(Reuters) - U.S. equities plunged on Monday as trading resumed following a slump in oil prices.
Trading on U.S. stock exchanges was halted immediately after opening as the S&P 500 fell 7%, triggering an automatic 15 minute cutout put in place after the 2008-9 financial crisis.
The S&P was last down around 5.5 percent. Benchmark ten-year yields fell to a record low of 0.318% and were last at 0.487%. The dollar index against a basket of currencies was down 0.4 percent.
MIKE LOEWENGART, MANAGING DIRECTOR, INVESTMENT STRATEGY, E*TRADE FINANCIAL CORPORATION, IN EMAILED COMMENTS:
“There is no mincing words here—Wide price swings are never comfortable and the markets are moving at breakneck speeds.
“Consistent patterns of whipsawed equities and plummeting Treasury yields have certainly unnerved investors and the latest domino to fall is severe oil losses. No doubt, many are taking a hard look at their portfolio.
“At this point, a recession is not out of the question at all, but at least we have strong fundamentals for now and a sound banking system as cards up our sleeve, which will help recover from any fall. It’s also important to factor in that commodity and energy companies make up a relatively small percentage of the broad market. In times like these, it’s always a challenge to look beyond the here and now but investors should consider that sound fundamentals coupled with decreased energy and financing costs could pave the way for strong results long-term. At a minimum, concerned investors should reassess their risk tolerance and make sure they are appropriately diversified.”
ROBERT PAVLIK, CHIEF INVESTMENT STRATEGIST AND SENIOR PORTFOLIO MANAGER AT SLATESTONE WEALTH LLC IN NEW YORK.
“Well right now we are much better off than where we were a while ago, so that is a positive. Yields are moving higher so I think that is giving equity markets a reason to pull off the bottom.”
“But people are on edge because of the coronavirus and the implications of it could lead to a slowdown on the global economy. We are seeing a type of mindless selling.”
RICK MECKLER, PARTNER, CHERRY LANE INVESTMENTS, A FAMILY INVESTMENT OFFICE IN NEW VERNON, NEW JERSEY
“I think that the actual initial selling that we are seeing today will run out of steam quickly. I think we will see bargain hunters come into the market at these levels. I think the bigger issue and one that is hard to predict is will the oil prices sort themselves out, will there be some kind of compromise with Saudi Arabia and Russia. It’s in both of their interests to do it.”
“What makes panic, panic you can’t really predict it. The more it goes down, the more people will be nervous about it. I think the whole idea behind the circuit breaker is a good one it gives people a chance to think about whether or not they are selling out of emotion or they are selling out of a real belief that the stocks are worth significantly less.”
“I think given the circuit breaker program its more likely than not selling won’t continue at this pace throughout the day, but the psychology of things is very much a herd mentality. The lower it does go, the more people are likely to panic even further.”
DENNIS DICK, HEAD OF MARKETS STRUCTURE, PROPRIETARY TRADER AT BRIGHT TRADING LLC IN LAS VEGAS
“It’s a crazy morning. We’ve had a COVID-19 issue for a long time and markets were nervous about that and now you’ve got this issue with oil. So it’s three fold now. You have the health crisis with the COVID-19 issue, the oil issue - with oil prices down significantly now - and that could roll over into a banking crisis. Yields are down and squeezing the banks and secondly - there’s probably going to be a lot of bad loans from the oil companies. On top of that we still are thinking about the virus.
“Confidence is down in everything right now. There is potential that we could be the start of a financial crisis part 2. I don’t think that’s probable, I just think it’s a possibility right now that wasn’t on the table until we had this oil plunge over the weekend.
“There are a lot of things this market is worried about. That being said, we are very oversold and I’m not surprised we are bouncing a bit this morning. There is still a lot of underlying concerns here and the biggest one is the virus.
“There was definitely panic this morning. It’s ugly. But now we’re starting to see a little bit cooler heads prevail.
“Today’s story is oil but this cloud of the virus will continue to spook the investors and until we figure out how fast this virus is spreading and we get a better hand on the fatality rate, the market is going to continue to remain nervous.”
CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, INDEPENDENT ADVISOR ALLIANCE, CHARLOTTE, NC:
“It’s a perfect storm. You’ve got a lot of uncertainty in terms of how far the virus will spread in the U.S. You layer onto this the oil price cut. The third thing is financial instability in the sense that with yields falling as far and as fast as they’re falling, it bring into question what parts of the financial system are brittle. It’s too early to know. You don’t know until the entire system is under intense stress it’s hard to know which parts are fragile.”
“The big fear for investors his how deep a demand shock we’re dealing with and how long it will last. How long do consumers stay home and not spend.”
“Today is all about oil being the straw that broke the camel’s back.”
“As far as economic impact, you have to lower your U.S. GDP estimates by at least a half a percentage point for the whole year and it could be more. We were expecting 2-2.5% before the year started. Now best case its 1.5-2% for the year.”
“We’re expecting low single digit increases coming into this year in S&P 500 company earnings growth. Now the best case scenario is that you’re flat for the year. Worse case it could be 10-20% less. Q1 is possible to still get positive GDP growth. It’s possible to get negative GDP growth for Q2.”
“This is a great example of strategic asset allocation being very important for retail investors. You wanted to have the right portfolio coming into the crisis, not in the middle of the crisis.
“Don’t panic. Don’t lock in losses. If you’ve been waiting for an opportunity to invest you’re now being presented with one. This is going to be a nibble at the dip week … “I wouldn’t blindly buy the dip but I would take advantage today to add to your portfolio if you have the cash.”
“Start looking at consumer discretionary. If the companies are at enough of a discount its worth taking a look. I’d look at technology. Technology and consumer discretionary will be best positioned coming out of the crisis. The American consumer will resume spending. If they started spending in 2009 you can guarantee they’ll spend after coronavirus passes.”
“If I had to pick one I’d pick healthcare rather than utilities or staples because I think it’ll weather the storm pretty well. It’s not as expensive as utilities or consumer staples.”
“I’m sure there’s people who think the worst is not over. There are people still buying defensives because they think there’s more to come.”
“If you’re President Trump fortunately for you it’s happening earlier in the year. I’d be worried if it was later in the year. If coronavirus passes in a matter of months and the market and the economy recovers he’ll be in as good a shape as he was coming into this year. He was in a pretty good position.”
EDWARD MOYA SENIOR MARKET ANALYST, OANDA, NEW YORK, IN RESEARCH NOTE:
“Stock markets in freefall and it seems unlikely central banks and governments in the short-term can do anything.
“Technical selling is getting ugly and even though expectations are high the Fed will take rates to the zero bound, the retail investor will likely want to wait this one out. It seems the collapse with oil prices have added a log to the deflationary fire the Fed will try to extinguish. Virus fears, deflationary risks, and growing stress in the credit markets, means markets will see the Fed launch a new QE program very soon.
“Eventually investors will start scaling back into stocks, but it seems the technical selling can remain ugly for a couple more days. The longer-term playbook will likely to buy stocks again as markets will move beyond the virus, adjust to lower oil prices, and expect a wrath of global stimulus likely to remain in place over the next year.”
PETER CARDILLO, CHIEF MARKET ECONOMIST AT SPARTAN CAPITAL SECURITIES IN NEW YORK:
“This is basically panic selling created by the sharp drop in oil prices. There’s a lot of fear in the market and if the price of oil continues to move lower it’s an indication that a global recession is not far away. We see that with gold, Treasury yields collapsing and the dollar as well. We’re not that far from entering into bear market territory another sign of economic decay.”
“We’re in panic mode and I expect the Fed will come to a rescue. I would imagine that the Fed’s tools are someone limited and they may have to resort to a new round of quantitative easing. This could cause some real disorders in the credit markets, and with the Dow moving into bear market territory, we could see levels in the indices going even lower. There’s a good possibility the Dow could drop under 20,000 and the S&P drop down to 2,500 before we see a turnaround. Not today but it could happen this week.”
“If we go into recession history speaks for itself. No sitting president has ever been reelected in a recession.”
“The weakness in China and Europe has pressed on demand and along came the coronavirus. Now we’re at levels that suggest that things could get worse and we could be in for a recession. You can’t have a good economy if oil prices collapse.”
JIM VOGEL, INTEREST RATE STRATEGIST, FHN FINANCIAL in MEMPHIS TN:
“Until this weekend there were a lot of people holding onto core positions on the idea they could ride this out. That’s being re-evaluated.
“Friday, we all went home thinking about what we were dealing with, we have to watch Italy and other things, but nobody thought that Saudi Arabia would start a price war. Suddenly you have to re-evaluate what else could impact this.
“The more these events affect more people, the more it’s going to leave lasting impressions that can easily extend through the presidential race. I don’t know if it’s good or bad (for U.S. President Donald Trump’s re-election efforts.) In an event like this typically the administration has the upper hand until it attracts so much negative attention. A national crisis is a positive for an incumbent as long as things don’t get out of hand.
“Most of our clients are financial institutions. We expect loan demand to temporarily flag. We’re expecting our investment base to continue to see a great amount of cash inflow without realistic opportunities to put that money to work once that cash comes in. With the Fed likely to cut interest rates again it’s very hard to sit on the sidelines.”