Market Report: Where is the bottom of this market sell off?

As I sit here staring at my computer, I have many thoughts running through my head on what would be appropriate and timely advice for what we are seeing unfold before our eyes. Obviously the sharp swift market drop caused by a very small virus is front and center for anyone who has a TV, iPad, phone or reads the newspaper.

There have been many measures put in place to slow down the spread of the virus and also many monetary and fiscal plans put in place to help the economy, individuals and businesses cope with the financial fall out from the shut down of businesses and events. The most common question I received this past week is where do you think the bottom of this market sell off is.

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Here are some of the questions that the average investor is concerned with and a topic of this past week’s phone conversations:

1. How low do you think the market will go?
2. How long do you think it will be take the market to come back?
3. How is my portfolio doing?
4. Should we put my investments into something safer?
5. Should we put my investments into something more aggressive?
6. Should we borrow money to invest?

I listed those questions as it shows how every individual investor has their own unique thoughts about investing in regards to looking at the current market situation as an opportunity or a terrible thing. Unfortunately 90% of individual investors fall into the latter and even if they are in position to take advantage of the deep discount and buying now (buying low) the fear of further drops in the markets paralyzes them and they miss the opportunity until much too late. Although it is human nature to make calculated decisions about risk at times like this we tend to not be able to see the forest because of the tree right in front of us. That tree is now inches from our noses and the news headlines know this and want to keep our focus squarely on the tree in front of us. That tree is the Covid-19 updates and the market crash. I get that as basically everyone on the planet has had their life changed one way or another in the past 2 weeks. My goal this week is to take a step back from the tree and see the forest as you cannot move forward if there is a tree squarely in your way.

I have included a link that contains a video from one of my favorite mentors (Bill Chornous). The link shares some information on past and current market behaviors when we go through something that creates great fear in the markets. Here is the link: https://bcove.video/2TIimsF

In other news

The Vix fear index closed at 66.04 on Friday. The peak was 84.57 on Wednesday. This indicates how oversold the markets are because the higher number indicates more panic selling is happening and that is exactly what we saw this past week. The BDYI global shipping closed at 630 on Friday. I keep expecting this number to fall off a cliff like the markets but it is actually 21% higher than one month ago. I suspect that China is responsible for this number not falling off a cliff as they are getting back to work and shipping again and we are where they were a few months ago. The lowest gas price in Manitoba is 67.9 at the Costcos in Winnipeg and the highest is 101.9 at the Esso in Binscarth. The lowest gas price in Saskatchewan is 68.9 at the Messenger, Regina Discount and Regina Cabs in Regina and the highest is 105.9 at The Esso in Pierceland and City Service in Star City. The WTI oil price is 22.63 which is down 58% from one month ago.

The quote this week is about fear as there is no shortage of that emotion these days.

Just one small positive thought in the morning can change your whole day. - Dalai Lama

Governments and central banks step up efforts to stabilize capital markets

March 20, 2020

Governments and central banks around the world quickly moved into a “we are here to help and support no matter what” mode in a week where markets remained volatile due to the increasing number of COVID-19 cases. Many central banks took extraordinary actions designed to avoid a freeze-up of credit markets, starting with the U.S. Federal Reserve (the Fed) that cut benchmark rates by a full percentage point on Sunday. Governments announced planned fiscal measures to support both individuals and businesses – to the tune of roughly CAD $82 billion in Canada, and at least USD $1 trillion in the United States.

The full economic impact of COVID-19 remains unknowable. The scope, severity, and duration of the crisis are still uncertain because officials still can’t accurately predict the rate of infections and spread of the virus. However, most experts believe that, because the underlying economy was fundamentally strong going into the crisis, a recovery in the second half of 2020 is the most likely outcome, given the extent of the monetary and fiscal policy response directed at reviving growth.

Capital markets this week were buffeted by the rapid pace of developments:

• Government bond yields began the week dropping sharply lower in response to the Fed’s surprise rate cut (although not to the all-time lows set a week earlier). However, after policy makers in the U.S. and elsewhere began to unveil emergency spending plans, the expectation of a surge in supply pressured global sovereign bond prices and pushed yields abruptly higher. Sentiment reversed again Friday leaving yields little-changed for the week.

• For the second week in a row, circuit-breakers designed to slow extreme market movements halted trading on Canadian and U.S. stock markets several times. Just one month after touching an all-time high, Canada’s S&P/TSX Composite Index retreated to its lowest level in four years. All major North American stock indices saw double-digit percentage losses for the week, with the energy sector bearing the worst of the decline.

• Corporate debt securities in the high yield bond and loans markets behaved more like their equity counterparts, registering significant losses. The risk of corporate bankruptcies and credit defaults, especially in sectors like energy and travel and tourism, overwhelmed any benefit such issuers may have ordinarily expected from lower interest rates.

• Crude oil prices continued to tumble. As demand plummeted due to reduced travel and economic activity, Saudi Arabia and Russia stepped up their plans to boost production in a battle for market share. West Texas Intermediate crude (WTI) fell to as low as USD $20 per barrel, the lowest level it has seen in 18 years, and is now off almost 60% year-to-date. The Canadian oil benchmark – Western Canada Select – dipped briefly below $8 USD/bbl., its lowest level ever. Prices saw some recovery after U.S. President Donald Trump said he might get involved in the Russia-Saudi Arabia standoff.

• The Canadian dollar, which spent much of the last few years tied closely to the size of the spread between Canadian and U.S. interest rates, reverted dramatically to its once-dominant correlation with oil prices. The loonie tumbled to below USD 69 cents, its lowest level in more than 16 years. It stabilized when oil prices steadied and after interest-rate cuts around the world left Canada with the highest policy rate among developed economies. The U.S. dollar climbed to its highest level in three years against a basket of other major world currencies.

• Gold bullion, at first a beneficiary of a flight to safe havens, was driven lower by margin calls (investors selling to cover losses in other asset classes), and now by growing fears of deflation.

What’s ahead next week

Canada
• Wholesale trade sales (January)

U.S.
• Purchasing Managers Indices (March)
• New home sales (February)
• Durable goods orders (February)
• Wholesale inventories (February)
• Gross Domestic Product (4th quarter – revised)
• Personal Income and Spending (February)
• University of Michigan Consumer Sentiment Index (March) 

© Melita New Era