‘Very Good To Me’

Most of us saw US equities stage one of the largest single-session declines in recent memory on Monday, complete with a quadruple-digit drop on the Dow.

The harrowing plunge (which, I would note, never even tried to abate throughout the session) was the direct result of fears that the coronavirus may be on the verge of becoming a full-blown pandemic.

But Donald Trump conjured a different reality. “The coronavirus is very much under control in the USA”, he said, after spending the day regaling 100,000 Indians gathered at a stadium where “Macho Man” (by the Village People) blared over loudspeakers. “Stock Market starting to look very good to me!”, he exclaimed. Believe it or not, that was after the closing bell on Wall Street.

Read more: Werewolves, Emergency Rate Cuts And Peak COVID-19 Panic

To his “credit” (and that’s probably not the best choice of words), there is perhaps nobody better than Trump when it comes to bending reality, but there is absolutely no sense in which the stock market “looked very good” on Monday. It was, quite simply, the worst day for US stocks since the implosion of the VIX ETNs in February of 2018.

“When markets move one way or another, analysts rush to provide an explanation, despite the fact that sometimes there isn’t a simple answer for why, in Wall Street terms, things ‘sh-t the bed’,” the incomparable Bess Levin wrote for Vanity Fair.

She continued: “Today though, it appears pretty obvious that the biggest factor was the combination of a surge in coronavirus cases outside of China and the realization that Donald Trump has no idea what he’s doing in terms of a response, which is true in most circumstances but particularly worrisome when a deadly virus is concerned”.

To be clear, nobody was selling stocks on Monday because they were concerned that Trump has no plan which, as Bess correctly notes, is a given. But just because that wasn’t the reason for Monday’s decline on Wall Street (which was a simple fear-driven selloff catalyzed by worries out of South Korea and Italy), doesn’t mean the administration’s lack of preparedness won’t one day (soon) become an issue. Here’s Bess one more time, bringing in some pertinent information from a recent Foreign Policy article:

In addition to claiming the virus will “miraculously” go away in April because Chinese President Xi Jinping told him so, his actions well before COVID-19 was a thing may have already hampered the U.S. response. Last month, Foreign Policy reported that the administration has “intentionally rendered itself incapable”, having wiped out its “entire pandemic response chain of command, including the White House management infrastructure” and shutting down both the National Security Council’s global health security team and its counterpart at the Department of Homeland Security. 

So, that’s potentially concerning in the event the US finds itself faced with an outbreak the size of what’s taking place right now in South Korea, where more than 800 people have been infected.

Speaking of South Korea, consumer confidence plunged by the most in five years in February according to the latest read on the Bank of Korea’s gauge, out Tuesday. The 7.3 slide from last month is the largest since the MERS outbreak in 2015.

It remains to be seen how quickly the outbreak can be brought under control in the country, but the currency and local equities are under siege. Perhaps Tuesday will bring some relief, but perhaps not. Seoul said the government will draft a supplementary budget “as soon as possible”.

As for US stocks trying to rebound from what was either a disastrous session or a “very good” day, depending on whether you’re inclined to believe your eyes or Donald Trump’s tweets, Wells Fargo notes that as late as Friday, they were using a “rope-­a-­dope” boxing analogy­­, “advising investors to continue to play defense, defense, defense”.

On Monday, though, the bank said “a military analogy is appropriate”. And by that, Chris Harvey means that “the lines have broken and the retreat is ugly”.

Bloomberg’s Eric Balchunas (the ETF guy), noted that SPY volume – which he calls “the Rotten Tomatoes score of selloffs” – ended Monday at $47 billion. That, he wrote, “shows fear creeping in [and] people getting itchy”, though it’s still “well below the ‘freak out zone'”. These are all technical terms, mind you.

(BBG, h/t Eric Balchunas)

QQQ, on the other hand, closed in on $20 billion, which Balchunas notes is “top 10 lifetime”.

As for various measures of market ebullience, they’ve come off sharply. Big-cap tech which, just one month ago, was sitting near the most overbought levels in history, has seen its 14-day RSI plunge.

At the same time, the number of S&P members trading above their 200-DMA is starting to move lower, although that particular measure of euphoria has a long way to go to get anywhere near the utter despair witnessed in the fourth quarter of 2018.

In at least one respect, America’s fearless leader is correct – to the extent you believed US equities were a screeching tea kettle, long overdue for a pullback, you might indeed be inclined to look at Monday’s carnage and say “the stock market [is] starting to look very good to me”.