WASHINGTON – Stocks took a tremendous beating across the boards Monday. Shares and averages alike, already reeling from COVID-19-inspired panic selling, endured another massive wave of mindless dumping. This one was inspired by the Saudi-Russian (and US?) price war that erupted over the weekend. That bit of unwelcome news threw crude oil prices for a stunning 24% loss on the day. It’s been a long time since we saw stocks obliterated like this. (Wonder when we’ll see that reflected at the pump?)
As for those major averages… The Dow Jones Industrial Average (DJIA) was hit for a massive 2,018 point loss (-7.8%) at the close, after repeated attempts during the day to recover at least a bit. The broader-based S&P 500 didn’t do much better, getting flattened for a 7.6% loss. And the tech-heavy, China-dependent NASDAQ dropped 7.3%.
No sector was spared today, and banks were particularly hard hit. Investors figure that with interest rates vanishing (except on our credit cards, of course), so will banking profits.
As one anonymous commenter on another site exclaimed:
“Most people [were] expecting an eventual pullback in the market. But this takes my breath away….”
Stocks obliterated Monday? Why?
We’re kind of breathless here at CDN, too. That unexpected game of Oil Price Chicken was all we needed today, as the coronavirus epidemic / pandemic continues to threaten everyone in the universe with certain death. At least according to the brain-dead blow-dries on the cable news channels. It’s all President Trump’s fault, they proclaim, bleating out the DNC’s current talking point. Maybe it’s even Bush’s fault, too.
Clearly, though, that bold Saudi move against the Russians is likely another example of the 21stcentury’s love for playing 3-dimensional political chess.
The Saudi Kingdom is still unhappy about the US gaining the upper hand in the oil-pricing arena via the phenomenal shale supply-side revolution liberated by President Trump at the outset of his administration. With all that American surplus oil sloshing around – a situation made worse by the quarantines and transportation shutdowns in China and elsewhere due to the coronavirus effect – supply has gotten way ahead of demand. So the Saudis decided to take a stand against Russia – and the US – by promising to pump up a storm of Saudi crude when the current OPEC + production cut agreement runs out after March 31.
And that’s what clobbered Mr Market, even after he’d signaled near Friday’s close that the current, steep market decent might soon come to an end.
Yeah, but not today, that’s for sure.
The Saudi move was likely inspired in part by that government’s desire to damage the US shale boom by putting an unknown number of smaller, overleveraged wildcatters and small E&P firms out of business, since they likely can’t make a dime of profit with oil selling for $30 per barrel or less. On the other hand, the Saudi move might just be a bluff to get the Soviet Union Russia back to the bargaining table to either lengthen or even improve OPEC’s effort to hold oil prices up.
Unfortunately for them, Russia is run today by virtual Dictator-for-Life, Vlad “The Impaler” Putin. As he’s frequently proved, Vlad can do what he wants when he wants. And if one or two serfs don’t like it, they’ll magically disappear. Meaning that he could hold out and damage the Saudis. However, the Saudis likely can’t hold out on this price war as long as they think they can. In other words, both the Saudis and the Russians were thrilled to see stocks obliterated on Monday. To hurt each other. But more particularly, to damage the American oil patch.
It’s curious. Even though CNN and MSLSD have confirmed many times that Vlad and The Donald are still involved in a torrid love affair, Putin likely finds the current, price-wrecking oil impasse to be convenient to his own aims. That’s despite the fact that Putin clearly wants his friend Trump re-elected. Seems he just can’t resist messing with oil prices anyway, He’d like to put any number of shale companies out of business. The better to help prop those Russian oil prices back up.
“What a world, what a world,” exclaimed the Wicked Witch of the West as she slowly melted into nothingness. A bit like the price of crude oil today.
Stock markets here and worldwide are in a world of hurt
As for the markets… They are very badly damaged now. Virtually obliterated, in fact, at least in the sense that most charts and technicals were violated today, sending technical analysts into another dimension of chaos. They need to recalibrate their models considerably, as the old ones were blown away today. The damage worsened considerably by high speed computer trades. Machine generally trade on headlines, not value, and they all seemed to get on the same page today. (How’s that for a conspiracy theory?)
No investment ideas today. We dumped most of our remaining big losers in or around the energy sector. But that said, everything else went down anyway, as only a few issues managed to end up on the plus side by Monday’s close.
For the moment, cash is our friend, and we’re piling it up for a brighter future. Gold might seem appealing for a moment. But unless you bought some awhile back, it’s likely peaking now. And if so, it can only go down from here, give or take a few days.
So it’s time for all of us to put our thinking caps back on and see which investments we might consider digging out of the rubble when markets settle back down again. Which may not be this week or this month.
Sorry to be the bearer of bad news today, but there wasn’t much in the way of a silver lining in today’s vicious trading action. We’ll see if we can’t sort at least some of this out by tomorrow. Otherwise, we may watch stocks get obliterated Tuesday.
– Headline image: Vintage, out-of-copyright Yellow Kid cartoon from late 19th-early 20th century.
Verbiage updated by T. Ponick to reflect current stock market conditions.