Two major announcements coming from the Biden administration have had a significant effect on Thursday trading. The first announcement, centered on the US’s renewed focus on clean energy, had a hard time countering the second announcement, regarding a hike in capital gains tax rate. Consequently, some sectors related to clean-tech are up, while the market as a whole closed down.
If you want to play a game, take off an item of clothing every time I allude to the unprecedented times in which we live. As Justin Timberlake once proclaimed, "I'll have you naked by the end of this song".
Question: Were finance and economics ever more interesting than it is right now? I dare say we are in unprecedented times. For one, stock prices have never been more expensive in the history of public exchanges. Microsoft (NASDAQ: MSFT) is about to join the two trillion-dollar club, Tesla's (NASDAQ: TSLA) valuation is supercharged, and the NASDAQ and S&P 500 are at unprecedented record levels. Put another way, at no time in history has the valuation of some publicly listed companies been so far removed from their traditionally gauged intrinsic value.
Well…, there have a couple of times where the PE ratio of the S&P was higher than it is now. That is, immediately following the 2001 Dotcom crash and 2008 GFC.
But since our current bubble hasn’t popped yet (the only way we know we are in a bubble), let me speculate under the assumption that this is the new normal, and these are in fact, unprecedented times.
I do not think investor optimism is the reason for these valuations, more so desperation. We all know that Central Banks' unprecedented spending has led to an inflation in asset prices; governmental desperation, if you will.
But perhaps everyone is also a little desperate to not miss out on the next decade's big growth stock like they did last decade. If you had invested US$10K into Netflix (NASDAQ: NFLX) on Jan 1st, 2010, that little nest egg would now be worth over US$704K (I suggest you check out stockchoker.com to retroactively FOMO over other missed investment opportunities).
This asset inflation is excellent news for those who have KiwiSaver, AustralianSuper, 401Ks, and the like. Personally, my KiwiSaver has grown at an alarming rate since the infamous pandemic emerged. But I will not be able to touch it for another 40 years; who knows what will happen in this time? I presume a long list of unprecedented events.
I do not expect the growth we have seen recently to be the new normal. But perhaps things will now tapper off, and companies' exceedingly generous valuations will be the new normal moving forward. This could be the new lay of the land and we will have to get used to hyper bullish valuations. For the sake of my KiwiSaver, I kind of hope so.
US stocks have not seen any major changes this week, staying uncharacteristically calm despite headlines such as the oil price crash. The Dow Jones gained 457 points on its Wednesday session, a jump of 2%. It is now trading at 23,400 points on the hourly chart. Likewise, the S&P 500 and NASDAQ indices saw similar gains, climbing 2.3% and 2,8%, respectively.
However, this is most likely as investors are also still awaiting news such as this week’s jobless claims data. Latest predictions expect around 4.2 million new unemployment claims to be filed, bringing the total up to 26 million claims in just 5 weeks.
Likewise, the US Senate just passed another bill to aid in the fight against the coronavirus in the State. After weeks of negotiations, the Senate passed a $500 billion bill in order to help small businesses, and it is expected to go to the House of Representatives later this week. This news did give some relief to the stock markets, as they now look to extend their gains for the second session in a row.
But there are reasons to continue being bearish about the stock market. Investors are vying for stocks to gain momentum again, with news such President Trump pushing state governors to ease their lockdowns and begin reopening their state borders again.
However, reopening so early, before the virus is under control, poses the risk of a wave of new infections flooding in. This poses the risk of causing more damage to the economy in the long term. Despite Trump’s eagerness to reopen the economy and start recovering the damage that virus has caused the stock market, the opposite could end up happening if he pulls the trigger too soon.
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US stocks extended losses at the close of yesterday’s trading session as news came that US retail sales had dropped 8.7% from February to March, according to a report from the Commerce Department.
The Dow Jones, S&P 500, and NASDAQ fell 1.9%, 2.2% and 1.4%, respectively. The Dow is now currently trading at 23,400 points.
This news comes as no surprise, as the global lockdown has quickly stopped people from being able to go anywhere or spend any of their money. While grocery store sales were the only sector to see an increase, as expected, other sectors such as electronics, food service, and especially clothing and accessories stores all dropped.
This report release is one of the first indications of the economic impact that the coronavirus pandemic has caused in the US. The NFP release at the start of this month only covered the 8-14th of March, and although the figures released were in the negatives, did not fully reflect the scope of the virus’ impact. The first state to enter lockdown, California, only did so on the 20th March.
Stocks had been making a rebound in recent weeks, as investors were spurred on by optimistic comments made by US President Donald Trump, who said that he would announce guidelines to reopen the US economy on Thursday, claiming that the US had passes the peak of its coronavirus infections. Trump also suggested that some US states could end lockdown and open again by May 1st. However, these comments come just a day after Anthony Fauci, the leading scientist of the coronavirus task force, said that early May was too optimistic a date to reopen state borders.
All three of the major stock indices had managed to recover the catastrophic losses made since the virus properly first hit the States and threw the markets into chaos, causing unprecedented volatility and the Dow Jones to drop below 20,000 points and erasing all gains made since Trump’s inauguration.
However after peaking at 24,000 points in the previous trading session, the Dow has once again moved to the downside, following a barrage of new data yesterday that has shown just how bad the economy is at the moment.
Apart from the retail sales figures, the US Federal Reserve also reported that industrial production has fallen the most since the days of the Second World War. Also fuelling concern was the news of two banking giants in the US, Citigroup and Bank of America, dropping in share prices as well. Citigroup shares dropped 5.6%, while BoA’s fell by 6.5%. Following on from this, we can only continue to see such figures continue as data reports are released.
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This week’s US jobless claims data has hit unprecedented numbers, jumping to 3.28 million. Initial expectations of 1-1.5 million, which was still a very high estimate, were blown out of the water.
In response to this news, the Dow Jones Industrial Average, which had been on a resurgence in the past 3 days, is now reversing once again. Over the past few days, the Dow had been able to pull itself out from its bottom of 18,000 points back up to 22,000 due to the passing of the massive $2 trillion coronavirus economic stimulus package in the Senate. But now it is reacting quickly with a flatline and looks to soon plunge again. The NASDAQ and S&P 500 are on similar trajectories.
These unemployment figures are the highest ever recorded since the statistic was started back in 1967. For reference, the previous highest figure was 700,000, a number that is 5 times smaller. Some of the more negative predictions are also suggesting that this figure could well enter 12-15 million before the end of the crisis.
The jobless claims data is a figure taken by the Department of Labor in the US. These claims refer to the number of people that have filed for unemployment benefits. It is one way to measure the economic state of the country- much like the Non-farm payroll report (NFP). Currently it is estimated that 1 in 3 Americans are unable to work, due to being quarantined. This peak comes as more and more states in the country enter lockdown. Both California and New York, the states with the largest number of cases, have declared a state of emergency, and most other states have issued warnings to stay home as much as possible, with the closure of public areas such as restaurants and cinemas.
The US now has 81,000 cases, out of the 500,000 in the world. This makes it now the country with the most number of cases, surpassing China and Italy.
The Trump administration has been heavily criticised for its response to the pandemic, with a slow initial response and reluctance to take the virus seriously by introducing stricter measures earlier. Two weeks ago President Trump announced a travel ban from Europe as a means of stopping the virus from entering the States, but the number of cases continued to increase. Many states have become overwhelmed by the number of increasing cases, as they have run out of testing kits, ventilators, and other crucial equipment. Medical staff have also struggled to manage the number of new patients due to the lack of sick beds. In fact, some hospitals have now begun trialing sharing one ventilator between two patients.
It was not until the Dow Jones had lost all its gains since Trump’s inauguration that he was forced to conclude as to the severity of the outbreak. But even now, he is pushing for the shutdown to be over by Easter- a deadline which shows he is more concerned about an economic recovery than an nationwide one.
Seemingly in response to Trump's statements, the Chairman of the Federal Reserve Jerome Powell gave a rare TV interview yesterday in which he expressed that it was important to listen to medical experts in terms of setting a timeline for when the States could reopen its borders and resume business as usual. While he stated that the Federal Reserve would spend as much as it takes to support the economy through this crisis, he also stated that it was paramount to contain the spread of the virus before resuming economic activity.
This jobs data makes it very clear: we are now in a global recession. Some analysts are already predicting it to be worse than the 2008 financial crisis.
The effects of a recession are long lasting. As people lose their jobs, they are unable to spend, forcing businesses to drop their employees, in a cycle that does not stop without government intervention. However, in the case of this crisis, no matter how much money the government pumps into the economy, people are still unable to spend. And that is what is so deadly about this particular recession. Even after the worst is over and businesses will be able to resume operating normally, the economic impacts will still be felt for years to come.
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President Donald Trump took to the Oval Office in his second ever address to the nation, in order to announce a 30-day travel ban from European countries to the States, apart from the UK. However this long awaited television address, as well as the fact that the World Health Organisation had now classified the coronavirus as a pandemic did little to assure investors, as the Dow Jones continued to drop, closing the day down 1465 points, or 5.86%.
The historic 11-year bull run of the Dow Jones Industrial Average (DJIA) has now officially ended, as it is now down 23.75% from the previous month. For a market to officially be classified to switch from a bull market to bear market, it must have more than a 20% drop over the course of a month, or vice versa.
The other two major stock indices, the NASDAQ Composite Index and S&P 500, both narrowly avoided entering bear markets of their own on the market close. However, the writing is on the wall, and it is expected for them to follow the Dow sooner or later.
Likewise, other stock indices across the globe followed suit, with the Japanese Nikkei dropping 4.4% for the trading day and entering a bear market as well, and the Australian ASX 200, which had already entered a bear market on Wednesday, falling a shocking 7.4%. Hong Kong’s Hang Seng Index and South Korea’s Kospi Index are both also nearing bear territory.
In his 10-minute address, Trump did not make any mention of how the administration would have any sort of economic stimulus plan to address the unavoidable impact the coronavirus would have on the nation, although he did take the time to impress that the US had the greatest economy in the world and that this was not a financial crisis. While Trump said that he was ready to take emergency action to provide financial relief for infected workers that could not work, he stopped short of actually providing any concrete plans for details regarding economic stimulus to combat the effects of the coronavirus.
In fact, after meeting with executives from Goldman Sachs and other Wall Street CEOs, Trump said that an economic stimulus would not be needed if “everything quickly solves itself”.
The World Health Organisation has now officially declared the coronavirus as a pandemic, as the number of cases across the world cross one hundred thousand.
In the US, there are now more than 1,100 confirmed cases, with 38 deaths. 24 of that number have been in the state of Washington alone. The NBA have suspended all games for the rest of the season, after one player tested positive for the virus.
As the US market opened, everyone knew that the only direction to go was down. The only question was how far.
However, no one could have predicted that the Dow Jones Industrial Average would drop 2,014 points over the course of the trading day, a one day drop of almost 8%. It was a drop so bad that it called markets to be halted for 15 minutes, stopping trading completely in order to prevent it from dropping any further. The other two major US stock indices, the NASDAQ and S&P 500, followed suit with similarly shocking drops of 7.3% and 7.6%, respectively.
The question is, what has caused this extreme drop in virtually every market?
As expected, the market had already been bearish on all fronts since the beginning of last month due to the coronavirus, causing some of the biggest market movements in history in just the last few weeks. The Dow had just dropped over 1000 points just two weeks earlier.
The coronavirus had already presented itself as a significant threat, and has since only continued to become more deadly.
For one, the proper arrival of the virus in the States, and the Trump administration’s subsequent efforts to combat it, have not produced any faith whatsoever. The first thing President Trump did was go in front of the press and say that there were only about 10 cases in the country when there were 52 reported cases at the time, and claim that a vaccine was on the way, which a White House representative had to later correct and say he meant a vaccine for the Ebola virus.
Then, when the threat of the virus could be ignored no longer, the next thing he did was to assign Vice President Mike Pence as head of the coronavirus task force, supplanting the Secretary of Health and Human Services Alex Azar. Pence has had to be brought up to speed on everything regarding a virus which is fast spreading and could very easily grow out of control.
Next, cities and states across the country reported that they still did not have enough test kits to be able to track the spread of the virus.
Trump’s chief of staff, as well as many other senior officials, have entered self-isolation after coming in contact with infected individuals. Most recently, Trump and Pence attended an event where an individual with the coronavirus was present. White House representatives have said that Trump has not been tested for coronavirus.
Investors to take these actions as evidence that the Trump administration is incapable of combating this crisis effectively, and the result of their low faith can be seen in the stock market.
However, this week’s opening crash was due to a variety of factors, not just the coronavirus scare. Of course, the other biggest factor that caused the markets to crash was the drop in oil. As covered in yesterday's article, both WTI crude and Brent oil experienced one of their biggest drops in 30 years, to prices not seen since the Gulf War. Interestingly enough, crude oil has now made a slight rebound. After hitting a low of $28 per barrel, WTI has now come back up above the $30 mark and seems to be holding steady for the time being. It was miniscule to say the least, but the price seems to at least have stabilised again after what was feared to be a free fall drop with no floor the previous day. As America is the largest producer of oil in the world, Saudi Arabia’s forced price war could cause many oil businesses in the US to lose their jobs, if these prices are to continue.
Outside of the US, Italy has now spread its quarantine to the entire country, affecting 60 million people. This nationwide lockdown is an unprecedented effort to stop the spread of the virus, something no other country has even attempted yet, if this move doesn’t show how serious the epidemic has become. Of course, Italy now has the most deaths from the coronavirus outside of any country apart from China, with 463.
You really can’t expect a major European country to enter complete lockdown and not expect the markets to react negatively. In combination with all the other factors, and its no surprise investors seem to be expecting a global recession. Not too long ago, I wrote an article looking at whether or not the coronavirus would cause an economic recession. And it certainly looks to be going that way now more than ever.
Perhaps these market movements were just the result of a panic selloff. At the time of writing, stocks have now made a slight rebound after the initial crash, with the Dow back up 800 points. However, there is no denying that with the current market sentiment, the outlook is unbearably negative. It’s looking like things are going to have to be worse before they get better. One thing’s for sure, this level of market volatility isn’t going anywhere anytime soon.
Where one goes up, the other must come down. As discussed in last week’s article, gold hit unprecedented highs as investors flocked to the safe haven asset in droves. And now it seems US stocks have taken a plunge in response, as the Dow Jones dropped nearly 1000 points as it opened for the week, as part of a global stock selloff.
This marks the worst single day trading loss since October 2018 for the Dow Jones Industrial Average (DJIA) as it fell 950 points, a drop of 3.3%. Likewise, the NASDAQ dropped 3.8%, and the S&P 500 3.2%. All 3 are various measurements of stock performance in US companies and are three of the most commonly followed stock indices, being used to determine overall stock performance in the US market.
Around the rest of the world, things aren’t looking much better. Stock Indices in Europe and Asia experienced similar drops in percentage, with the UK FTSE 100, or footsie, dropping 3.3% as well and the German DAX down 4%.
This move comes as investors are scrambling to sell off stocks after the sudden increase in coronavirus cases across the globe and putting their money into safe haven assets instead. Iran, Italy and South Korea were the countries most affected, and fears of a global epidemic start to look like a real possibility.
Iran have reported 61 infections and 12 deaths, with neighbouring countries such as Turkey, Pakistan and Armenia closing their borders in response.
In Italy a 7th person has died, as 200 people have become infected. In a bid to contain the spread of the virus, the Italian government has shut down public buildings and limited transport in the affected regions.
In Korea, the number of cases jumped drastically from 100 to over 800, as it spread rapidly through a religious group known as the Shincheonji. South Korean president Moon Jae-in raised the country’s alert level to the highest possible, in an attempt to stay ahead of the virus as 7 people have died.
The World Health Organisation (WHO) are stressing that these new cases in Europe are especially alarming because there is no clear link between them and China, the origin of the virus. Despite strict travel restrictions the virus still seems to have spread, with WHO citing the new cases as “deeply concerning” and said that the world should be preparing for a “potential epidemic”.
Anish Lal at BlackBull Markets had this to say about the move in global stocks:
"Stocks plunged today as the number of Coronavirus cases and deaths have increased outside of China. The impacts were felt by way of a 3.5% fall in Euro Stocks and an almost 1,000 point fall in the Dow Jones. Major indices are now testing key support levels, with Gold feeling more safe haven love, as investors may look to target the $1,700 per oz mark. As this story develops, markets could continue to fall amid uncertainty, or we could see a short-term buy back, especially in the equities."