Volatility Rising, Labor Data Worsens Under Viral Impact, Analysts Fear Dark Times Ahead For Wall Street

Equity Markets Whipsaw In Overnight Action

The U.S. equity futures whipsawed in overnight action but did not trigger a limit-up or down event. The Dow Jones Industrial Average was down more than 3.0% in the earliest electronic trading, turned positive in the early AM hours, and then fell back to negative territory before the open of the session.  At last check, the major indices are all down about -2.5% but that could change at any time. Price action is driven in part by fear, in part by hope, and in part by forced liquidations in margin accounts. So far, the S&P 500 has shed a little more than 30% putting many levered accounts deep into the red.

Ray Dalio, head of Bridgewater Associates, estimates the loss to corporate America over $4 trillion. To combat the effect, the FOMC has lowered its interest rate to 0.0% and initiated a number of liquidity facilities aimed at propping up business. The latest move is a backstop for money market ETFs and comes in tandem with an emergency move from the ECB. The ECB has maintained its interest below 0.0% for many years so its tools are limited. What they’ve decided to do is begin the Pandemic Emergency Purchasing Program. The PEPP is worth nearly $820 billion in bond purchases.

Markets On The Move

Shares of automakers are moving lower in early trading following massive losses on Wednesday. GM is down more than -4.0% in early Thursday trading, it fell more than 17% on Wednesday. The reason is major automakers are shuttering their plants at the request of the UAW. The shut down is scheduled for two weeks but may extend if the virus threat lingers. BMW reported earnings this morning and show strength leading up to the pandemic. The company reported a 7.6% increase in YOY revenue that will not be matched this year. Shares of the stock are up slightly in early trading.

Restauranter Darden Restaurants Inc reported this morning and beat on the top and bottom line. The company says comps were strong across all brands and helped by traffic and pricing. Outlook for the coming year is dark, the board cut the dividend, full drew-down its credit facility as a precautionary measure, and pulled guidance.

The Labor Market Catches Cold

The initial claims data shows a surprisingly sharp uptick in first-time claims. The analyst’s consensus was only 220,000 despite knowledge of viral-induced shutdowns so the 281,000 reported should not have been a surprise. In my view, the increase is less than expected but surely foreshadows high numbers in the weeks to come. The dollar continues to move higher and is now trading at three-year high levels.