China on the Comeback

China  said yesterday that its official Purchasing Manager’s Index for March was 52.0, beating expectations for an economy hit hard by the coronavirus outbreak. PMI readings above 50 indicate expansion, while those below that level signal contraction.

In February, China's official PMI had hit a record low of 35.7. While there's reason to suspect the accuracy of these numbers, this is a positive sign for how quickly an economy can rebound from the pandemic.

Earlier this year, manufacturing activity slowed dramatically in China as the government instituted large-scale lockdowns and quarantines. This week, China’s Ministry of Industry and Information Technology said that as of March 28, the resumption-of-work rate for larger industrial enterprises was 98.6 percent, and the return of workers stood at 89.9 percent.

A Week of Recovery

Here's a mark you probably weren't expecting to be set: The Dow Jones Industrial Average just notched its best weekly gain since 1938, despite falling by 4.1 percent in Friday's trading. For the week, the Dow booked a gain of 12.8 percent, its strongest weekly performance in 82 years.

The S&P 500 finished down 3.4 percent on Friday, but still had a weekly gain of 10.3 percent. The Nasdaq Composite fell 3.8 percent on Friday, but on the week it’s up 9.1 percent. For both of those indexes, it was their best week since March 2009, when the markets bottomed out after the financial meltdown.

The Dow was aided by a comeback for the ages from blue-chip component Boeing, which surged 70.5 percent for the week. That was its best weekly gain ever.

Three Million Jobless Claims

A sobering economic number is out this morning: Americans displaced by the coronavirus crisis filed unemployment claims in record numbers last week, with the Labor Department reporting a surge to 3.28 million new filers.

That number shatters the Great Recession peak of 665,000 from March 2009, as well as the all-time mark of 695,000 in October 1982. The number for the previous week, which reflected the period before the worst of the coronavirus hit, was 282,000.

But the news isn't all bad. The House is expected to pass a $2 trillion stimulus bill, already approved by the Senate, tomorrow morning, which should help ameliorate the job losses. Putting everything together, the market is happy about these moves, with stocks moving higher in early trading this morning.

The Market Bounces Back

Finally, we had some good news on Wall Street yesterday. The Dow Jones Industrial Average soared 11.4 percent, for its best one-day percentage performance since 1933. The S&P 500 Index was up 9.4 percent, while the Nasdaq Composite added 8.1 percent. The rally seemed to be a response to Congress nearing a conclusion on its stimulus bill.

More than 300 stocks in the S&P 500 gained at least 10 percent on the day. Five of them gained more than 35 percent, including:

• Norwegian Cruise Line, up 42.3 percent
• L Brands, up 39.0 percent
• DXC Technology, up 38.2 percent
• American Airlines, up 35.8 percent
• Alliance Data Systems, up 35.4 percent
• MGM Resorts International, up 33.2 percent

The Toll of the Virus

A majority of Americans have already seen their finances affected by the coronavirus pandemic, according to a new survey by LendingTree. Some 63 percent of the respondents said their finances had already been affected in some way by the coronavirus, with 27 percent reporting stock market losses and 21 percent saying they had spent more money on supplies than they could afford.

Forty percent of survey participants said their paycheck had already been hit by the coronavirus’ spread. Another 35 percent had had their hours at work reduced or eliminated, and 5 percent had lost tips or commissions.

Looking ahead, 21 percent of all Americans in the survey and 28 percent of those with children under 18 expect their finances to be severely affected by the pandemic. Another 35 percent said their finances would be somewhat affected. Seventeen percent are worried about their ability to pay bills, and 10 percent had lost money on nonrefundable travel plans.

The Fed's New Action

Saying “aggressive action” was needed to combat the coronavirus pandemic, the Federal Reserve announced this morning that it would purchase an unlimited amount of Treasury bonds and securities tied to home and business mortgages. The goal is to prop up the economy and ward off a credit crunch.

The Fed said it would buy assets “in the amounts needed” to support smooth market functioning and effective transmission of monetary policy. It had previously set a $700 billion limit for its asset purchase programs.

In addition, the Fed announced several new lending programs worth $300 billion to support all corners of the financial markets. The market apparently was very happy with these moves, as Dow futures accelerated after the announcement was made.

Are Stocks Settling Down?

We had a rare occurrence on Wall Stret yesterday: A relatively normal day for the stock market. The Dow Jones industrial average swung more than 1,200 points from its low to its high point, but in the end, it finished up just under 1 percent, or 188 points. It was the first time since March 6 that the index closed within 1,000 points from where it opened.

The S&P 500 closed up 0.5 percent, also by far its most modest finish since the start of the month. The Nasdaq Composite, which was the best performer of the day, ended up 2.3 percent.

Leading the way yesterday was the energy sector, which gained about 5 percent on the day. It was bolstered by the fact that U.S. oil prices spiked by 24 percent, marking a record one-day percentage gain.

New Jobless Claims, Out This Morning

We're starting to see the first economic indicators since the country went on lockdown over the coronoavirus. This morning, the Labor Department's new report on unemployment claims filed last week jumped to 281,000 from 211,000 the week earlier. It was the highest number since September 2, 2017.

But more than the raw number, it's the rate of increase that's sobering. The 33 percent jump in weekly claims is the biggest ever one-week increase, aside from temporary disruptions from hurricanes and other natural disasters. It tops the one-week 14 percent jump during the 2008 financial crisis.

Companies are just starting to announce coronavirus-related layoffs, so the real damage probably won’t start showing through until next week’s count, which will entail the period through this Saturday. It's very possible that the economy has already entered recession.

Loosening the Tax Deadlines

A small bit of relief: In case you missed it, Treasury Secretary Steve Mnuchin announced yesterday that individuals would be allowed to defer up to $1 million in tax payments for up to 90 days. The primary federal filing deadline remains April 15.

Of course, many of us here in Tennessee have already been given some relief as far as federal taxes go. Victims of the recent tornadoes, including taxpayers in Davidson, Putnam and Williams counties, will have until July 15, 2020, to file various individual and business tax returns and make tax payments,

Among other things, this also means that affected taxpayers will have until July 15 to make 2019 IRA contributions. The new deadline also applies to quarterly estimated income tax payments due on April 15 and June 15 as well as the quarterly payroll and excise tax returns normally due on April 30.

Yesterday's Worst Performers

The S&P 500 Index  tumbled another 12 percent yesterday, with 491 of its stocks showing declines. It was the third-worst trading day ever for the S&P, as well as for the Dow; the Nasdaq, which lost 12.3 percent, had its worst-ever one-day decline.

These S&P stocks lost more than a quarter of their value yesterday:

• MGM Resorts International (Casinos/Gaming), down 33.61 percent 
• Apache Corp. (Oil & Gas), down 32.34 percent
• Capri Holdings Ltd (Apparel/Footwear Retail), down 30.65 percent
• Tapestry (Apparel/Footwear Retail), down 29.26 percent
• Ventas (Real Estate Investment Trusts), down 28.59 percent
• DXC Technology (Data Processing Services), down 28.33 percent
• L Brands (Apparel/Footwear Retail), down 27.73 percent
• Noble Energy (Oil & Gas Production), down 27.26 percent
• Alliance Data Systems (Data Processing Services), down 27.06 percent
• Discover Financial Services (Regional Banks), down 26.83 percent
• Simon Property Group (Real Estate Investment Trusts), down 26.71 percent
• Synchrony Financial (Finance/Rental/Leasing), down 26.02 percent
• LyondellBasell Industries (Chemicals), down 25.49 percent

The Fed's Latest Suprise

The Federal Reserve cut interest rates to essentially zero yesterday and launched a massive $700 billion quantitative easing program to shelter the economy as it teeters on the brink of recession. The new fed funds rate will now be targeted at 0 percent to 0.25 percent, down from a target range of 1 percent to 1.25 percent.

In addition to rate cuts, the Fed also said it would purchase another $700 billion worth of Treasury bonds and mortgage-backed securities. It also struck a deal with five other foreign central banks, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank, to lower their rates on currency swaps to keep the financial markets functioning normally.

The central bank pre-empted a Federal Open Market Committee meeting scheduled for Tuesday and Wednesday, with a policy announcement that was due on Wednesday. This was less than two weeks after the Fed had already made an impromptu cut of 0.5 percent.

End of a Long Week

The S&P 500 Index dropped 9.5 percent yesterday in its worst day in more than three decades. It joined the Dow in a bear market, as it's now more than 20 percent from its recent peak.

The Dow also suffered its worst point drop ever and the biggest percentage decline since 1987.
Things got so bad that for the second time this week, a market-wide circuit breaker was triggered to prevent stocks from a free-fall. Trading was halted for 15 minutes shortly after the market opened, following an initial 7 percent drop in the S&P 500.

The Dow is off 18.03 percent so far this week. It wouldn't take much of a drop today to book the worst weekly decline for the index — which turns 124 years old on May 26 — if it surpasses the 18.15 percent drop in the week ended October 10, 2008, at the height of the financial crisis that ushered in the Great Recession.

The Dow in a Bear

After another rough day for the markets, the Dow Jones Industrial Average has officially entered a bear market, defined as a drop of 20 percent from recent highs. The S&P and the Nasdaq are still hanging on, just barely out of bear territory.

The Dow is currently off 20.3 percent from its February 12 record, after falling by 5.9 percent yesterday. The S&P 500 and the Nasdaq are both down 19 percent from their February 19 peaks.

How long do we expect the markets to be down? On average, a bear market for the Dow lasts 206 trading days, according to data from Dow Jones Market Data. The average bear period for the S&P 500 is about 146 days.

A Bounceback Day

Following historic drops for all three major indexes on Monday, they all gained roughly half of that back yesterday. The S&P 500 and the Dow Jones Industrial Average each rose 4.9 percent, while the Nasdaq Composite was up 5 percent. In other economic news:

• Airline shares took off: American Airlines shares closed about 15 percent higher, while Delta shares jumped 4.5 percent, and Southwest shares were up more than 4 percent.
• After the 10-year and 30-year Treasury fell to all-time lows on Monday, the 10-year yield bounced back 30 basis points to 0.80 percent yesterday, while the 30-year yield was up 29 basis points to 1.31 percent.
• After losing 25 percent Monday, their worst day since the 1991 Gulf War, crude oil prices rebounded, with West Texas Intermediate crude rising 10.4 percent.

How Likely Is a Rebound?

Yesterday was another difficult day on Wall Street, with the S&P 500 Index dropping by a whopping 7.6 percent - its worst day since the 2008 market meltdown. Pent-up anxiety over the weekend may have contributed to another Black Monday.

What does this mean for the future? Data compiled by Bespoke Investment Group strategists show that the S&P 500 has put in declines of 5 percent or worse on 10 other Mondays since 1952, with today’s drop representing the 11th time.

The good news, however, is that on average, the S&P 500 has returned 12.75 percent in the six months after the daily 5 percent drop. Gains are also higher in the following day, up 4.2 percent on average, as well the next week and month, with gains of 5.1 percent and 3.2 percent, respectively.

Oil Prices Dropping, and Dropping

One bit of collateral damage from the coronavirus and the recent drop in the stock markets: Oil prices are falling through the floor, and look to be headed even lower. U.S. oil benchmarks plummeted to multiyear lows on Friday, with West Texas Intermediate sinking more than 10 percent to $41.28, its lowest level since 2016.

Oil prices are now down 30 percent for the year, and could fall further given reports of a possible increase in production by Saudi Arabia. OPEC and non-OPEC producers are preparing for an all-out price war, in a sudden U-turn from previous attempts to support the oil market as the coronavirus hammers global demand. 

Consumers could see gasoline prices drop below $2 per gallon in upcoming days, according to some economic pundits. The decline in crude oil prices could add as much as 0.50 percent to U.S. GDP if the drop is sustained.

February's Jobs Report

February was another huge month for the jobs market, the Labor Department reported this morning: The U.S. economy added 273,000 new jobs during the month. The headline unemployment rate ticked back down to 3.5 percent, matching its lowest level in more than 50 years.

There was more good news for the jobs market: the previous two months’ estimates were revised higher by a total of 85,000. December moved up from 147,000 to 184,000, while January went from 225,000 to 273,000. Those revisions brought the three-month average up to a robust 243,000; the average monthly gain in 2019 was 178,000.

Health care and social assistance led the way in February with 57,000 new jobs. Food services and drinking places both added 53,000 while government employment grew by 45,000 due to Census hiring and state government education. Construction added 42,000 thanks to continued mild weather, while professional and technical services added 32,000 and finance added 26,000, part of a 160,000 gain over the past 12 months.

How Investors Are Reacting to Coronavirus

Worried about what the coronavirus might be doing to your financial plans? According to a new survey from Retirement Income Certified Professional financial advisors, the response from most investors is to stay the course.

More than 65 percent of the 245 RICP advisors surveyed indicated their clients had become more likely to reach out to them due to recent market volatility. But more than 60 percent of advisors reported that none of their clients had made changes to their plans as a result of recent market performance.

Still, many clients have become more concerned about their retirement savings as a result of the coronavirus. Half of the surveyed clients indicated they were more concerned about retirement security this year than they were in 2019.

The Fed's Surprise

The Federal Reserve’s surprise decision to slash interest rates yesterday by half a point was the biggest one-day move since 2008, and it came on a day when the Fed wasn’t even supposed to meet. The Fed has only cut rates by a half-point or more four other times in this century:

October 8, 2008: 0.5 points
The Fed struggled to contain the market chaos that followed the implosion of Lehman Brothers a few weeks earlier.

January 22, 2008: 0.75 points
A week ahead of their regularly scheduled meeting, the Fed announced its deepest rate cut in 24 years, in an ultimately unsuccessful attempt to head off the coming recession.

September 17, 2001: 0.5 points
The Fed cut rates just before markets reopened in the wake of the September 11 terrorist attacks, in an attempt to bolster investor confidence.

April 18, 2001: 0.5 points
A year after the dot-com bubble burst, the Fed tried to hold off another coming recession, but it turned out the economy had already begun contracting.

Stocks Bounce Back

After the disaster of last week, yesterday all three major indexes came back strong. The Dow Jones Industrial Average rose 1,293.96 points, or 5.1 percent — its largest one-day percentage rise since March 23, 2009. The S&P 500 rose 136.01 points, or 4.6 percent, while the Nasdaq Composite rose 384.80 points, or 4.5 percent, marking the biggest one-day percentage gain for both those indexes since December 26, 2018. 

The biggest winners for the day among individual S&P stocks:

1. Costco, up 10.0 percent
2. Apple, up 9.3 percent
3. S&P Global, up 9.2 percent
4. Crown Castle International, up 9.0 percent
5. AES Corporation, up 8.9 percent
6. Cincinnati Financial Corp., up 8.7 percent
7. Gilead Sciences, up 8.7 percent
8. Digital Realty Trust, up 8.6 percent
9. Eversource Energy, up 8.3 percent
10. CVS, up 8.2 percent

Watching for the Bear

U.S. stocks entered a market correction — defined as a 10 percent drop from a recent peak — last Thursday. For the S&P 500 the drop into a correction from an all-time high in just six trading days earlier was the fastest on record, according to Dow Jones Market Data.

The next step would be a bear market, which is defined as a 20 percent drop from recent highs. As of the end of last week, the S&P 500 was down 12.8 percent from its record close, while the Dow finished 14 percent below its all-time closing high. The Nasdaq ended the week 12.8 percent below its high.

It was the biggest weekly drop for all three major equity benchmarks since the depths of the financial crisis in October 2008. Even if next week isn't as bad as last week was, we might still be entering bear territory.