1. Markets give up big gains as tech stocks stumble
2. Pfizer shares rally on fast track
3. US budget deficit hits monthly high, again
4. Investors are following the Fed
5. Bonds are the turtle, and stocks are the hare
U.S. markets gave investors a case of whiplash today as a broad-based rally at the open turned into a sharp reversal by the close—especially for tech stocks. Monday marked the first time since early June that the S&P 500 traded positive year to date, having rallied more than 47% from an intraday low set March 23. The index is just over 5% below its record high, set in late February.
Sentiment shifted in the afternoon, just as California announced the re-closings of restaurants, bars, and movie theaters in response to a recent surge in coronavirus cases. Governor Gavin Newsom also announced that schools would be remote only in that state when classes resume next month.
Positive vaccine news propelled markets out of the gate, but the realities of the persistence of the virus dampened that enthusiasm. That’s been the pattern for the past several weeks. Investors seeking yield on their money have kept pushing into tech stocks, driving optimism around the Nasdaq 100 to a multi-decade high. Markets love to remind us mortals that when we fly too close to the sun, our wings tend to melt. We should check our altimeters.
Pfizer and partner BioNTech say two of their coronavirus vaccine candidates have received Fast-Track designation from the U.S. Food and Drug Administration. Fast Track is a process designed to facilitate the development, and expedite the review, of new drugs and vaccines. It was granted based on early data from Phase 1 & 2 studies. PFE rallied 4%, while BNTX rallied 10.5%.
Chip maker Analog Devices is acquiring rival Maxim Integrated Products in an all-stock deal worth $21 billion. Upon closing, current ADI stockholders will own 69% and Maxim stockholders will own 31% of the combined company worth over $68 billion, including debt.
Oil futures are sliding ahead of an OPEC technical meeting this week, which is expected to recommend an easing in supply cuts that have been propping up crude prices. OPEC’s Joint Ministerial Monitoring Committee (JMMC) will meet on Tuesday and Wednesday to recommend the next level of cuts. OPEC and Russia are expected to ease their supply cuts as global oil demand has recovered and prices have bounced back.
The United States and Brazil accounted for half of the new daily coronavirus cases as countries across the globe struggle to contain their outbreaks, the World Health Organization said Monday. The U.S. and Brazil reported 111,319 new COVID-19 cases on Sunday, roughly half of all the new cases disclosed to health authorities worldwide.
U.S. Chapter 11 bankruptcy filings are up 43% over June of last year, with 609 new filings, up from 424 from the same period last year, according to Epiq. For the first half of 2020, total commercial Chapter 11 filings are up 26% with 3,604 new filings, up from 2,855 from the same period last year.
Hong Kong Disneyland will once again shutter its gates after a spike of new coronavirus cases in Hong Kong. The park had reopened less than a month ago after closing in January during the first surge of COVID-19 cases in the region. Walt Disney World in Florida reopened on Saturday just as the state set a national record for the highest number of new COVID-19 cases in a single day.
The U.S. Treasury Department reported Monday that the deficit hit $864 billion last month, surpassing the previous monthly deficit record of $738 billion in April. For the first nine months of this budget year, which began Oct. 1, the deficit totals $2.74 trillion, also a record for that period. That puts the country well on the way to hitting the $3.7 trillion deficit for the whole year that has been forecast by the Congressional Budget Office. That total would surpass the previous annual record of $1.4 trillion set in 2009.
It’s purely coincidence, but it is curious that tech stocks reversed their recent momentum today just as the NASDAQ 100 Optimism Index hit a 21-year high. The last time it was at these levels was in 1999, and those of us of a certain age still have nightmares about what happened next.
There are many arguments as to why 2020’s tech stocks are very different than those of 1999. Today’s tech leaders are stronger, bigger, and better companies that are widely held across the investing landscape. There’s no question that Alphabet’s Google is a stronger company than Yahoo or AOL were back in the late 1990’s. Apple is a more mature and valuable company than it was back at the turn of the century, and Chewy.com runs circles around Pets.com.
Also, interest rate policy has been a tailwind for tech leaders. They’ve been borrowing money at far cheaper rates than their 1999 counterparts since 2009, allowing them to expand into industry behemoths while not being swallowed by their own debt.
That doesn’t mean they aren’t overvalued, however. Investors have been OK with that so far in 2020. We’ll see if that continues.
Speaking of the 1999 Aftermath…
Today’s price reversal inside the Nasdaq was also notable for another reason, and it also harkens back to the aftermath of 1999.
The Nasdaq 100 rallied more than 2% intraday to set an all-time high, then reversed to close down by more than 1%. It’s done that twice, according to SentimenTrader.
Today was one. March 7, 2000 was the other.
Bonds Are the Tortoise, Stocks Are the Hare
2020 has been mystifying.
On March 20, these were the time-based performance statistics for the S&P 500:
YTD return: -29%
1 year return: -17%
Past 3 years: +3%
Past 5 years: +22%
Past 10 years: +145%
As of this morning, these were the time-based performance statistics for the S&P 500:
YTD Return: -1%
Past year: +9%
Past 3 years: +40%
Past 5 years: +72%
Past 10 years: + 268%