Brutal Correction On Wednesday
Fear of COVID-19 exploding and new shutdowns finally got to the market as there was a major correction on Wednesday. S&P 500 crashed 3.53%. There was across the board selling. It was less of a factor day and more of a panic day. Microsoft’s earnings related decline took down the Nasdaq as Microsoft fell 5%.
Intel also was in trouble as it fell 3.1% which put it below its March low. Intel stock has now gone nowhere in 3 years. These 2 declines and others sent the Nasdaq down 3.73%.
Surprisingly, the Russell 2000 was only down 2.97%. Maybe the banks were too oversold. Another aspect of that outperformance was the stabilization of the long bond yield. That was a surprise because the original catalyst of the selloff was worries about growth because of COVID-19 shutdowns.
As you can see from the chart above, tech was the worst sector as it fell 4.3%. Financials were the 2nd best as they fell 2.5%. Even though energy is very oversold, it fell 4.2%. When we see these large declines we can wonder who still owns energy. Who is left to sell with the sector down over 50% this year?
ExxonMobil fell 3.8% which put it 12 cents above its March low. This stock is a buy. The firm kept its 11% dividend yield the same. That’s unsustainable because they borrow money to pay it. Plan is always to keep the dividend by borrowing money when the sector is in a down year. This is the worst downturn in the energy market’s history which is why we are having this discussion.
If oil prices stay below $40 for the next 6 months, expect a cut. As you can see from the chart below, energy’s current downturn is similar to the financial sector in the housing crisis and the tech sector after the dot com bubble burst. This is a once in a decade opportunity to buy a severely depressed sector.
Work From Home Stocks Fall
It wasn’t a typical COVID-19 factor day as stocks fell across the board. In fact, the cloud index fell more than the regional banks. CLOU was down 3.15% and the regional bank index was down 2%. It’s amazing how quickly something can go from overbought to oversold. Regional bank index was overbought last Friday. Since then, it has fallen 7.3%. It can have a higher high if it reverses by the end of the week. That would maintain the uptrend.
Obviously, with the software stocks falling, you know Zoom was down. It fell 4.3%. Generally, investors buy it when COVID-19 fears increase, but it’s very tough to do that now because a vaccine is 3-4 weeks. In that sense, there is nowhere to hide.
Formerly hot stocks, Fastly and Draftkings, are in deep trouble. Fastly was down another 3.9%, putting it down 44.4% since October 13th. Draftkings fell 1.4% and is down 40% since its peak. It always seems easy when the hot stocks are flying high.
However, you never know when they will fly too close to the sun and crash and burn. These stocks may never hit their record highs again. Penn Gaming fell 2%. It is the king of the Robinhood traders because of Barstool’s Dave Portnoy. Let’s see how it acts after reporting on Thursday.
Nio fell 3.3%, but it’s only 3.4% off its record. We can now safely say the hottest stocks right now are in social media as Snap is the king of the world. Even in this down market, it rose 3.2%. It is up 64.9% in the past month. No, they didn’t cure COVID-19. They aren’t even profitable. This is a massive bubble unless this company can magically become profitable next year.
Boeing Reports Weak Earnings
With flying down over 50%, obviously Boeing didn’t have a good quarter. The firm is in deep trouble. It had its 4th straight loss as it lost $466 million which was down from a $1.2 billion profit the year before. Sales were $14.1 billion which was a 29% decline. Commercial aircraft sales were down 56% to $3.6 billion. The firm started 2020 with 160,000 workers. It plans to end 2021 with 130,000 workers.
This company will take years to get back to its former glory days even if COVID-19 is solved in 3 months. As a result of the additional 7,000 layoffs and new losses, the stock fell 4.6%. It’s down 9.5% in the past month.
COVID-19 Update
As you can see on the news, COVID-19 is ramping up in the American Midwest. The situation looks about as bad as it did in March and June a few weeks before the peak in hospitalizations. Some are losing faith that the peak in November will be lower than the peak this summer. Peak in July was about 60,000. The peak in April was higher, but we don’t know the exact numbers because a few states didn’t publish them.
On Wednesday, hospitalizations rose to 45,045. Deaths are still not out of control as the 7 day average was 795. It’s significantly below the summer peak and less than half the April peak. Testing is doing very well as the 7 day average rose to 1.174 million. We didn’t miss my target of 1.25 million by the end of the month by much.
7 day average of cases in Wisconsin looks to be peaking finally. It fell by 55 to 3,920. The peak was October 25th. If it stays below that peak for a few days, we can be confident enough to call a top. Then, it’s only a matter of time before cases peak in the other Midwestern hotspots in November.
We can fully expect this wave to end before vaccines start going out in December to the most vulnerable. France could peak next week. Its current 7 day average is 39,673. Cases are about 10 times the peak in the spring, but deaths are 1/5th the total. Current 7 day average of deaths is 248. It will probably peak between 400 and 500 in mid to late November.