Global Markets Collapse as the Virus Spreads

Circuit breaker limits today

Level 1 – S&P must fall 7% – 189.77 pts

Level 2 – S&P must fall 13% – 352.43 pts

Level 3 – S&P must fall 20% –542.20 pts.

On Friday morning the headlines read:

“Stocks Plunge 10% in Dow’s Worst Day Since 1987”

On Saturday morning the headlines read:

“Stocks Make a Stunning Reversal – Wrapping up Haywire Week with a Rally”

And this morning – guess what? Markets around the world collapsing

“Stock Futures Drop, Hit ‘Limit Down’ Even as the FED Slashes Rates”

If you haven’t heard – the FED made a surprise emergency rate cut while also announcing a new $700 billion QE program, in what is being seen as a “move of desperation.” I mean – think about this, the FED makes an emergency cut on a Sunday afternoon at 5 pm and announces a massive QE program. THAT is supposed to calm the markets? Come on!

And over the weekend – we had a repeat performance. The Saudis once again re-iterate the fact that they are increasing production to punish the Russians and bring more pain to the US as the price of oil collapses. Recall that all of this began when the Saudis appealed to Putin to cut production to stabilize oil prices in the $50/barrel range. The Russians politely declined – and this lit the fuse of an oil price collapse last week, triggering all kinds of talk of defaults in the High Yield bond market. That is NOT a positive.

On top of that, the coronavirus continues to spiral out of control around the globe. Italy is in complete lockdown, France and Spain follow suit – as Europe is now the epicenter of this crisis. Here in the US – the map showing new cases and the spread continues to get RED, triggering another round of closures of businesses and whole cities, school closings around the nation, cancelled sporting events, cancelled conferences, cancelled weddings, (are you getting the picture?) Nike, Apple, Urban Outfitters, Warby Parker, LuLuLemon, etc. all announcing that they are closing ALL their stores in the US, leaving us to wonder how many more are preparing their announcement.

Interestingly enough – cases in China appear to be slowing – so if there is a positive at all – that’s it. (Although – no one is apparently noticing). Expectations are that the epicenter is about to move from Europe to the US/North America, and that appears to last for 5 or 6 weeks. So get ready, this is going to get worse before it gets better. I guess we should expect complete closures of businesses around the country.

And in another stealth move, our friends at Goldman Sachs – sponsored a “secret” conference call for key investors on Saturday evening. In the call, they suggested that they expect the S&P to fall another 26%, which takes us to S&P 2000. They expect a complete collapse of the US health care system and the financial system. On top of that – they are expecting that 150 million Americans (50% of the pop) will contract the virus and 2% will die. Do the math – that’s 3 million people. Which leaves me to ask? How do you possibly extrapolate these numbers? I mean – China is an “emerging country” with what some suggest has a subpar health care system never mind air pollution. That leaves you to wonder how they even breathe, and has over a billion people. That country only saw 87k infections and 5k deaths.

In Europe the infections total some 80k cases and in the US we are reporting 3,000 cases – total global cases are now 170,000 while global deaths are 6,526. So why exactly is the US going to see a massive spike in cases and deaths? I’m having trouble connecting the dots. Yes – more tests may reveal more infections. But, China and Europe also tested millions of people and only came up with 170k cases. And by the way, infections do not mean death. Now I applaud all the efforts to control the spread – and support them as I am holed up in an apt in Manhattan. The latest report from the NY Post – says that every New Yorker (meaning the city) can assume that they have been exposed. So maybe GS is right, because that alone is 8 million people!

So at 6 pm last night – futures started to trade and they collapsed (as expected). Think an act of desperation. They immediately hit limit down – suggesting that we are in for much more volatility. Many internet stories – not associated with a verified news source have zero credibility only fueling the flames of angst. If you want the latest updates – go to CDC.gov

Global markets all under pressure as the week gets started.

Australia is down 10%, China and Hong Kong both down 4.5% and Japan is off by 3%. 

European markets are getting slammed – as the panic washes across the globe. Remember – this is not a financial problem like 2008! The banks are not collapsing. This is a massive health care problem that is creating an economic slowdown. This is not the GFC (Great Financial Crisis)

As of 6 am – the FTSE -6.3%, CAC 40 -8.6%, DAX -7.7%, EUROSTOXX -7.82%, SPAIN -9.6% and ITALY -8.02%.

US futures are limit down, at 5%. But the Dow ETF, DIA and the Nasdaq ETF – QQQ show losses of 9% and 8% respectively. That means that we will hit the first trading halt within the first 5 minutes, and that will allow stocks to regroup when they open again. The question today is will they continue to fall another 6% triggering the next level. Or will they settle in at down 10% like other global markets?

Oil is down 4.8% at $30.29. Earlier today – oil did breach $30 to trade as low as $29.78. Now while it is weaker – it does appear to be holding onto that $30 level.

Gold is up $9 at $1525/oz. and US Treasuries are soaring sending yields lower. Currently 10-year yields are 0.775.

Take good care.

Kp

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Kenny Polcari

Kenny is the editor of Morning Thoughts and has been with Seven Figure Publishing since 2019.

Kenny is a CNBC exclusive contributor appearing on shows like The Halftime Report, Power Lunch, and Closing Bell. His market commentary has reached audiences across the nation on media outlets such as Bloomberg, Fox, ABC, and more.

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