Anyone looking for a dip to buy following the S&P’s furious ~45% surge off the March panic lows got one on Thursday.
Shares in the US plunged the most since March 16 in a rout generally attributed to concerns about a second wave of the virus and Jerome Powell’s tepid assessment on the prospects for a rapid economic recovery.
Measuring from the knee-jerk levels seen just following the release of the FOMC statement on Wednesday, futures were down some 7% at the lows.
The Dow fell nearly 1,900 points.
Liquidity is awful, which I assume goes without saying. Market depth has never recovered from the February 2018 VIX ETN implosion. “The NYSE TICK index, which measures the relative number of stocks trading on an uptick or a downtick, hit an all time low today… less than a month after hitting an all time high”, Bloomberg’s Cameron Crise wrote, adding that the historic “amplitude of TICK ranges during the corona-crisis to some extent reflects passive trading [and algos] but it’s interesting to note that along with the unprecedented degree of ‘student body left, student body right’ trading, liquidity remains abysmal”.
Small-caps were bludgeoned to the tune of nearly 8%, bringing the Russell 2000’s loss on the week to ~10%, a rather abrupt reversal from the gauge’s three-week surge.
If you don’t count the volatility around the COVID panic, Thursday was the worst day for banks since 2011.
The pro-cyclical rotation that dominated the price action in equities up through Monday’s rally suddenly looks dead. A high beta product shed 10% on Thursday, bringing losses over the past three sessions to 20%.
Crude tumbled in the worst day since April.
All of this could quite plausibly be attributed to a long overdue pullback. After all, this has been the swiftest recovery for equities in 150 years. Crude’s rebound to $40 marked a stunning rally from the existential crisis oil faced just two months ago.
And yet, there will be no shortage of commentary suggesting Thursday was a harbinger of what’s coming as the reality of a slow recovery kicks in and virus cases mount in locales where lockdown measures were lifted first.
Meanwhile, futures are pricing in negative rates again, starting with August 2021 contracts.
The curve aggressively bull-flattened, reversing the recent trend. The 5s30s – which hit the steepest since 2016 just days ago – flattened 10bps on the day.
The news flow had a “death by a thousand cuts” feel to it. Amazon is facing an antitrust probe in the EU, Joe Biden went after Facebook for knowingly disseminating misinformation and reports indicated Republican Senator Josh Hawley is drawing up legislation taking aim the tech industry’s liability shield at the request of Donald Trump, who last month issued an executive order designed to punish Twitter for fact-checking his tweets.
Speaking of the president’s tweets and fact-checking, Trump on Thursday went after the Fed, presumably because he, like the media, assumed that the bulk of the selling pressure in equities was attributable to something Powell said.
“The Federal Reserve is wrong so often. I see the numbers also, and do MUCH better than they do”, Trump claimed.
“We will have a very good Third Quarter, a great Fourth Quarter, and one of our best ever years in 2021”, he went on to declare. “That’s my opinion. WATCH!”
Another day in reality television.