Market Update- March 16, 2020
The Week on Wall Street
Markets remained exceptionally volatile, buffeted by the spreading impact of coronavirus, uncertain responses from federal policymakers, and the sudden drop in oil prices.
The Dow Jones Industrial Average fell 10.36%, while the S&P 500 declined 8.79%. The Nasdaq Composite index slid 8.18% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, dropped 17.75%.[i],[ii]
Markets Grapple with Uncertainty
A dispute between Saudi Arabia and Russia over oil production cuts, mounting fears of the coronavirus, the declaration of the COVID-19 as a global pandemic by the World Health Organization, and the news of a travel ban from Europe unsettled markets throughout the week.
Stock trading was halted twice by circuit breakers, which are designed to briefly stop trading when losses in the S&P 500 reach 7%. Stocks sold off sharply Thursday before ending a tumultuous week with a strong rebound on Friday.[iii]
Troubles in the Oil Patch
The failure of Russia to join Saudi Arabia in supporting lower oil production targets left Saudi Arabia fuming. In response, Saudi Arabia announced its intention to raise oil output.
Oil prices plummeted on the news, contributing to the stock market’s drop on Monday. While lower oil prices may represent a boon to consumers in the form of lower gasoline prices and relief to companies with high energy consumption (e.g., airlines, chemical), they also pose a risk to the American energy industry. If low oil prices persist, it may lead to lower capital expenditures and potential issues in the credit markets, as less-well-capitalized companies struggle to manage their debt obligations.[iv]
Final Thought
The world’s central bankers have already taken several steps to combat the economic impact of the coronavirus, including lowering short-term interest rates. The financial markets are now looking for a response from the U.S. government. In evaluating any actions from the federal government, investors may focus on the size and timing of policy proposals to determine if they can reduce current levels of economic uncertainty.
THE WEEK AHEAD: KEY ECONOMIC DATA
Tuesday: Retail Sales, JOLTS Report (Job Openings and Labor Turnover Survey), Industrial Production
Wednesday: Housing Starts, FOMC (Federal Open Market Committee) Announcement
Thursday: Leading Economic Indicators
Friday: Existing Home Sales
THE WEEK AHEAD: COMPANIES REPORTING EARNINGS
Monday: Coupa Software (Coup)
Tuesday: FedEx Corp. (FDX), MongoDB (MDB)
Wednesday: General Mills (GIS), Ctrip.com (TCOM)
Thursday: Tencent Holdings (TCEHY), Lennar (LEN)
Friday: Tiffany & Co. (TIF), BMW (BAMXF)
[i] https://www.wsj.com/market-data
[ii] https://quotes.wsj.com/index/XX/990300/historical-prices
[iii] https://www.cnbc.com/2020/03/12/stock-futures-hit-a-limit-down-trading-halt-for-a-second-time-this-week-heres-what-that-means.html
[iv] https://www.cnbc.com/2020/03/09/cramer-9-or-10-oil-companies-may-go-bankrupt-amid-crude-declines.html