COVID Crash

COVID crash 2/20/2020-4/7/2020

Summary

        The COVID crash is better termed a flash crash, as the market was able to recover from it in a short period of time. For anyone following the market in those days, the perception of COVID shifted rapidly from "don't worry about it", then swung to "the world is ending" and, finally, "it actually isn't that bad". There isn’t too much to say about the panic caused by the virus or the implications of the global economy shutting down for a prolonged period of time; it was very real. For those who were able to keep their wits about them, the virus provided a generational opportunity for wealth generation. Those who shorted when markets collapsed, those who bought tech companies, vaccine producers, or oil at bargain prices made out like absolute gang busters. Ultimately, what saved markets from a complete meltdown was a blank check from central banks around the globe, slashing interest rates to near zero levels and that the virus proved to be far more manageable than initially expected.

Key Data to Keep Track of:

• Virus monitoring
• FED announcements and comments
• Stimulus package discussions as well as money printers being activity
• Economic Data: Unemployment numbers

2020

• February: Feb 24th (-3.35%), Feb 25th (-3.03%), Feb 27th (-4.42%)

Up until 2/24, concerns about the Coronavirus were fairly subdued, with most investors unconcerned with its spread. Things appeared to have changed over the previous weekend. Italy, Iran, South Korea, and the United States (mostly from a cruise that had docked in Japan) all reported infection numbers, none of which were even close to approaching over a thousand infections. Iran, for example, cited only 12 deaths from COVID, which at that time was the highest death count outside of China. Ironically enough, it was China that attempted to convince the World Health Organization that it had begun to get the virus under control, following a lockdown of Wuhan. That said, the fear that global economies were considering shutdowns and slowdowns for international shipping was enough to start investors running towards the door. Airlines were the hardest hit, WTI fell 4%, and gold was up 10% for the year. Not much changed the following day, 2/25, aside from CDC officials beginning to warn that the spread of the virus was inevitably going to spread throughout the country. Now that the virus was escaping China and affecting more of Asia and Europe, concerns that it was just going to paralyze China’s economy instead of the world’s were beginning to take shape. Fed comments also came out, which only amounted to “we’re monitoring things”. Interestingly, the article laments that Trump had only recently managed to bring the trade war with China and America to a close, and the gains from that resolution were now on their way to being wiped out. Just two days later, on 2/27, markets sustained the worst drop in nine years. Asian and European markets had sold off the day before, China continued shutting its economy down, and consumer spending was inevitably going to plummet due to travel fears. Italy reported 650 infections, Japan closed down its schools, a slew of countries across Europe reported first time infections and, generally speaking, panic was going global. Just the day before, Trump claimed the risk of COVID in the United States was “very low” and that Michael Pence was placed in charge of managing the spread of the virus in the country.  There were about 81,000 infections and 3,000 deaths, globally, by the close of the month.

• March: Mar 2nd (+4.60%), Mar 3rd (-2.81%) Mar 4th (+4.22%), Mar 5th (-3.39%), Mar 9th (-7.6%), Mar 10th (+4.94%), Mar 11th (-4.89%) Mar 12th (-9.51%) Mar 13th (+9.29%), Mar 16th (-11.98%), Mar 17th (+6.00%), Mar 18th (-5.18%), Mar 20th (-4.34%), Mar 24th (+9.38%), Mar 26th (+6.24%), Mar 27th (-3.37%), Mar 30th (+3.35%)

Only a week after the initial selling began, 3/2 saw a huge rally, following an international coordination of banks, ranging from Japan, England, the ECB, the IMF and the World Bank all expressed that they were actively monitoring the situation and were prepared to step in with rate cuts and funding if the situation called demanded it. The Fed is notably missing from the list, an opportunity which Trump used to again go after Powell: As usual, Jay Powell and the Federal Reserve are slow to act. Germany and others are pumping money into their economies. Other Central Banks are much more aggressive. The U.S. should have, for all of the right reasons, the lowest Rate. At any rate, the idea that banks were watching gave some investors the confidence to take the plunge and go back into the markets. It should be noted, that even at this point, many major companies were already cutting back employee travel plans and Twitter even issued work from home advice to its employees. On 3/3, markets got the rate cuts they had hoped for when buying just the day prior, yet markets still dropped substantially on fears that cuts would do little to diminish the economic damage done by the virus. The emergency rate cut bumped prices up for fifteen minutes, before being entirely wiped. Analysts from across the globe cut growth projections for the year and the virus continued spreading.

On 3/4 news emerged that Biden was leading over rival Bernie Sanders (an avowed socialist) on Super Tuesday, filling investors with glee that two pro-finance candidates would eventually face-off for the White House: Trump and Biden. Wall Street wins in both cases, seems to have been the thought process. In other news, Congress approved an $8.3 billion emergency package to fight COVID, alongside a $50 billion one from the IMF for impoverished countries. There were two quotes that aged extremely horribly from this article that are worth sharing:  Chip Rogers, the president of the American Hotel & Lodging Association, urged Americans not to put off their spring break travel plans out of fear. “There is no place in the United States right now that is not safe to travel,” he said. Roger Dow, the president of the U.S. Travel Association, went so far as to say that the government should stimulate travel. “The smartest thing someone can do is book their travel now, because this thing isn’t going to last,” he said. The U.S. Chamber of Commerce also urged Americans not to overreact to the virus, as it could slow the economy! More selloffs in Asia on 3/5. Airline companies cratered, a cruise ship off the coast of San Francisco was infected, IMF slashed growth outlook for 2020, and the International Air Transport Association announced it expected $63 to over $100 billion in revenue damages from the spread of the virus. Coronavirus ads even started playing! 3/6 was only -.30% off the mark for a 5 day extreme volatility streak; suffice it to say, volatility and paranoia were really starting to settle in.

The following trading week opened on 3/9, prices began collapsing after Russia and Saudi Arabia failed to come to an agreement over oil production, cratering oil prices, which was only made worse by cratering demand. Selling was so severe, that ten minutes after open, circuit breakers were triggered, the first time such a thing happened since they were instituted back in 2013. The Fed stepped in promising emergency lending and Trump also promised a wide variety of tax cuts, but nothing could be done to stem the violent sell off. 3/10 came with a huge buy back, following a meeting of Trump with Senate Republicans over a proposed payroll tax cut, as well as using FEMA (Federal Emergency Management Agency) to deliver funds to stimulate the economy, an action that would not require the approval of Congress. No actual news on stemming the spread of the virus was delivered; Airlines canceled flights to Italy and scaled back domestically and events like the Auto Show began to be pushed back. For the day, it was enough to send markets back up. On 3/11, Trump issued a 30 day suspension of travel to Europe, stocks in Asia had been selling off the entire prior day and the WHO officially declared COVID a global pandemic. It seems that the real concern about the virus wasn’t the potential death toll, but the paralyzing effect it would have on global markets: That the virus is unlikely to prove fatal to the vast majority of people who get it offers little comfort to financial markets. Rather, the worry is that efforts to contain the spread of the illness caused by the virus are certain to slow the global economy and corporate profits. 3/12 opened with another round of parabolic selling. The Fed announced plans to offer $1.5 trillion in loans to banks to keep things running, but even this failed to keep markets up for long. Most of the selling was attributed to Trump’s 30 day travel ban to most European countries and the failure of the administration to come up with any effective means to bolster the economy. Disney closed down its parks, airlines began laying off thousands of workers, and everyone was waiting for Congress to take meaningful action. Markets closed with the worst drop since 1987. 3/13 Wiped out most of these losses, after Trump announced plans to cooperate with business leaders to begin mass coronavirus testing, waive interest on student loans, buy up oil for strategic reserves, and following a national emergency declaration, free up billions of government dollars to fight the pandemic. Markets finally got what they wanted. The article briefly mentioned that Bitcoin did not pass the test of a safe haven asset during the crash, plummeting over 50% to under $5,000, despite gold prices remaining fairly strong. The week closed with every trading day being nearly a 5% move in either direction, which has to be some sort of record.

3/16 eviscerated the gains of the prior close, following extraordinary steps taken by the Federal Reserve just the day before. Factory activity in China had fallen 13.5% in March, compared against February and investments into China had fallen 25%. A manufacturing report from New York State showed a record plunge in activity, bringing the index down to its lowest level since 2009. The Trump administration also issued new guidelines for the virus, closing schools and advising people to avoid groups of more than people. The drop was the largest since Black Monday back in 1987 and oil prices broke down below $30 a barrel. The sell-off was global, airlines started asking for government bailouts, and panic really started to set in. The only exception here seems to have been Amazon, which claimed it would hire an additional 100,000 workers and raise pay by $2 an hour! 3/17 recovered about half of 3/16’s losses, primarily thanks to the Fed announcing the new Primary Dealers Credit Facility, a measure intended to spur lending for primary dealers. An additional $850 billion was being pitched by Senate Republicans to provide stimulus for the economy. The large numbers being thrown around were apparently enough to temporarily stop the mass sell-off occurring in the markets. 3/18 took away most of the gains, again, due to the continued spread of the virus. Governments across the world were still debating how best to intervene in their struggling economies, so without any concrete guidance, markets fell. In the U.S. Ford, General Motors, and Fiat-Chrysler announced they were closing down factories, but the White House mentioned it was considering a $1 trillion bailout for small businesses. 3/20 came with little change, as most investors seemed to want to exit their positions before the weekend came along. Starbucks announced it would be closing its cafes (drive-through and delivery remained opened), Walmart and PepsiCo began to pass out bonuses and raises, WTI crude oil broke under $25 a barrel, and aside from a third stimulus bill being, which included the infamous COVID checks, there was little else to look forward to.

Markets dropped again after the weekend break, on 3/23. Markets initially received a boost following the Fed’s unveilment of a vast expansion of its efforts to keep markets functioning, but after Washington lawmakers failed to agree upon a planned $2 trillion rescue package, these gains were entirely wiped out. Senate Democrats had blocked the bill, in an effort to continue negotiating for the safety of workers and restrictions on which businesses would be bailed-out. Bad news continued to fester elsewhere, as Boeing announced it was idling 70,000 factory workers, Twitter claimed revenue would be down as advertising budgets were downsized and General Electric said it would be cutting 10% of its aviation workforce. Forecasters from the IMF to Morgan Stanley were also making grim predictions on how the economy would be affected by the virus. Technology companies were mentioned as potential “big winners” of the coronavirus. In person businesses were shuttering their doors, leaving people with only one escape; the digital. Massive buying occurred on 3/24,  solely on the news that both Democrat and Republican officials were optimistic on finalizing the $2 trillion bailout that had been in the works. The bailout included a wide variety of lifelines to companies most damaged by the pandemic, as well as offering $1200 to individual Americans. Norwegian Cruise Lines was the single best performer of the day, jumping 40% for the day, with most airlines companies gaining 20% across the board as well. Other companies were still reporting layoffs or shutdowns, but interestingly, Campbell Soup Company saw sales of soup jump 60% and Prego jump 50%. Another buying spur on 3/26, a record jobless claims was released that day, but it was apparently already priced in. The President of the NSYE, Stacey Cunningham, assured investors that there were no plans for the closing of markets despite the spread of the virus. “....even discussing closing markets can actually increase that level of uncertainty and people feel like they’re going to perhaps be stuck with a market closed and they won’t have access to their money.”. There really doesn’t seem to be any concrete reason given for why markets were up, the article itself expresses some degree of confusion as well, short squeeze, manipulation, who knows? 3/27 opened with news that the US had the most coronavirus cases in the world, a good amount of stocks got upgraded, Fed balance sheet hit a whopping $5.3 trillion, and the House of Representatives passed the spending bill over to Trump for signing. Markets fell considerably, despite a small bounce on the stimulus bill news.

A degree of optimism returned after the weekend, with a green day on 3/30. Despite an increasing death toll due to the virus, good news from the stimulus bill, alongside reports from Johnson & Johnson that an experimental vaccine was in the pipeline and ready for human tests by September. Companies like Slack, Zoom Video, and Citrix, were all pushing or breaking all time highs thanks to the trend in work from home, but companies like Macy’s reported plans to furlough a “majority” of its 125,000 workers. There didn’t seem to be any other good news, though it is worth mentioning that US crude finished at $20.09 for the day.

• April: Apr 1st (-4.41%), Apr 2nd (+2.28%), Apr 6th (+7.03%), Apr 8th (+3.41%),                 Apr 14th (+3.06%), Apr 17th (+2.68%), Apr 21st (-3.07%), Apr 22nd (+2.29%),                 Apr 29th (+2.66%)

Another snap in the opposite direction on 4/1. It seems that a good amount of the drop was a result of the anticipation of yet another mass jobless claims due the following day. Manufacturing PMI slipped into contraction numbers and the IMF declared that a war against the coronavirus was necessary, which included war-time policies. Markets were seriously depressed at this point and it was now time for David Tice, “a legendary bear”, to come out of retirement, based on the belief that the current selling was still in its early stages. Given how things turned out from here on out, this appears to have been a “bottom signal”. 4/2 opened rather red, largely thanks to weekly jobless claims amounting to a staggering 6.6 million, twice the expected 3.1 million. China’s Luckin Coffee collapsed that same morning, following news its COO had fabricated billions of yuan worth of revenue. Sentiment completely turned around after Trump tweeted that Saudi Arabia and Russia were cutting down oil production by at least 10 million barrels. WTI crude oil rose 26% off that news alone, the best day it had ever had. Another wave of Wall Street analysts upgraded stocks across the board, implying that the bottom had been reached. Despite the truly grim unemployment report, many investors were apparently confident that it would not last forever and Trump’s tweet arrived at the perfect time to move markets upwards. News emerged that coronavirus deaths and infections had begun slowing in parts of Europe on 4/6. In New York, the number of deaths had remained steady for two days. This news alone brought back optimism that the peak of the virus was either already here or that the world was soon approaching it. Hotel, casino, and resort chains saw much of the buying. A second company, Inovio Pharmaceuticals, announced that it would already begin safety testing a potential coronavirus vaccine, which it had begun working on in January. Today, Inovio is a penny stock. The G20 was due to meet that week to address the over supply of oil, REI, Ralph Lauren, and Abercrombie & Fitch announced plans to furlough many of its employees, and manufacturers like Fiat-Chrysler, BMW, Boeing and Airbus all announced plans to keep factories closed down. It really did not take much hope or substantial news to trigger the uptrend.

4/8 closed with the SPY sitting up 23% from its March low. Continued hope that the pandemic had reached its peak saw markets soar, with a slow down in hospitalizations in New York, China lifted the lockdown in Wuhan (genesis point of the virus), and in Europe, Austria, Denmark, Czech Republic, were already planning on loosening lockdown measures. Sweden, for example, never instituted a lockdown at all. The virus slowdown data was extremely fresh, but investors, the article claims, had serious FOMO on getting in on bargain prices, and were worried that if they waited for the coast to clear, most of the gains would have been lost by then. It also mentions that it was mostly funds and institutions that were buying in at this stage. The backdrop remained dismal, France and Germany were approaching WW2 level drawdowns in productivity, more furloughs across many corporations, but stock prices were truly attractive at this level. 4/14 was largely brought up thanks to better-than-expected trade data from China, suggesting that its economy had begun to bounce back, a process that would be sped up by China’s loosening lockdown procedures. Both JP Morgan and Wells Fargo posted large earnings misses, with the latter’s profits plummeting 89%. Earnings season was just about to set in, but losses were seemingly already “priced in” if things went poorly. Another good day on 4/17. The National Health Institute reported that Gilead Sciences’ remdesivir began showing promising results in treating monkeys for COVID, though the company claimed it does not yet have the capability to measure the drugs safety. Trump held a press conference announcing a three phase plan in reopening the country and returning to normalcy. The WTI collapsed down to $18.27. It would seem that Trump’s announcement played the largest role in the rise. Interestingly, the NYT article claims that coronavirus was the catalyst for the crash in markets, but not the cause, suggesting instead that sky high valuations had caused Wall Street to become complacent.

4/21 curbed a mostly bullish three week long expansion, largely attributed to the collapse of WTI down to a staggering $11.69 a barrel. Despite a significant slash in production, there was still an oversupply and storage facilities for oil were running out of room. Refineries were unwilling to take any product due to a collapse of the transportation industry and companies were even taking a loss just to get rid of it. The sell off that day was accelerated by a refusal of the Texas Railroad Commission to force oil producers to cut production. Not every oil producer suffered that day, as Trump vowed to formulate a plan to keep the energy sector going, though Trump did pressure Chevron out of Venezuela, in a scheme to sanction Maduro’s regime. Combined with the now 20 million laid off Americans, the new lows for oil threw a wrench into the notion of a speedy economic recovery. Snapchat, IBM, Coca-Cola, Huawei, and Darden Restaurants all posted dismal earnings reports, the only exception being Netflix, which gained 15.7 million new customers, twice the 7 million it had expected before the pandemic. 4/22 saw oil prices roar back, and again, a rush that seems to have coincided with a Trump Twitter post: "I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea." a response to the “dangerous and harassing approaches” of the Iranian Navy in the week before. WTI closed 19% that day alone, after peaking 32% earlier in the day. The Senate also approved another coronavirus aid package, this time totalling nearly half a trillion dollars.

Finally, 4/29 marked the end of the most serious COVID V-shaped recovery insanity. Jerome Powell promised to continue using the Fed to assist the economy, as well as keeping interest rates near zero for the foreseeable future. Gilead’s remdesivir was up on news of an imminent FDA approval for the drug. As a quick aside, the speed at which America’s medical complex moved to create vaccines for the virus was a serious contributor to market recovery. Earnings that day were mostly down, with Google winning big thanks to increased digital traffic, but Boeing and Starbucks missed big. Uber’s CTO stepped down following a 20% workforce cut and Hertz began preparing for a possible bankruptcy filing. WTI surged another 22% following an inventory report by the EIA that stockpiles had grown by about a million less barrels than expected.