Market Fallout – 3.20.20

Breaking news: Federal tax returns will be due 7.15.20, with the state likely to follow. Currently, the state is due 6.15.20.

News of legislation to provide direct monetary support for the populace was announced, which includes a ‘rebate’ of $1,200 per person (with incomes of less than $75K).  Also mentioned were programs geared at helping small businesses, including a delay of payment for employer payroll taxes, a delay of estimated tax payments for corporations, and modifications for net operating losses.

Loan guarantees of $208 billion to distressed sectors of the economy, including $50 billion for commercial airlines and $8 billion for air cargo carriers, and $150 billion for other eligible businesses were also introduced.

The market fell ~10% again today with every asset class selling off….a PANIC demand for cash. Personally I think the markets should be closed until the ‘new normal’ (health and economic) is better known (~1-2 weeks.) This type of freefall of all assset classes does historically portended a market bottom.

Good news on potential new treatments, including application of existing drugs (now), antibody therapies (3-4 months), and, of course, a vaccine next year.

Didn’t expect to re-live the ’87 experience (worst one day 18% sell-off.) Fed rate cuts didn’t stop last Tuesday’s 13% $3.5 trillion dollar decline that was exacerbated by President Trump’s comments last week that the…. “wash-out would come in the July/August timeframe.” The term wash-out was mis-understood to mean peak infection rate (expected to come much sooner), which is when we anticipate better days for the market.

The economic effect of ‘stay at home’ orders as well as gathering limits, travel restrictions, and shutdowns of food and drinking establishments is pure speculation. The unknown feeds the market’s fear. Also announced today were the first human injections of a potential vaccine.  ‘Eh’, the market said.

The ’57 flu epidemic was short-term 10% sinkhole, so best guess is a similar decline of 5% to 10%. Shocking, but a small dent when viewed over the long-term. The bounce-back from pent up demand will mirror the downturn. Large companies will sluff off the revenue loss, but smaller and privately held businesses will certainly suffer.

Being negotiated is a ‘fiscal’ stimulus (tax cut) to keep the money flowing. Discussed is a temporary social security payroll cut similar to the 2011 2% reduction as well as direct payments to taxpayers and loan facilities to small business.

How ever the stimulus comes, and the virus goes…faith and trust in our free market system will generate a vaccine and long lives for most affected. This will burn our psyche, similar to what the Great Depression did to our parents and the ’87 Crash did to traders.

-From 2.29.20
“The coronavirus now looks like a pandemic. Markets can cope even if there is big risk as long as we can see the end of the tunnel,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. “But at the moment, no one can tell how long this will last and how severe it will get.”

So, easy to imagine the markets continuing to bump and skid along for a quarter or two, but any sign of a let up in rate of infection will bring a sense of value and money flows back into stocks, and out of the safety of bonds.