Adam Vettese, UK Market Analyst at eToro, has provided his daily commentary on traditional and crypto markets for March 13, 2020.
Cryptoassets plunged to their lowest levels for almost a year and Asian markets saw continued selling overnight. Bitcoin briefly acquired a valuation less than $4k but has now rebounded and is challenging the $6,000 mark; a 50% move in both directions for anyone who was up burning the midnight oil.
We have been commenting on the relatively tame cryptoasset reaction to the coronavirus outbreak, but now the asset class has very much joined in the volatility. XRP saw overnight lows below $0.12 and Ethereum got below $85. Japan’s stock market closed another 6% lower, as investors jettisoned all risk assets without prejudice amid ongoing dire warnings about the threat posed by the coronavirus.
Traditional markets have followed suit and bounced back this morning, with European markets between 2 and 3% higher and US futures indicating a 4% firmer open. This has to be seen in perspective though as markets have sustained such heavy losses over the course of the week and it’s difficult to see what the rally is based on. Could it be stimulus hopes? The recent swathe of rate cuts and government spending didn’t stave off the selling pressure as yet. It is possible that Central Banks continuing to pump in liquidity could be the start of a turnaround or, in the absence of any reduction in new cases across Europe and the US, this could be a relief rally before another leg down.
This follows a Thursday trading session that saw markets around the world post one of their worst days in history, with the Dow Jones Industrial Average and FTSE 100 both seeing double digit losses. For the S&P 500, which fell 9.5%, it was the fifth worst day on record, and a bigger percentage fall than any day during the 2008 global financial crisis. Investors were rocked by President Trump’s error laden Wednesday night speech, in which he banned most travel between the US and 26 European countries.
Travel bans go against World Health Organization guidelines, and Trump sowed confusion by initially implying the ban applied to trade too, in addition to incorrectly stating that the health insurance industry is waiving payments for treating Covid-19. More importantly, the ban lacked the kind of fiscal stimulus investors were hoping for.
In a fraught day for markets, a 7% plus fall at the market open triggered circuit breakers for the second time this week, halting trading temporarily. Later in the day, the Federal Reserve took steps to inject more than a trillion dollars into the market to calm investors, but it only registered as a brief upward blip before heavy selling continued. The energy, financials, industrials and utilities sectors of the S&P 500 all fell by more than 10% on the day, per Fidelity data.
S&P 500, Nasdaq Composite, join Dow in bear market territory
Thursday’s fall officially took the S&P 500 and Nasdaq Composite into bear market territory, joining the Dow which got there a day prior. If the economic impacts of the pandemic lead to a recession, this is a good reminder of the relationship between recessions and bear markets. Most analysts are anticipating a short, sharp economic shop followed by a sharp recovery, rather than something that will echo for years like the financial crisis.
Yesterday, Occidental Petroleum was the only stock in the S&P 500 to eke out a positive day but had already lost around 75% of its value. All the other 499 stocks in the index fell by more than 1%, with 490 falling by more than 3%. At the back of the pack was a trio of cruise firms, Norwegian, Royal Caribbean and Carnival, which all lost more than 30% after Carnival announced it was suspending all Princess Cruises operations for at least two months. Boeing had another dismal day, losing 18%, meaning its value has now more than halved since the crisis began. Disney, which had a new CEO take over just last month, fell 13.1% after announcing it is closing Disneyland Park and Disney California Adventure for the rest of the month.
- S&P 500: -9.5% Thursday, -23.2% YTD
- Dow Jones Industrial Average: -10% Thursday, -25.7% YTD
- Nasdaq Composite: -9.4% Thursday, -19.7% YTD
Underwhelming government response sends FTSE down 10.9%
The FTSE 100 also posted its worst day since 1987 on Thursday, plummeting 10.9% and taking its year-to-date loss past 30%. Similar to in the US, investors were distinctly underwhelmed by the UK’s response to the epidemic on Thursday, after Prime Minister Boris Johnson said the government has moved from a strategy of containment to one of delaying the virus’ spread. Johnson also told the British public that they should be prepared “to lose loved ones” and the UK’s chief scientific officer suggested that up to 10,000 people in the UK could have the virus.
Every single stock in the FTSE 100 was in the red, with only two firms in the FTSE 250 posting a positive day. Miners including Anglo American and Glencore, travel names Carnival and Tui, plus finance firms Barclays and Legal & General all fell double digits. Anglo American had the worst day, sinking 18.9%.
In the FTSE 250, Premier Oil fell by 45%, taking its dwindling market cap close to £200m and its loss over the last week past 80%. Entertainment names Restaurant Group and Cineworld also suffered excruciating days, closing 31.8% and 24.2% down respectively. On Thursday, Cineworld warned that the epidemic could leave it unable to afford its debts and continue operating, as it could not afford to lose three months of revenue if cinemas are forced to close.
- FTSE 100: -10.9% Thursday, -30.6% YTD
- FTSE 250: -9.4% Thursday, -28.2% YTD
What to watch:
Consumer sentiment index: On Friday at 10am New York time, the March consumer sentiment index figure from the University of Michigan will be reported, with a substantial drop expected from last month. The data was collected between February 26 and March 11, so is one of the first reports covering the most severe period of the pandemic and market volatility to-date. Falling consumer sentiment indicates people are less likely to carry out discretionary spending on items such as restaurant meals, flights, or home improvements, impacting a huge number of industries. The continued run of economic growth the US had enjoyed to the end of 2019 was in large part built on the back of the consumer economy, which balanced out manufacturing decline.
Donald Trump: President Trump is one of the biggest unknowns in this crisis, and the decisions he takes will have huge ramifications for the US economy and the stock market. The President is a frequent Tweeter, and for investors wanting to make sense of where large price movements in US stocks are coming from, it is worth staying up to date with his public statements and social media postings. Currently, many investors are looking to the path carved out by China – which has brought new instances of the virus under control – as a benchmark for how the virus will pass through the US. Whether that comes to pass will depend largely on the response of the US federal government.
Jabil Circuit: Manufacturing services firm Jabil Circuit, which is an Apple supplier, is one of the few companies reporting earnings on Friday. Its share price has fallen more than 40% over the past month, hurt by supply chain disruptions affecting firms worldwide. Last quarter, analysts quizzed company leadership on margin expansion as the firm’s route to delivering profit growth (rather than revenue expansion), so expect management to be probed for details on how margins are holding up in the face of the epidemic. Currently, analysts are split evenly between buy and hold ratings on the stock, and earnings per share expectations for the quarter being reported have been sinking in the run up to the firm’s results.
All data, figures & charts are valid as of 13/03/2020. All trading carries risk. Only risk capital you can afford to lose.
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