March 11, 2020
Coronavirus Declared Pandemic
Reversal Erases Yesterday’s Gains
Dow Now in Bear Market
Today’s Wall Street Journal’s front page headline read, “Stocks Soar, Erasing Chunk of Loss”. Yesterday did at least that. The Dow gained 1,167 points, getting back more than half of Monday’s historical fall of 2,013 points. More importantly, yesterday’s market action showed the kind of resiliency not seen in weeks. The Dow closed yesterday above Monday’s high. Then last night the futures market began showing weakness and indicated more downside today. Tomorrow’s headline will say today erased more than a chunk of yesterday’s gain. Today’s loss of 1,465 points erased all of yesterday’s gain. The Dow’s decline from the prior high is now 20.3%. That puts the Dow in a “bear market”. As the market scorecard below shows, small caps fell even more, down 6.4% on the Russell 2000. The riskier small-cap benchmark is about 25% off its high.
Here’s the scorecard:
Today’s Dow fall was caused by an additional catalyst. On top of the coronavirus fears and oil conflicts, Boeing stock crashed. Boeing, one of the Dow 30 stocks, collapsed 18%, its worst day since 1974. On the coronavirus, today the World Health Organization declared it a pandemic. The novel coronavirus is causing more fear and uncertainty and market damage than anything since the Great Financial Crisis. So far, the situation is not a financial crisis. Yet. Odds of a recession are increasing. Economist’s prediction of a recession in the U.S. due to the coronavirus is growing. Remember, a recession is defined as 2 or more consecutive quarters of negative economic growth. The oil price war and production issues will not in and of itself do it. America’s oil and gas industry is only about 3% of the nation’s GDP. The disruption on travel by the coronavirus could do it. The travel industry continued its coronavirus-fueled losses today. Airlines and hotel stocks were among the worst-performing groups amid the 197 industry groups I monitor.
As the table below shows, today’s loss in the Dow was the second largest in history.
The “Fear Gauge” indicates how much uncertainty is now being priced into the market. Market volatility is rampant. The VIX index, which measures volatility and investor fear, soared another 15% today. It is has made a vertical move up by nearly 4-fold in a month. This is what panic in the stock market looks like. Remember, panic is not an investment strategy.
When asked this week what he thought about the stock market now, Mr. Warren Buffett said, “Not as bad as 2008 or 1987”. Buffett called the recent market shock “a one-two punch” with coronavirus and the plunge in oil prices, but indicated that the October crash of 1987 which he called a “financial panic” was worse. He said the market collapse in the the fall of 2008 was “much more scary, by far, than anything that happened Monday of this week.” He is probably feeling greedy as so many are feeling fearful. Don’t panic and don’t be fearful. The sell-off will end.
Winston Churchill’s words of wisdom, “Those who fail to learn from history are condemned to repeat it,” are timely. I have learned a great amount about the stock market in my 35-year career.
Hope this is helpful.
Thank you for your continued trust and confidence. I remain vigilant as I manage and oversee your investment account.
John