Markets have never unraveled as quickly as they did in the past month.
Stocks are falling faster than they did during the financial crisis, the crash of 1987 or the Great Depression. Investors are retreating from corporate bonds at the swiftest pace ever. An index of raw materials is at all-time lows. And funding shortages around the world have fueled a race for dollars, powering the U.S. currency to a nearly 18-year high.
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As fast as the downturn has been, many fear the worst has yet to come as investment products tied to everything from stock volatility to mortgage-backed securities gyrate. The Cboe Volatility Index, or VIX, rose to an all-time high early last week, upending bets on more placid trading from earlier in the year.
Yet even as stocks extended their drop on Friday, volatility also fell, an abnormal development that adds to a laundry list of exceptional market moves pushing some investors to brace for further declines.
As the novel coronavirus spread around the world at the beginning of the month, Leslie Thompson, managing principal at Spectrum Management Group in Indianapolis, began reducing her investments in stocks and raising cash.
S&P 500 cumulative performance by trading day starting at peaks in notable market crashes
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“It seems like an eternity ago,” she said. “I know there’s going to be great value out there. It’s just hard to redeploy money at the moment until we get some stability.”
The unprecedented simultaneous meltdown is straining financial markets and bruising investors like Craig Hodges, portfolio manager for Hodges Funds in Dallas. The 56-year-old has worked extra hours and handled a 10-fold increase in the number of calls from clients as the Dow Jones Industrial Average erased three years of gains in a month and some of the smaller home builders and industrial stocks he follows plunged more than 70%.
“You almost feel numb,” said Mr. Hodges, who has been buying shares of companies he thinks can survive the crisis. “How many more days can go on like this?”
The speed at which the 11-year bull market in stocks morphed into a historic drop is forcing investors to reassess their positions and challenging policy makers who are trying to respond. The brutal descent and violent price swings have rattled markets ranging from crude oil to Treasurys, fueling widespread selling and big moves toward cash.
Disruptions in the Treasury market, the most liquid and actively traded bond market in the world, have forced the Federal Reserve to make massive purchases to keep strains from worsening. Clogs in short-term money markets at the heart of the financial system have added to the concerns, with companies from Boeing Co. to Ford Motor Co. drawing on credit facilities.
Meanwhile, a price war between Saudi Arabia and Russia crashed oil, pushing the Trump administration to consider intervening in the conflict and prompting Texas regulators to weigh whether to curtail crude production for the first time in decades.
States from California to New York have essentially shut down to contain the coronavirus, underscoring how regulators and investors are contending with an unprecedented economic threat. And last week’s market moves signaled that investors are now preparing for the disruptions to last longer than many analysts could have anticipated.
The S&P 500 ended last week down 32% from its Feb. 19 all-time high. The rout has sliced trillions of dollars in market value from U.S. companies, with the Dow industrials falling about 10,000 points in just a month.
“We went from an economy that was growing at 1.5% to 2% per year to shutting off entire industries, and revenue for a certain period of time going to zero in certain segments of the economy,” said Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management.
The S&P’s drop of more than 20% from Feb. 19 to March 12 was its fastest-ever fall from an all-time high to a bear market. The index rose or fell at least 4% in eight consecutive sessions through Wednesday, the longest streak in the index’s history, according to Dow Jones Market Data.
At the same time, investors facing losses in stocks have been forced to sell assets typically viewed as safe, adding to the manic trading. Prices of government bonds around the world have tumbled in recent sessions and gold has dropped 11% since hitting a seven-year high on March 9. Silver, another precious metal, slid 32% in nine sessions through Wednesday, falling to an 11-year low.
Meanwhile, the extra yield, or spread, that investors demand to hold U.S. investment-grade corporate bonds over Treasurys has risen at its fastest pace ever, Bloomberg Barclays data show. High-yield spreads have also surged at a similar clip, signaling waning appetite for corporate debt—another sign that markets are warning of a painful recession.
“It feels like three months. It’s been three weeks,” said Amanda Agati, chief investment strategist at PNC Financial Services Group. “This is what happens in a crisis of confidence… The panic level becomes so significant.”
Ms. Agati said she has received several calls from clients asking whether to buy stocks after their big decline but has advised them to wait until volatility settles down. In the past few weeks, stocks have frequently moved full percentage points in minutes without a clear explanation, punctuating a period of remarkable volatility.
“Seeing the speed with which we’ve fallen, clients naturally extrapolate that,” said Adam Phillips, director of portfolio strategy at wealth management firm EP Wealth Advisors. “That’s the hardest part from a psychological standpoint.”
A Bank of America poll of fund managers recently showed the biggest monthly drop in expectations for the world economy in the history of its survey, which dates back to 1994. At the same time, investors it surveyed drastically lowered their positions in stocks and boosted their cash holdings.
In another sign of investor angst, an index of raw materials critical to everything from transportation and manufacturing recently fell to its lowest level ever in data going back to 1991. Oil has crashed 50% in March to about $22.50 a barrel, sent spiraling by a slump in demand and the Saudi-Russia price war.
Energy companies make up a key chunk of the high-yield bond market, and an expected drop in spending by oil and gas producers marks another blow to the economy that has dinged investor sentiment.
The swings in stocks have even bruised investors using the rout as a long-term buying opportunity. Benjamin Lau, chief investment officer of Irvine, Calif.-based Apriem Advisors, has been buying stocks the past few weeks, only to watch them crash again.
“It is jarring,” he said. “It’s not like it’s down a couple percent—you’re down 10 or 15% really quickly.”
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com
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https://www.wsj.com/articles/stock-market-meltdowns-historic-velocity-bruises-investors-11584955800
2020-03-23 10:30:00Z
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