• Market Crumbs

Markets On The Brink Of A Bear Market

Image via Becca on Unsplash

Following the news out of Saudi Arabia over the weekend, coupled with fears over the coronavirus, global markets were taken to the woodshed yesterday in a historic selloff.

At its low of the day, the S&P 500 had its largest loss since Black Monday in 1987. The New York Stock Exchange saw its heaviest selling pressure since the dot-com bust. Just four minutes after the open, markets triggered their limit-down circuit breaker, halting trading for 15 minutes. The CBOE Volatility Index, a gauge of fear in the market, jumped more than 48% to a high of 62.12, a level not seen since the financial crisis in 2008.

The Dow Jones Industrial Average fell 7.79%, closing down 2,013 points—a new record, for its worst day since 2008. The S&P 500 also had its worst day since 2008, falling 7.60%. The move marked the 19th-worst single-day loss for the S&P 500 ever. The Nasdaq fell 7.29%, with the big five tech giants—Apple, Amazon, Microsoft, Facebook and Alphabet, losing $321.6 billion in market value.

Oil continued its slide from Sunday night, with WTI Crude falling nearly 25%, its second-worst day ever. Brent crude, the international benchmark for oil, fell 24% on the day. The losses marked the worst day for oil since 1991 during the height of the Gulf War.

U.S. President Donald Trump had an interesting thesis for the selloff, tweeting "Saudi Arabia and Russia are arguing over the price and flow of oil. That, and the Fake News, is the reason for the market drop!" Despite those who hold risk assets getting clobbered, President Trump found a silver lining in the selloff, tweeting "Good for the consumer, gasoline prices coming down!"

Policymakers rushed to find a solution that would stem the selling. The New York Federal Reserve increased the size of its overnight repo operations to $150 billion from $100 billion, while increasing two-week repo operation offerings from $20 billion to $45 billion.

A couple of hours after the close, with futures indicating markets would officially enter a bear market—a 20% decline from their 52-week high, President Trump announced he will meet with lawmakers to discuss "a possible tax relief measure" aimed at providing "a timely and effective response to the coronavirus." "We are to be meeting with House Republicans, Mitch McConnell, and discussing a possible payroll tax cut or relief, substantial relief, very substantial relief," President Trump said.

Finally, representatives from the seven-largest U.S. banks have been invited to the White House for a meeting on Wednesday for discussions that most likely will not yield a transcript.

Yesterday marked 11 years since the S&P 500 made a closing low on March 9, 2009, marking the beginning of the longest bull market in history. With markets now on the brink of a bear market after hitting all-time highs just a few weeks ago, it remains to be seen if policy decisions and central bank actions can keep the market from continuing to slide, and with it ending the historic bull market.

Leftover Crumbs

  • They're worried about price gouging. Consumer Brands Association, a lobbying group for some of the largest consumer companies, has requested the U.S. Department of Justice take action against retailers gouging prices of essential items such as hand-sanitizer and masks amidst the coronavirus outbreak. "If price gouging continues over the coming months, more and more Americans will become unwilling and/or unable to pay excessive prices for these products," said Bryan Zumwalt, executive vice president of public affairs for Consumer Brands. "It is vital that DOJ notify the public that it will work with its state and local law enforcement partners to prosecute sellers who engage in this illegal activity."

  • Jack isn't going anywhere. Twitter co-founder and CEO Jack Dorsey will remain CEO following a deal with Silver Lake and Elliot Management, which said it had built a stake and would seek his removal. Silver Lake—which will invest $1 billion in Twitter, and Elliot will each get a seat on Twitter's board as part of the deal, while Twitter will initiate a $2 billion stock repurchase program. As part of the agreement, neither company will "comment on or influence, or attempt to influence, directly or indirectly, any Twitter policies or rules, or policy or rule enforcement decisions, related to the Twitter platform."

  • iPhone sales pummeled. As the coronavirus outbreak brought China's economy to its knees last month, iPhone sales fell more than 60% from February 2019. According to the China Academy of Information and Communications Technology (CAICT), Apple sold 494,000 phones in China last month, down from 1.27 million during the same month last year. Overall mobile phones sales in China fell nearly 55% last month from the same period a year earlier to 6.34 million devices, marking the worst February since 2012.

  • Amazon wants to sell its technology. Amazon, which last month opened the first grocery store to offer its "Just Walk Out" technology, will try to capitalize on the technology by selling it other retailers. Amazon says it has already signed "several" deals with unnamed customers. "This has pretty broad applicability across store sizes, across industries, because it fundamentally tackles a problem of how do you get convenience in physical locations, especially when people are hard-pressed for time," said Dilip Kumar, Amazon’s vice president of physical retail and technology.

  • A blockbuster merger amidst the carnage. While stocks tanked yesterday, Aon and Willis Tower Watson announced they would merge in a $30 billion all-stock deal, creating the world’s largest insurance broker. The combined company will operate as Aon, with Aon shareholders receiving 63% of the combined company, while Willis Tower Watson shareholders will own the remaining 37%. "The combination of Willis Towers Watson and Aon is a natural next step in our journey to better serve our clients in the areas of people, risk and capital," said John Haley, CEO of Willis Tower Watson. "This transaction accelerates that journey by providing our combined teams the opportunity to drive innovation more quickly and deliver more value."