prices to keep up with the falling demand and inflation can be comfortably expected to decline in the coming months. 

Not feeling too good

Economic reports are so backward looking and are published on such a delay that it takes forever to really see the impact of rapidly changing market conditions. The first report showing the impact of coronavirus came through this week in the form of consumer sentiment, which plummeted from 101 in February to 95.9 for March. 

Moral of the story: As main street becomes more impacted by the coronavirus, this economic indicator is sure to suffer further as the current reading only covers the first 11 days of March, before the tsunami of headlines put the country into panic mode.