Market Insights 3/5/2020

After posting strong gains yesterday, the major indexes suffered a major reversal in today’s action, all falling more than 3%.

Uneasiness was exacerbated by rising cases in the U.S., with California declaring a state of emergency and a Carnival Corporation cruise ship linked to COVID-19 being held off the coast of San Francisco for testing. Worldwide the number of cases is rapidly approaching 100,000. Global central banks have responded with monetary policy measures, including this week’s surprising 50 basis point rate cut by the Fed.

The IMF has set aside $50B to combat the virus. Italy has reportedly been preparing a 7.5 billion euro response package.

Treasury yields continued to fall to new record lows and the U.S. dollar fell with rates in today’s action.

Europe saw widespread losses, while Asian markets avoided the selling pressure.

The Markets…

The Dow Jones Industrial Average was down 970 points (3.6%) to 26,121

The S&P 500 lost 106 points (3.4%) to 3,024

The NASDAQ was down 279 points (3.1%) to 8,739

In heavy volume, 1.4 billion shares were traded on the NYSE and 3.7 billion shares changed hands on the NASDAQ

WTI oil lost$0.88 to $45.90 per barrel and wholesale gasoline dropped $0.03 to $1.52 per gallon

The Bloomberg gold spot price was up $25.00 to $1,668.00 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—dropped 0.7% to 96.62

Jobless claims slightly above forecasts, Q4 productivity revised lower

Weekly initial jobless claims dipped by 3,000 to 216,000, modestly above the Bloomberg estimate of 215,000, with the prior week’s figure being unrevised at 219,000. The four-week moving average increased by 3,250 to 213,000, while continuing claims grew by 7,000 to 1,729,000, south of estimates of 1,738,000.

Final Q4 non-farm productivity was revised lower to a 1.2% rise on an annualized quarter-over-quarter basis, from the preliminary estimate of a 1.4% gain, and versus expectations of a slight upward revision to 1.3%. Q3 productivity was revised lower to a 0.3% dip. Labor productivity, or output per hour, is calculated by dividing real output by hours worked by all persons, including employees, proprietors, and unpaid family workers, and is a major contributor to the economy’s long-term health and prosperity.

Treasuries set a new round of records on the long end of the curve, with the yield on the 10-year note dropping 14 basis points (bps) to 0.91%, and the 30-year bond rate tumbling 16 bps to 1.54%. The short end of the curve rallied as well with the yield on the 2-year note falling 11 bps to 0.58%. Bond yields continue to post record lows as the coronavirus concerns foster a decisive flight to safety and as the global markets grapple with the outbreak and central bank stimulus measures that included this week’s surprising 50 bp rate cut from the Fed due to the coronavirus posing “evolving risks to economic activity,” ahead of its scheduled meeting later this month.

Factory orders declined 0.5% month-over-month in January, versus expectations of a 0.1% dip, and compared to December’s upwardly-revised 1.9% gain. Stripping out the volatile transportation component, orders nudged 0.1% lower, compared to December’s unadjusted 0.6% increase.

Europe joins the U.S. in selling off, Asian markets escaped with gains

Asian markets closed before being affected by the selling pressure, but European equities posted widespread losses. The global markets grappled with the spreading coronavirus and the ensuing responses from central banks and the International Monetary Fund (IMF), which led to a persistent drop in U.S. bond yields to record lows. Travel and leisure issues continued to drop and the energy sector fell amid the virus concerns and in the wake of the recent plunge in oil prices, which overshadowed rising expectations that OPEC and other countries will agree to cut production. The euro, British pound and Japanese yen rose versus the U.S. dollar.

The U.K. FTSE 100 Index was down 1.6%, France’s CAC-40 Index fell 1.9%, Germany’s DAX Index decreased 1.5%, Switzerland’s Swiss Market Index traded 1.1% lower, Italy’s FTSE MIB Index declined 1.8%, and Spain’s IBEX 35 Index fell 2.6%.

Japan’s Nikkei 225 Index rose 1.1%. Australia’s S&P/ASX 200 Index also advanced 1.1%. China’s Shanghai Composite Index jumped 2.0% and the Hong Kong Hang Seng Index rallied 2.1%. South Korea’s Kospi Index gained 1.3% and India’s S&P BSE Sensex 30 Index increased 0.2%.