#STS: Save The Stocks

Somebody needs to save the stocks.

US equities turned sharply lower mid-morning on Tuesday, dashing hopes that Monday’s nightmare on Wall Street would be at least partially erased once the opening bell sounded on a new cash session. Regardless of how things turn out, the action was not inspiring to the extent you were expecting an immediate snap-back.

To be sure, the virus news flow is weighing heavily on sentiment. South Korea and Italy are “hot zones” (so to speak) and some fear the worst in Iran, where the deputy health minister and a politician said they’ve been infected. The virus has now spread to 39 countries and territories.

There are more than 80,300 confirmed cases across the globe. More than 2,700 people have lost their lives. According to Deutsche Bank, only around one-third of Chinese are back to work.

(Deutsche Bank)

Meanwhile, on the data front stateside, consumer confidence in the US rose to a six-month high, but missed estimates (130.7 versus consensus 132.2), and the prior month was revised lower. That appeared to help tip the scales back in favor of the bears on Tuesday morning. Around 10 minutes later, equities sold off sharply. US equity futures are more than 6% off the highs.

2-year yields fell to the lowest since April of 2017 ahead of Tuesday’s auction. 5-year yields dropped to the lowest since September of 2016. And on, and on.

The dip buyers are absent, something Bloomberg’s Luke Kawa wrote extensively about on Monday.

“The SPDR S&P 500 ETF Trust… has fallen an average of more than 1.2% at the open compared to the prior day’s close in the past three sessions amid concern over the spreading coronavirus”, he noted, in a piece echoing several of his intraday tweets. “The overnight gap is slightly worse than what transpired amid the re-escalation of the US-China trade war in May 2019 [and] it’s the poorest such showing since August 2015, when markets had a belated overreaction to the surprising devaluation of the Chinese yuan”.

Looking back at 2019, a simple study of some major one-day declines betrays the market’s classical conditioning post-crisis. The following visual is self-explanatory (the annotations describe what was going on at the time of a given decline/rebound):

Suffice to say that tendency for someone (anyone) to step in and arrest the slide appears to be absent this time around.

Maybe the corporate bid will rescue us. Or perhaps America’s hordes of retail investors who now enjoy zero commission trades will step up to the plate to rescue their own positions, some of which were no doubt put on at elevated multiples.

Or, who knows, maybe we’ll get that emergency Fed cut Narayana Kocherlakota thinks is necessary. After all, a strong dollar and falling stock prices serve to tighten financial conditions, even as falling long-end yields help cushion the blow.

Whatever the case, this “glitch” is costing the titans:

If only there had been warning signs…

"If only there had been warning signs"…. pic.twitter.com/d3jLJ5GmSz

— Heisenberg Report (@heisenbergrpt) February 21, 2020