Sector Investing

[ReturntoSender]

Market plummets with worst losses since 1987 as growth concerns dominate
16-Mar-20 16:25 ET
Dow -2997.10 at 20188.52, Nasdaq -970.28 at 6903.95, S&P -324.89 at 2386.13

https://www.briefing.com/stock-market-update

[BRIEFING.COM] There was a crisis of confidence in the stock market today, which led to the worst day of losses since the crash of 1987. The Dow Jones Industrial Average declined 12.9%, the S&P 500 fell 12.0%; the Nasdaq Composite dropped 12.3%; and the Russell 2000 plunged 14.3%.

Confidence was lacking in the monetary policy response; it was lacking in the fiscal response; and it was lacking in the outlook for economic growth and earnings prospects.

The lack of confidence kicked in overnight when the futures market went limit down after the Federal Reserve announced a stunning series of policy measures aimed at supporting the financial markets and the flow of credit.

Specifically, the target range for the fed funds rate was cut by 100 basis points to 0.00% to 0.25%, the discount rate was cut by 150 basis points to 0.25%, a $700 billion quantitative easing program is being implemented, there was coordinated central bank action to enhance liquidity via standing U.S. dollar liquidity swap line arrangements, and bank reserve requirement ratios were reduced to 0.00%, effective March 26.

The policy effort is laudable, yet market participants quickly made it known that it isn't thought to be enough to turn the tide of deteriorating confidence on Main Street and Wall Street.

That confidence has been shaken by a multitude of announcements that made it clear the U.S. economy -- the world's largest economy -- is rapidly sliding into a shutdown mode that will severely curtail earnings prospects and will raise the specter of recession in coming months.

Those announcements included forced closures of restaurants and bars in some states; airlines further cutting their flight capacity further; more and more schools announcing extended closures; Apple (AAPL 242.21, -35.76, -12.9%), and other retailers, announcing that they will voluntarily close their stores; Wynn Resorts (WYNN 54.80, -17.82, -24.4%) and MGM Resorts (MGM 10.25, -5.19, -33.6%) noting they will temporarily suspend their casino/resort operations in Las Vegas; the president recommending to avoid gatherings of 10 or more people; and the city of San Francisco issuing an order for residents to stay inside, except for essential purposes.

In other developments, Canada announced it will be closing its borders to non-citizens, with the exception of permanent residents and Americans. The EU, meanwhile, discussed closing borders for 30 countries to foreigners.

These developments were all part of a mosaic that undermined consumer confidence and investor confidence. The latter was further impacted by a sense of angst that the government has not gone far enough with its fiscal stimulus plans to effectively mitigate the economic fallout from the growing wave of "cocooning" that is expected to lead to a major retrenchment in consumer and business spending and large job losses as a result of that retrenchment.

There was some chatter during the day that the White House is pushing an $800 billion stimulus proposal, half of which would involve a payroll tax cut, and an assistance package for the airline industry. Separately, Senate Minority Leader Schumer was reportedly floating a $750 billion stimulus proposal.

Notwithstanding those ideas, there was nothing concrete as a step-up measure on the fiscal side to alter investor confidence. The end result was wholesale selling of risk assets, which escalated further in the final hour as President Trump and his coronavirus task force conducted a press conference, which featured a suggestion that the trajectory of the virus might not peak until July or August. Importantly, though, it didn't feature any announcement of a fiscal stimulus plan.

The major indices all closed at, or near, their lows for the day, pressured by double-digit percentage losses in ten of the 11 sectors. The lone exception was the consumer staples sector (-7.0%); otherwise, losses ranged from 10.0% (health care) to 16.6% (real estate) in an historic day of trading. All 30 Dow components ended lower, with more than half suffering double-digit percentage losses. Boeing (BA 129.61, -40.59, -23.9%) was the biggest laggard.

Reviewing today's economic data:

The New York Fed's Empire State Manufacturing Survey fell to -21.5 in March (Briefing.com consensus 4.7) from 12.9 in February. The dividing line between expansion and contraction is 0.0.

Tuesday's economic releases will include Retail Sales and Industrial Production for February, Business Inventories for January, and the NAHB Housing Market Index for March.

Nasdaq Composite: -23.0%
S&P 500: -26.1%
Dow Jones Industrial Average: -31.7%
Russell 2000: -41.8%