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Not a good day for the stock market!

June 11, 2020

Not a good day for the stock market. The Dow Jones Industrial Average plunged more than 1,800 points today and was on pace for its worst day since the March sell-off as coronavirus cases increased in some states that are reopening up from lockdowns. Shares that have surged recently on hopes for a smooth reopening of the economy led the declines.

The 30-stock Dow traded 1,814 points lower, or 6.7%. The S&P 500 slid 5.7% while the Nasdaq Composite dropped 5.2%. Today’s losses also put the Dow on pace for its first three-day losing streak in a month. 

If you look at the past 30 days, the Dow was 24,221, and yesterday it was at 27572 and dropped today to 25128 which is still above the 30-day numbers. Still, it was a very impressive downturn. 

You’re seeing the psychology in the market get retested today because of the uptick in COVID cases and the continued riots in many cities. I think a lot of this has to do with how fast this market moved off the lows.

Traders dumped airlines, cruise operators and retailers after piling into those names over the past month amid expectations of a swift economic recovery. Shares of United Airlines, Delta, American and Southwest all dropped more than 9%. Carnival Corp. and Norwegian Cruise Line shares fell more than 14%. Gap and Kohl’s shares traded lower by 9% and 10%, respectively.

Instead, Wall Street fled back into stocks that have benefited from consumers staying at home during the pandemic. Netflix and Zoom Video, for example, rose 0.4% and 2.1%, respectively.

Friendly monetary policy from the Federal Reserve cannot “offset a severe COVID second wave,” “With TX, AZ, CA new cases and hospitalizations increasing and investors concerned that recent protest will fuel a wave of infections, the risk of persistently weak economic and earnings growth has increased. S&P fair value estimates are falling as a result.”

Overall coronavirus cases in the U.S. topped 2 million, according to the latest figures from Johns Hopkins University.

The downdraft followed two straight days of losses for the 30-stock Dow and S&P 500 as investors ditched reopening trades for the megacap tech names. The tech-heavy Nasdaq, however, jumped to a record high on Wednesday and closed above 10,000 for the first time.

Both the S&P 500 and the Dow are still up more than 40% from the coronavirus low.. Now investors are rotating back into those tech names and taking profits in the rest of the market.

Traders also sold oil futures contracts amid worries the global economic reopening will get sidetracked. In turn, traditionally safer assets such as bonds and gold rose. The 10-year Treasury note yield dropped to 0.67% and hit its lowest level in more than a week (yields move inversely to prices). Gold futures jumped 1.5% to $1,746.50 per ounce.

Today’s moves also followed the Federal Reserve warning on Wednesday the U.S. economy will contract by 6.5% in 2020 before expanding by 5% next year. The central bank also said it will keep rates at current low levels through 2022. Which I think is a ridiculous prediction given their propensity to change their mind. 

Bottom line is that this was bound to happen after the dramatic run-up over the past two months. I suspect for the next few weeks we will see volatility until we see positive economic numbers and a stabilizing of the riots in the streets, which we will fairly soon. This is not a time to panic or sell. It is a time to get in if you have waited on the sidelines for a better time to get in. 

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