Market Review: March 09, 2020

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Closing Recap      

Monday, March 09, 2020





DJ Industrials




S&P 500








Russell 2000





Equity Market Recap

·     U.S. stocks, oil prices, the U.S. dollar and Treasury yields all plunged on Monday, as investors were blindsided by an aggressive move by Saudi Arabia over the weekend to open its spigots and drive the price of oil lower in response to Russia’s refusal last week at the OPEC+ meeting to cut its output in a coordinated effort my members to help falling prices. The oil plunge (fell as much as 34% for its biggest one day decline since 1991) added to already sensitive markets dealing with coronavirus global fears as cases and deaths rose again over the weekend, increasing concern that global economies will continue to suffer by shutting events, reduce travel, and hurt production of goods to deal with the spreading of the virus. Stocks opened the day lower with a trading halt, as major averages paused for 15-minutes after major averages dropped as much as 7%, bounced briefly midday only to slide to new lows late day with all major averages plunging over 8%. Europe’s Stoxx 600 index fell 7.4% (most since October 2008), while Germany’s DAX declined -7.4%, UK’s FTSE 100 fell -7.3%, France’s CAC 40 was down -7.9%, and Spain’s IBEX was down -8.1%. The 10-year Treasury yield was down 25 basis points to 0.50% as yields tumbled with the 30-year sector trading below 1% for the first time and all-time lows from the 2-year to the 30-year. There was no safe haven on the day other than bonds as gold posted only modest gains and natural gas edged higher with expected reduced shale drilling.

·     Sector impact; the oil plunge added a new twist that is crushing major oil companies (raising fears of halted production, bankruptcies and defaults), while transports which tend to benefit from lower oil dropped sharply anyway as the industry continues to deal with the slowing travel demand due to the virus. Banking stocks were slammed on declining Treasury yields (hitting lending margins as well as fears of exposure to energy loan defaults). Leisure and hospitality names an ongoing laggard in anticipation of reduced attendance at events. Industrials, metals and chemicals also down with broader commodity weakness while even interest rate sensitive sectors such as utilities, staples and REITs failed to rally. Goldman Sachs Group economists now expect the Fed to slash its benchmark interest rate by another 50 basis points when its policy-setting arm meets on March 17-18 and again at their April 28-29 meeting, according to a report by Goldman chief economist,. With the federal funds rate target currently at 1.0%-1.25%, the cuts anticipated by Goldman would bring the range down to 0%-0.25%, a range last seen in 2016.



·     Oil prices were pummeled on the session, as WTI crude prices fell as low as $27.34 per barrel, down as much as 34% before settling at $31.13, falling $10.15 or 24.6% for its biggest one-day decline since the Gulf War of 1991 given the Saudi price war started this weekend targeting Russia, while gold prices edge higher. Gold prices end marginally higher, rising $2.20 or 0.2% to settle at $1,675.70 an ounce, getting a bounce on a weaker dollar, expectations for additional FOMC interest rate/stimulus intervention and a rotation into defensive assets.



·     The U.S. dollar dropped sharply against the safe haven Japanese yen, down over 300 bps to 102.10 (down 3% – but off overnight lows of 101.19), to its lowest levels since November of 2016, while the euro jumps 1.6% to move above as high as 1.15 vs. the dollar for its best levels since January of last year. The dollar losses were pared after gaining vs. emerging market currencies (CAD, RUB) especially given the impact on those economies from plunging oil prices today.


Bond Market

·     Treasury market rise as yields plunge to historical lows with the 10-year yield falling to lows of 0.3137%, 2-year yield fell as much as 26 bps to record low of 0.245% before paring losses and the 30-year yield plunging to record lows just below 0.7% before paring losses back to around 1% (which was still down roughly 30 bps) as investors fled to safety on bonds. The German 2-year gov’t bond yield falls to record low at -0.968% as yields overseas also feeling the effects. The yield destruction has crushed interest rate sensitive sectors such as banks over the last few weeks with the benchmark 10-year falling over 100 bps in just about 3-weeks.






WTI Crude















10-Year Note





Sector News Breakdown


·     Consumer Staples; CLX upgraded to buy at Argus as expect sales of Clorox products to benefit from the coronavirus outbreak, and note that the company is adding to its inventory of disinfectants in response to the virus; BF was downgraded to underweight at Morgan Stanley saying the stock’s valuation, higher than LT averages, does not seem to reflect a topline deceleration (both in an absolute sense and vs. spirits/consumer peers), as well as deteriorating margin quality; even food related stocks declined (CAG, THS, CPB) along with beverages related names (KO, MNST, PEP), and clubs (BJ, COST) despite fears on consumers stocking up as more coronavirus cases pop up around the country as testing increases

·     Restaurants; sector extends recent declines after coronavirus cases crop up in new parts of the U.S. and public health officials warn on public gatherings for people in the high-risk categories. There has been growing anxiety on the U.S. economy in general, especially in regions dependent on the oil market, but big losses again in casual dining names (EAT, DRI, CAKE, PLAY, CMG, TXRH, BLMN, CBRL, NDLS, LOCO and China exposed names SBUX, LK as well)

·     Casino & Leisure movers; Cruise line stocks continue their downward spiral (CCL, RCL, NCLH) as the misadventures of the Grand Princess cruise ship off the coast of California show 2,421 Grand Princess passengers will still have to take another two or three days to be routed to their destination in a secure fashion, highlighting the risk of taking a cruise right now. Meanwhile, the U.S. State Department had advised citizens not to travel by cruise ship if they have an underlying health condition; casino related stocks (LVS, WYNN, MGM, MLCO) as well as theme parks (DIS, SIX, SEAS, FUN) and other leisure elated names (AMC, MTN, LYV) remain pressured on virus demand impact with more cases this weekend; in towables, THO shares dropped on mixed Q2 results as EPS missed while revenue topped estimates



·     Energy stocks witnessing destruction beyond market comprehension, already dealing with fears of sharply reduced global demand due to the coronavirus impact on businesses and travel over the last few weeks…the energy sector slammed today amid a price war between Russia and Saudi Arabia after the Middle East oil producing giant Saudi Aramco significantly discounted barrels with plans to ramp production next month after the expiry of the current OPEC+. The move was a response to Russia who Friday balked not only on increasing oil supply cuts but even extending existing oil cuts that end in three weeks. Some of the largest oil companies (XOM, CVX, BP, PBR, COP, OXY, TOT, MRO, RDSA) service names (SLB, HAL, BKR), drillers (NE, RIG, DO), refiners (VLO, DK, PSX, HFC, MPC), and E&P names (FANG, APA, PXD, MUR, NBL, CXO, HES) plunged – fears of more defaults and bankruptcies likely to pressure many small and midcap tier names as well as the possibility of companies needing to cut their dividends to preserve cash!

·     Analyst downgrades plentiful given the uncertainty surrounding oil prices as Piper downgraded BRY, CPE, MGY, PE, QEP and WPX to neutral; RDSA, E, TOT, REPYY among European oil names downgraded to market perform at Bernstein citing too many unknowns around global economic growth, oil demand growth, the shape of the shale curve, and now OPEC/Russia supply intentions, this is unchartered waters at least for the short term; COG was upgraded to neutral at Bank America citing a real risk that slowing U.S. drilling activity puts a floor under nat gas prices – notes Cabot is 99% gas-exposed and boasts one of the lowest operating costs in the sector; several other sell-side firms cut ratings on E&P and MLP names

·     Stock news; FANG shares cut in half early after saying to cut drilling activity immediately to six completion crews from nine; expects to drop two rigs in April and a third in Q2 2020; says as a result, it will reduce its capital budget for the year; expects lower activity levels to continue; PE unveiled plans to cut full-year development activity, as it revises its baseline capital budget assumption from a $50/bbl WTI oil price to a $30-$35 for the remainder of 2020 (previously had indicated it expected to generate at least $200M of free cash flow for FY 2020 at a $50 WTI oil price, but it now targets at least $85M in free cash flow)

·     Utilities & Solar; Utilities also under major pressure this morning despite dividend paying stocks seen as safe places to put money in broader stocks market downturn; group has held up well with Treasury yields tumbling but sector was also lower despite the 10-year yield hitting lows of 0.31% earlier – CNP, DTE, AES, FE, EXC were among the hardest hit names early



·     Bank movers; recent stock market destruction amid economic impact fears from the coronavirus on businesses took another turn lower today given the devastation in oil markets following the price war between Russia Saudi Arabia has pushed Treasury yields to unprecedented low levels, weighing heavily on financial institutions that will be affected due to their now sharply reduced lending margins, as well as reduced assets due to stock market destruction; shares of big banks, European banks, regional banks, brokers absolutely crushed on the day. Other factors that are weighing on banks, fears of loans potentially not being able to get paid back by energy companies given the destruction in the oil markets. The KBW Bank Index closed down 4.5% on Friday at the lowest since December 2018 and is down 26% so far this year; regional banks with high exposure to Texas include ZION, TCBI, CMA, RF, KEY, CFR, BOKF, PB among some

·     High yield concerns; Energy-related companies make up about 10% of the high-yield universe, so the 25% plunge in oil prices and related crash in the equity of energy companies is creating a blowout in high-yield spreads. Even with a historic decline in benchmark interest rates today, the iShares High Yield Corporate Bond ETF (HYG) and the SPDR High Yield ETF (JNK) declined. High-yield proxies in the BDC area (PSEC, ARCC, MAIN, AINV)

·     Insurance; AON and WLTW announced a definitive agreement to combine in an all-stock transaction with an implied combined equity value of approximately $80 billion



·     Pharma & Biotech movers; stocks of companies developing treatments, vaccines and diagnostic tools for coronavirus rise (NVAX, ALT, CODX, VIR) in contrast to world markets that plunged on crude oil crash and coronavirus fears; INO shares another vaccine maker that traded higher initially, but declined late morning after a cautious comment from Citron Research; BMY reported primary results of ELOQUENT-1 study evaluating Empliciti plus Revlimid and dexamethasone in patients with newly diagnosed, untreated multiple myeloma saying the Phase III trial did not meet primary endpoint of progression-free survival; KALA rises after Stride 3 met both prespecified primary efficacy endpoints


Industrials & Materials

·     Transports; the industry can’t gain any traction, failing to rally today at all despite a plunge in oil prices that could be perceived as positive for airlines and truckers, but the ongoing fears of the impact from the virus on travel, package delivery has taken its toll with the Dow Transports falling over 6% (touched lows below 8,300, its lowest levels since November 2016 – the election); airlines were down the least in the group (though have fallen the most of late on virus scare)

·     Metals & Materials; chemical names were among the hardest hit sectors (DOW was the top decliner most of the day in the Dow Jones Industrials), along with broader chemical weakness (MEOH, LYB, WLK, CE) with the companies likely to face revenue and earnings pressure as falling oil prices reduce those for methanol. Methanol-to-plastics production will decline as cheap oil reduces costs at traditional plastics producers, increasing their competitiveness. KeyBanc noted the meltdown in crude prices does not bode well for metals equities given historical correlations across the group, though may ultimately present an opportunistic entry point in defensive names (e.g., CMC, NUE, RS, STLD, WOR); no place to hide in this group today


Technology, Media & Telecom

·     Internet; TWTR announced that Silver Lake, a global leader in technology investing, will make a $1 billion investment in the company; GRUB was upgraded at Oppenheimer to outperform as believe the impact from coronavirus will provide a net tailwind; online travel names (BKNG, EXPE, TRIP), once again pressured on reduced travel fears from the coronavirus

·     Tech in general; individual stocks news was quiet outside of the well-known impact to production for several semiconductor chip companies over the last week and loss of revenue due to the coronavirus


Market commentary provided by Catena Media Financials US, LLC, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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