Thursday, March 12, 2020
This morning, following an eventful Wednesday on the coronavirus front — when the World Health Organization (WHO) declared COVID-19 officially a global pandemic and the NBA has cancelled its scheduled basketball games for the foreseeable future, along with another 5% drop on major U.S. stock market indexes — the bear market persists. Currently, with acknowledgements of the coronavirus spreading at last part of the national dialog, health officials now stress social distancing in order to not overwhelm our healthcare capabilities.
Currently, the Dow, Nasdaq and S&P 500 are all down an additional 5% in today’s pre-market — down 1200, 400 and 140 points, respectively. This has placed the Dow in “bear-market territory” (down 20% from its recent peak) for the first time since the bull market run began 11 years ago, with the Nasdaq and S&P 500 closing in. Actually, trading looks to have been halted a half hour prior to the opening bell.
Are we seeing the coronavirus showing up in any of our morning economic data? Not so far. Initial Jobless Claims stayed within long-term trends last week — they even fell by 4000 from the previous week — to 211K. Continuing Claims (from two weeks ago) ratcheted down to 1.722 million on the week. These are not only consistent with figures we’ve seen recently, they are historically strong, indicative of one of the most prolonged U.S. labor market bull runs in this country’s history.
February’s Producer Price Index (PPI), however, dropped a half-point from expectations this morning to -0.6%, more than a 1% swing from the previous month’s +0.5%. Stripping out volatile food and energy costs (“core”), the numbers are down but not as severely: -0.3%, down from the +0.1% analysts were looking for. Year-over-year, the +1.4% figure is also down 30 basis points. Still, with what we’re currently facing in terms of the coronavirus’ impact in industries across a wide economic spectrum, we can expect more reads like this to come.
Yesterday’s Consumer Price Index (CPI) for February, on the other hand, actually came in slightly better than expected — the sort of data we’d grown accustomed to receiving over the course of our long bull market. Though as CPI develops less rapidly than PPI data, in general, it’s not much of a surprise to see we are at the cusp of information registering the various impacts of the coronavirus pandemic.
All this said, analysts do not expect markets to go to zero. We continue to recommend cool heads prevailing and plenty of patience while officials sift through our current situation to work through this crisis. These sorts of things do happen; we’d merely gotten used to things staying stronger for longer, and are thus undergoing a new reckoning in our market expectations. Hopefully, with diligence and proper focus, we can put this behind us sooner rather than later.
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