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Stock Market Meltdown Was One for the Record Books

March 02, 2020
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Monday Morning QB - Market Observations:

  • Panic Selling Drives S&P 500 Meltdown
  • S&P 500 Drops 10% in the Shortest Amount of Time Ever Recorded
  • Fears of a Pandemic and a Worldwide Economic Contraction Are Rampant as Stocks Ignore Positive Economic Reports
  • In a Panic, the Markets Look to Washington for Leadership…the Verdict is Mixed So Far, With Partisan Divide Not Helping Confidence
  • Covid-19 Is Bad Enough on Its Own…We Don’t Need to Sensationalize It

Monday Morning QB - Market Performance:

Stocks suffered their worst weekly decline in over a decade as investors reacted to the global spread of the COVID-19 outbreak. All the major indexes fell into “correction” territory—down more than 10% from their recent peaks just a week earlier.

The technology-heavy NASDAQ Composite fared the “best” only giving up -10.5%, whereas the Dow Jones Industrial Average plunged 3,583 points to 25,409—a decline of -12.4%.

The large cap S&P 500 index gave up -11.5%, while the mid-cap S&P 400 fared the worst, closing down -13.0% and the small cap Russell 2000 ended the week down -12.0%.

The Stock Market Meltdown…Inside the numbers

All thirty Dow members ended the week down more than 10% from their respective 52-week highs. The Dow moved from reaching a 52-week high to declining to a 52-week low in just over a week!

The S&P 500 posted declines of more than 2% in three of the five sessions last week. The Index finished the week 13% below the record high set on Feb. 19, a mere nine day earlier.

The velocity of the move was truly shocking, becoming the S&P 500’s fastest decline from a record high into correction territory ever, outside of a one-day crash. (A market correction is a decline of 10%.)

Only two S&P 500 companies were positive for the week, and 96% of S&P 500 companies are now in correction territory.

A Walk down Stock Market Meltdown Memory Lane

As shown in the chart below, since World War II, the S&P 500 has had 26 market corrections (excluding the one that started this week) that took an average of four months to occur.

On average, the S&P 500 has declined 14% with each correction and needed roughly four months to recover.That’s, of course, if they don’t turn into recessions.

Covid-19 Panic has Taken Over

Based on the last week’s events, if you are not in pure panic mode over the Covid-19 (corona) virus just yet, understand that you are one of the few who are not.

As I have tried to make some sense of all this and being an independently-minded person, I do not put much faith in any of our current media options- print or 24-hour cable news channels.

I like to look for facts and make my own determination. Call me old fashioned!

Health professionals in the World Health Organization (WHO) and Centers for Disease Control and Prevention (CDC) seem like the right sources to try to understand what is really going on.

I was shocked by the questions and answers that the WHO (not the rock group) was offering on their website. I guess that the WHO received enough of these questions to feel the need to respond to them "in print" on their website.

  • Are hand dryers effective in killing the new coronavirus?
  • Can an ultraviolet disinfection lamp kill the new coronavirus?
  • How effective are thermal scanners, a high-tech thermometer, in detecting people infected with the new coronavirus?
  • Do vaccines against pneumonia protect you against the new coronavirus?
  • Can regularly rinsing your nose with saline help prevent infection with the new coronavirus?
  • Can eating garlic help prevent infection with the new coronavirus?
  • Does putting on sesame oil block the new coronavirus from entering the body?
  • Can spraying alcohol or chlorine all over your body kill the new coronavirus?

If people are willing to cover their entire body with chlorine, PANIC may not be a strong enough descriptive word.

What Do the Health Professionals Say We Should Do?

Stay aware of the latest information on the COVID-19 outbreak, available on the WHO website and through your national and local public health authority.”

Notice the World Health Organization (WHO) did not name a politically-oriented news channel or newspaper! Nor does the WHO quote a politician.

According to the WHO, COVID-19 is still affecting mostly people in China with some outbreaks in other countries. Most people who become infected experience mild illness and recover, but it can be more severe for others.

Note the numbers of confirmed and recovered cases compared to deaths shown in the visual below below.

Yes, the Covid-19 Situation is Bad, but a More Encompassing Perspective Should Be the Standard- Active Cases

I am not making light of a serious situation! Also, I do not care about the liberal/conservative politics at play related to Covid-19.

All information should be considered when discussing Covid-19, including active cases and the rate of change of that number as better markers.

Active cases are an indicator of how many people are capable of infecting others.

Looking at the chart above, one can infer how many active cases there are in the world simply by subtracting "total recovered (39,778)" from "total confirmed (86,012)". As of February 29, the total number of active cases throughout the world was 46,234.

Why is this an important number? In my opinion, active cases are a fairer number to describe and observe what is happening. 

Yes, there are carriers of the virus who are not currently an active case because they are not currently sick. Once a carrier either shows signs of symptoms or infects someone else and they show signs of symptoms, then these cases would show up in the total confirmed cases number and possibly the recovered or death toll.

Another important factor to notice is the change in the number of active cases. Are they increasing or decreasing?

If the active cases are in a downward trajectory, which they currently are, then it is fair to say the virus may be losing steam. Should the virus worsen and change the trajectory from decreasing to increasing, then fear will increase and rightly so.

Sharing the number and direction in the total number of active cases may lessen the currently perpetuated fear. The news media continues to quote only the total cases and the number of deaths, not the number of recoveries.

Call me cynical, but I have yet to hear or read any mention of recoveries or the trajectory of active cases. Why? Because stoking fear, along with the talk of death, keeps everyone tuning in. It's easier to sell your advertising slots when your viewership is up.

Active cases and the trajectory of the diseases progress should be included in any conversations that quote the total number of cases and the death toll.

Things That Make You Go, "Hmmm"

I am not saying Covid-19 is not a threat; it most certainly is. Covid-19 is killing at a faster rate than the flu (and we do not have a vaccine for Covid-19), but the rate is not the bottom line.

For now, I leave you with a couple of things to ponder:

According to the CDC, 2017 was the worse flu season in terms of deaths in the last 40 years, killing around 80,000 people in the US. A typical flu season kills around 15,000 people.

Compare that to Covid-19, which to date has confirmed worldwide deaths of less than 3,000.

I am not trivializing those deaths, especially to the families of those affected, but Fear of Covid-19 sent the stock market into correction territory in the shortest amount of time in the history of the stock market. 

What I am saying is Fear looks to justify itself by clinging to the worst-case scenario and holding on to whatever validates it.

The worst-case scenario may occur; that is true, but who knows, no one has a crystal ball.

Is a new version of the flu the worst thing that has happened in the world over the last 200 plus years?

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, www.stocksandnews.com, www.chaikinanalytics.com Chaikin Analytics, www.marketwatch.com, www.BBC.com, www.361capital.com, www.pensionpartners.com, www.cnbc.com, www.FactSet.com, W E Sherman & Co, LLC)
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