Monday, March 9, 2020

Market update: Dow plunges more than 2,000, oil tanks 20% (9 March 2020)

The S&P 500 dropped 7.6%, oil prices tanked 25%, and Treasury yields continued to fall to unprecedented levels on Monday after Saudi Arabia initiated a price war and coronavirus cases accelerated.  The number of reported coronavirus cases in the U.S. climbed past 500 over the weekend, while Italy placed several northern cities on lockdown on Sunday, essentially quarantining more than 15 million people.
Saudi Arabia lowered its oil price for April delivery by $6-$8/bbl and signaled production boosts for an oversupplied market after Russia failed to agree to production cuts last Friday. WTI crude settled the session down 24.8%, or $10.23, to $31.09/bbl for its worst decline since 1991, which took a heavy toll on the S&P 500 energy sector (-20.1%).
  • The Dow sank over 2,000 points Monday and oil had its worst drop since 1991. 
  • Stock trading halted for 15 minutes after S&P 500 falls 7%.  Just minutes after the stock market opened, the S&P 500 fell 7% from its previous close—triggering a circuit breaker that halted trading across the entire stock market for 15 minutes.  Trading resumed at 9:49 a.m. ET

The oil shock exacerbated recessionary concerns already fueled by the rapid spread of the coronavirus, as speculation arose about potential layoffs and defaults within the highly-leveraged energy space. The other ten S&P 500 sectors posted losses between 4.4% (consumer staples) and 10.9% (financials).

The financials space remained pressured by the sharp decline in Treasury yields, as investors continued to seek safety in bonds. The 2-yr yield fell 18 basis points to 0.32%, and the 10-yr yield fell 21 basis points to 0.50% after touching 0.34% at its low. The U.S. Dollar Index dropped 1.0% to 95.02.

Stocks were halted from trading for 15 minutes in the opening minutes of action after the S&P 500's 7.0% decline triggered a circuit breaker. At that point, the S&P 500 was down 18.5% from its all-time high and later it nearly entered bear market territory, which is typically defined as a loss of at least 20% from a recent high.

Nasdaq Composite -11.4% YTD
S&P 500 -15.0% YTD
Dow Jones Industrial Average -16.4% YTD
Russell 2000 -21.3% YTD


Oil's plunge and the corresponding dive in the energy sector comes after Friday's news of OPEC's inability to agree to a production cut was followed by Saudi Arabia's decision to slash export prices for April while boosting production. It is expected that Russia will try to undercut the Saudi price with Goldman Sachs projecting that the price of Brent crude could fall to $20/bbl. This comes at a time when demand for oil was already expected to drop due to the impact of the coronavirus.

Notable movers:
  • Diamondback Energy (FANG 24.35, -24.21, -49.7%): falling to levels not seen since early 2013.
  • Apache (APA 12.06, -8.64, -41.7%): falling to its lowest level since 1999.
  • Marathon Oil (MRO 4.08, -2.75, -40.2%): falling to its lowest level on record.
  • Cimarex (XEC 15.10, -9.29, -38.1%): falling to its lowest level since 2009.
  • Noble Energy (NBL 9.02, -4.30, -32.2%): falling to its lowest level since 2003.
  • Pioneer Resources (PXD 70.01, -35.11, -33.4%): falling to its lowest level since 2011.
  • Valero (VLO 62.42, -0.67, -1.1%) refiner, outperforming due to lower input costs.
  • Cabot Oil & Gas (COG 18.40, +2.03, +12.5%): natural gas producer, rising to its 200-day moving average (18.43).

---Foreign Equity Markets---
  • Japan's Nikkei: -5.4%
  • Hong Kong's Hang Seng: -4.2%
  • China's Shanghai Composite: -3.0%
  • India's Sensex: -5.2%
  • South Korea's Kospi: -4.2%
  • Australia's ASX All Ordinaries: -7.4%
  • STOXX Europe 600: -6.8%
  • Germany's DAX: -7.4%
  • U.K.'s FTSE 100: -7.1%
  • France's CAC 40: -7.6%
  • Italy's FTSE MIB: -10.7%
  • Spain's IBEX 35: -7.7%

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