“Indiscriminate FEAR = Indiscriminate SELLING” – Vista Partners’ Weekly Market Wrap – Feb. 28, 2020

The perfect storm this week came in the form of indiscriminate fear which produced indiscriminate selling in the broad markets over the course of the last 7 trading days resulting in the largest weekly drop in a decade.  The growing, but not well-understood, coronavirus situation & associated belief in a weakening global growth story were married with a flight to safety. US treasuries were snatched up and yields plummetted adding fuel to the fire.  In fact, on Friday, the 2-yr Treasury yield amazingly dropped another 22 basis points to end at .88%, the 10-yr yield dropped another 17 basis points to end at 1.13%, & the 30-yr yield did its part and dropped 11 basis points to end at 1.67%. I would suggest that it is a pretty attractive time to be looking at refinancing your mortgage folks if you already have not done so.

Also this week, we digested warnings of supply issues due to the coronavirus from key components of the indices i.e. Apple, Microsoft, etc. as well as the malicious force of mainstream media i.e. CNBC, which seemed to also do its part to increase the doubt, fear & selling through the week. The FAANG stocks closed down overall this week, but showed some life on Friday as follows: Facebook (FB) $192.47/share, +1.43% ($210.18/share a week ago), Amazon (AMZN) $1,883.75/share, -.03% ($2,095.97/share a week ago), Apple, Inc. (AAPL) closed at $273.36/share, -.06% ($313.05/share a week ago), Netflix (NFLX) $369.03/share, -.72%, ($380.07/share a week ago) & Alphabet (GOOG) $1,339.33/share, +1.61%, ($1485.11/share a week ago.) The U.S. Dollar Index also weakened by -.39% today to end the week at 98.13.  Oil prices dropped -15.6% this week and are down -26.2% YTD as it closed at $45.06/bbl. Gold prices closed at $1,587.30/0z. down from $1,645.90/oz & silver closed higher at $16.68/oz down from $18.46/oz last Friday. 

However, on Friday, Jerome Powell stepped up and said he and the Fed would use their “tools” to maintain US growth and the markets steadied as it triggered a bit of confidence and a bit more buying came back in. 

In contrast to the picture of fear that was painted this week, we continued to see somewhat positive economic reports surface throughout the week. On Tuesday, we received the Conference Board’s Consumer Confidence Index which moved up to 130.7 in February The S&P Case-Shiller Home Price Index moved up by +2.9% in December. The FHFA Housing Price Index moved up by +.6% in December. On Wednesday, the New home sales report rose +7.9% month/month in January to a seasonally adjusted annual rate of 764k units. New home sales on a y-o-y basis are up +18.6%. The weekly MBA Mortgage Applications Index report confirmed move higher by +1.5%. On Thursday, we received the January durable goods orders report showed a drop of -.2% and when you exclude transportation, the durable goods orders moved up by +.9%. The Initial claims report for the week ending February 22 confirmed an increase of 8k to 219k while continuing claims for the week ending February 15 showed a decline of 9k to 1.724M still at a historically low level. The second estimate for Q4 GDP stayed at 2.1% & the GDP Price Deflator was revised down to 1.3%. The Pending Home Sales report confirmed a nice increase of +5.2% in January. On Friday, the Personal income report in January increased +0.6% while personal spending was up +.2%. The PCE Price Index was up +.1% on a year/year basis it was up +1.7% while the core PCE Price Index was up +1.6%. The University of Michigan Index of Consumer Sentiment for February was moved up to 101. The Chicago PMI climbed to 49 in February. The advance goods trade deficit was $65.5B in January. The Advance retail inventories rose +.3%. Advance wholesale inventories did down -.2% in January.

After everything was sold and done,  the Dow ended the week at 25,409.36, down -12.4% and is now down -11% YTD. The S&P 500 ended the week at 2,954.22, representing a -11.5% weekly loss and is now down -8.6% YTD. The Nasdaq Composite closed at 8,567.37 on Friday, representing a weekly -10.5% downward move and is down -4.5% YTD. The Russell 2000 moved lower closing at 1,476.43 representing a weekly -12% drop and is now down -11.5% YTD. The Velocity Shares Daily 2x VIX Short-Term ETN (TVIX) a leveraged bet against the market was a big winner this week as ended at $104.5/share up +7.68% today (after hitting $123.89 in intraday trading) & up from $46.80/share last Friday’s close.

With all that happened this week, I believe that the volatility will continue to increase but that we might also see a sharp “V” form in the market when we look back at this period sometime soon. Also, as we have seen the market selloff sharply recently, not that we cannot see more downward pressure, we also could see it aggressively regain its value once the bottom is established. I also see that the same tech components that are overweighted and over-owned in the indices (The FAANGS, etc.) that drove the bull market to new levels will regain momentum and pull the markets back. One way or another it is time to buckle up a little tighter. 

Investing & Inspiration

“If all the economists were laid end to end, they’d never reach a conclusion.
-George Bernard Shaw

“The riskiest thing we can do is just maintain the status quo. I get up at 4:30 in the morning, seven days a week, no matter where I am in the world. I think it is important for people who are given leadership roles to assume that role immediately. What I’ve really learned over time is that optimism is a very, very important part of leadership.” – Bob Iger, Former Ceo of Disney

“In the short run, the market is a voting machine. But in the long run, it is a weighing machine.” – Ben Graham

“In investing, what is comfortable is rarely profitable.” -Robert Arnott

“The fundamental law of investing is the uncertainty of the future.” -Peter Bernstein

“How many millionaires do you know who have become wealthy by investing in savings accounts?” -Robert G Allen

“Greed is all right, by the way. I think greed is healthy. You can be greedy and still feel good about yourself.”-Ivan Boesky

“Michael Marcus taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money.” -Bruce Kovner

“The policy of being too cautious is the greatest risk of all.” -Jawaharlal Nehru

“I talk about macro themes a lot because they are fun to talk about, but it is the risk management that is the most important thing. The risk control is all bottom-up. I structured the business right from the get-go so that we would have lots of diversification.” -Michael Platt

“Blaming speculators as a response to financial crisis goes back at least to the Greeks. It’s almost always the wrong response.” -Larry Summers

Tomorrow

We have a full week of trading next week and are due to receive the following significant economic data:

• The ISM manufacturing index on Monday
• The non-manufacturing index on Wednesday
• The February jobs report on Friday.