It’s often been said that history is written by the winners. Yesterday afternoon, our fearless leader, in response to a question about how he would rate his reaction to this coronavirus epidemic responded that he’d give himself a 10 out of 10! Talk about rewriting history! Not surprisingly, his words and actions run contrary to his own grade, as the Trump administration continues their quest to rewrite history of just two weeks ago, as yesterday he claimed that he always knew the coronavirus would be a pandemic.
The markets found his self-serving remarks offensive and punished him with an immediate 1,200-point loss on the opening this morning. The weakness was everywhere, and it was severe, as the market gave back all of yesterday’s gains and then some. After the weak opening, the market tried to rally, but fell to the downside as the dark forces took over once again until, at a bit past 2:30 p.m. the Dow breached the 19,000 level to hit its low of 18,917.46, which represented a loss of over 2,300 points. Going into the last 90 minutes of trading, the Dow made a sharp comeback, gaining over 900 points from its intraday low, but still closed down 1,338.46 points, or 6.3% for the day, at 19,898.92. The Dow closed below the psychologically important 20,000 level, but maybe more importantly, its breach of the 19,000-level showed that big, round numbers mean nothing at this point, certainly not a level of resistance that investors can count on.
Bill Ackman, who runs Pershing Square Capital, a giant hedge fund, and the $11 billion it invests for clients, told the President that he thought the United States should be “…shut down for the next month to save lives as the coronavirus spreads.” Deutsche Bank, the President’s favorite personal lending institution, called for the U.S. GDP to drop (they used the word “crash”) 13% on an annualized basis in the second quarter, which has yet to begin. To put that into perspective, Deutsche Bank notes “the rate of decline would be more than one and a half times the sharpest contraction during the 2008-2009” Great Recession, when an 8.4% annualized drop in the fourth quarter of 2008 was the largest economic contraction of that period.
Furthermore, James McDonald, the Hercules Investments CEO, believes that the stock market could drop another 30% from these levels, which would bring the Dow Jones Industrial Average down to 15,000 or lower. After the Dow more than doubled from around 7,949 to 19,827 under President Obama, the index has now wiped out all the gains that it had made in the almost three-and-a-half years of the Trump era. So, if the President uses the stock market as a personal barometer on how his administration has done, it appears that it would be hard for Trump to give himself a high mark. Additionally, the current administration has ballooned our national debt by over a TRILLION DOLLARS, an “accomplishment” that his 2020 Presidential opponent will be sure to mention.
Older voters, who are more likely to vote than Millennials or their brethren, will not feel comfortable with adding over a trillion dollars to our national debt, and might feel free to punish the President in his reelection bid.
All in all, the volatility in the market continued today, and this continued volatility appears to be one of the earmarks of stock trading in this environment. Volatility itself can be measured by the VIX Index. Today, that index increased by close to 20%, indicating that we can expect more of the same in the coming days.
All in all, I’d rather be writing about tennis.
(Aside from being a nationally-ranked Juniors Tennis Player, Wharton School graduate Neal Abrams was a licensed investment advisor for more than 35 years. With Nadal, Djokovic, Serena and Coco on COVID-19 hiatus, he's going to look at the markets instead of the rackets).