WASHINGTON –If you ever wondered what panic selling felt like, take a look at Monday’s market action as we pass the noon hour, Eastern Time (ET). With news spreading over the weekend that South Korea, Italy and Iran suddenly had a ballooning number of COVID-19 (the technical name for the Wuhan Coronavirus) cases, pressure built for a massive dash to the exits prior to Monday’s opening bell.
Subsequently, traders and, we suspect, mostly high-speed machines promptly blew the exit doors down in the kind of selling panic we haven’t seen in recent years. The Dow was down by roughly 1,000 points in a trice. The selling paused for a moment, as that popular average “recovered” to roughly a negative 750. But then the “dump stocks at all costs” selling spree resumed.
COVID-19 Wall Street color
CNBC picked it up from there in an early Monday report that’s sure to be revised throughout the day.
“The Dow traded 1,003 points lower, or 3.4%. The S&P 500 slid 3.1% while the Nasdaq Composite traded 3.6% lower. The 30-stock Dow is also negative for 2020.
“It was the biggest percentage drop for the S&P 500 since October 2018 and it was the biggest Dow point drop since February 2018.
“‘The second-largest economy in the world is completely shut down. People aren’t totally pricing that in,’ said Larry Benedict, CEO of The Opportunistic Trader, adding a 10% to 15% correction in stocks may be starting. He also said some parts of the market, particularly large-cap tech stocks, appear to be over-owned. ‘It seems like there’s much more to come.’”
And now, as we write this piece at about 1:10 p.m. ET, we can confirm Benedict’s suspicions. The Dow is now down a whopping 1,045 points and sinking further.
The COVID-19 ripple effect and subsequent Monday selling spree
The ripple effect is obvious in market sectors, with both tech and fossil fuel stocks taking the biggest hits, followed by airlines, cruise ship companies and the travel sector in general. The CNBC piece provides some color.
“Airline stocks Delta and American were both down more than 7% while United traded 4% lower. Shares of casino operators Las Vegas Sands and Wynn Resorts dropped at least 3.8% each. MGM Resorts slid 4.7%.
“Chipmakers were also down broadly. Nvidia shares were down more than 6% while Dow-component Intel traded 3.4% lower. AMD dipped 7.6%. The VanEck Vectors Semiconductor ETF (SMH) was down by 4.2%.”
Even consumer goods are getting whacked because… well, after all, if you’re afraid even to go out the door to shop, lest you contract COVID-19 and die, well, you can figure this one out, too.
It’s a “We’re all gonna DIE!” moment for stocks
Wall Street today has the feel of the kind of horror movie where we find a bunch of friends fleeing in terror from a giant monster that’s gaining on them. At some point, the most consistently fearful guy screams out in despair, “We’re all gonna DIE!” Yep, that’s exactly how this gut-churning Monday sell-fest feels.
“What to do, what to do?” say smaller investors (like this columnist), as they wring their hands trying to answer that persistent question. Well, if you have a fairly good-sized portfolio, you’d probably like to dump it all right now, particularly if you still have a nice remaining profit. Which you should, as Mr Market has been pretty lavish in his generosity. At least until mid-February or so.
But so often, when we see an absolute selling panic like this one, history tells us we’ll generally see at least a nifty dead-cat bounce a couple of days from now. And that bounce might be a better time to lighten up at least a bit and pile up some cash. That’s because absolutely no one knows whether the Wuhan coronavirus – aka “novel coronavirus COVID-19” – is really the threat that the thrill-seeking fake media breathlessly tells us it is. As in, “We’re all gonna DIE!” And if we are, well, the current selling spree might only be Act I.
COVID-19, aka Wuhan coronavirus, aka a “novel coronavius”
It’s become clear, at least to me, that this “novel coronavirus” – i.e.,one whose contagion and infection vectors have not been seen before in this kind of virus – was manufactured in a Wuhan-based Chi-com germ warfare lab. It was inadvertently let loose on the populace, and its transmission – first denied – was instantly blamed on infected animal carcasses in one or more area “live-kill” food markets. Which, of course, Beijing wanted to get rid of anyway, given that the Commies didn’t directly control it.
But those wiseguys in Beijing played the coverup game a bit too long, and this bug got out of control. With international airline transportation being the massive business it is, it wasn’t long before planes, trains, automobiles and cruise lines spread this hitherto unknown infection (I always liked that phrase) thither and yon, and there you go. It’s all over the world.
Leave it to the Bernie Bros in that Beijing “socialista” brain trust to demonstrate, once again, the virtues of a commie dictatorship. ZeroHedge proclaimed this a couple of weeks ago and got banned or suspended from Twitter as a result. Now, what will the Tweet-meisters say?
Growing human carnage reflected in Monday’s massive market selling spree
The human carnage is bad enough and likely to get worse. Although it does appear that better personal hygiene in Western countries might prove a deterrent to the rapid spread of the virus here and in much of Europe. But we’ll see. COVID-19 is one sneaky virus, and apparently has other ways to spread in addition to third-world personal hygiene habits.
For those worried more about their portfolios than their health, however, this infection poses some kind of unknown risk to the financial system in general. Fuel demand is way down, since no one wants to go too far from home, at least for now. A fearful populace is less likely to buy stuff.
And tech companies – particularly those whose supply chains almost totally depend on China (like Apple, right Tim Cook?) – are metaphorically getting taken out back and shot today, even after last week’s preliminary beating. One lesson here might be that companies shouldn’t solely depend on cheap labor in a commie dictatorship to keep their products price competitive.
As tech goes, so go market averages… DOWN
At any rate, tech companies have been the steel backbone of the triumphant Trump Bull Market thus far, even though they still seem to hate his guts. Maybe now they’ll get a little smarter about keeping much of their supply chain action closer to home. Or at least in Vietnam, which, commies though they may be, hates the Chi-coms about as much as anyone.
All this could be a problem with markets moving forward. After all, reconstructing disrupted supply lines takes time and costs money and profits while underway. That means that even if the looming COVID-19 pandemic mysteriously halted tomorrow, earnings projections, along with the actual earnings themselves, will “disappoint” for many, many companies for at least the next two calendar quarters.
All of which, unfortunately, means that some of today’s panic markdowns of clearly overbought stocks might stick for the rest of the year, leaving investors’ 2020 returns flat. At best. (Let’s not think about “at worst” during the current selling spreee. At least for now.)
What’s next? Take a guess…
Gloomy, gloomy. It’s just a rotten, confusing day. I’ll be snipping off a few more tiny positions today that aren’t going to fare well. But maybe, I’ll take a few chances and average down on positions that could snap back nicely if we get some relief in the bad COVID-19 news over the next few days. It’s not time – yet – to join the current selling spree. I think.
But we all have to watch out in this environment. And be careful not to add too much Hopium to our battered portfolios.
If numbers change significantly as today’s brutal market beating staggers to a close, I’ll post an update after today’s close. Otherwise, we’ll assess the damage in tomorrow’s column.
LATE DAY UPDATE:
Sorry. Today’s damage ended up worse than expected. At Monday’s closing bell, the Dow ended the day with a loss of 1031.33 points, a colossal 3.56% loss for the day. The broader-based S&P 500 and tech-heavy NASDAQ indexes closed with almost exactly the same percentage losses. I’ll look at the $VIX and the McClellan Oscillator ($NYMOT) tonight and will probably see a fresh new horror show, which I’ll duly comment on tomorrow morning when I have my wits about me. The only good news today. Monday’s waterfall decline was so horrendous that, on top of Friday’s market drubbing, we’re a likely a day closer to a dead-cat bounce. See you tomorrow.
– Headline image: Wile E. Coyote takes another dive, just like stocks are diving due to today’s COVID-19 selling spree.
Wile E. Coyote character and image copyright Warner Bros. Fair use for satirical purposes.