The Markets Are Getting Weird

The global markets are getting weird. 

Let’s do a head-count: 

The 10-year treasury hit a record low (.936).

Repo Markets (14 day) are currently oversubscribed. Had the FED not stepped in rates would have been 10%+.

Covid-19 is hitting a new stride as Italy says it has had 41 new COVID-19 deaths in just 24 hours — made all the worse as Italy is certainly facing a recession.

The Fed’s dramatic 0.50bps cut hardly stopped the bleeding — in fact, it added fuel to the sell-off fire. 

The Dow on pace for the longest Friday losing streak in 14 years.

Major international banks, such as Deutsche Bank, might go under this year.

Major events are getting canceled (google i/o, ultra miami, etc). Here’s a full list, and it’s pretty expansive. The Olympics could be next. 

I could go on, but hopefully, the point is abundantly clear: That fear sentiment is what’s making the market weird. That, and that some that are still in greed mode thinking this is a bump in the night. If the market were a person I’d say they’re bipolar right now.

We are no longer in a bull market, nor are we in a bear. We are in a bull vs bear battle.

Importantly, it doesn’t end here. The market is almost guaranteed to go much higher or lower over the next several months — reflective of the wavering fears infecting investors right now. 

To those who insist that markets always bounce back after a pandemic, remember that the difference this time around is the justified concern that there is a supply-side issue and much of the world’s supply chains will be disrupted by this. When SARS hit, China’s share of the global GDP was 4%. Now it’s 20%.

Supply-side issues lead to earnings issues which lead to market issues that lead to monetary policy issues. 

Or, rather, the issue of monetary policy has allowed the system to ballon to unreasonable expectations, and Covid-19 could be the pin that pops it, even if indirectly. 

Let’s also consider some societal effects here. 

For fun, of course. 

Venues are closed around the world — look at Italian soccer matches being played behind closed doors. They pushed back the new James Bond movie by 7 months. Airline revenue has gone through the floor. The Baltic Dry Index at 4 year low. 

The Coronavirus is forcing employees to work from home. Some may never go back to the office — a win for employees, a win for the environment, and a win for productivity as there’s more time for work/leasure with travel times at 0.

As you tend to stay at home more, you tend to watch more Netflix, you tend to order food in as there are more options to deliver food at home. 

Stocks of collaborative or teleconferencing tools, such as Slack and Zoom, have also soared over the past month.

As consumers shift their demands to digital delivery and e-commerce, JC O’Hara of MKM Partners built a list of stocks around this trend.

“We tried to identify what products/services/companies would potentially benefit in a world of quarantined individuals,” said O/Hara. “What would people do if stuck inside all day?”

The full MKM “Stay at Home” index of companies:

Activision Blizzard

Netflix

Tencent Music

Zynga

Facebook

Match

Yelp

Zillow

Nexstar Media

New York Times

Sirius XM

Boingo Wireless

Purple Innovation

Sonos

Amazon

Blue Apron

Alibaba

eBay

GrubHub

JD.com

Shutterstock

Peloton

Sturm Ruger & Co.

Campbell Soup

Central Garden & Pet Co.

Clorox

Okta

Alarm.com

Citrix Systems

Atlassian

Slack

Zoom

Diamond Eagle

Let’s not forget that cash is pretty hard to transact when you can’t leave your domicile to spend it. 

As the digital economy sees an upswing, let’s not discount the increase in demand for a digitally native currency. As more people use the internet, more demand is in place for a currency built by and built for the internet. As nations around the world struggle to keep their economies afloat, more and more demand is shifted towards a currency beyond borders. 

We could very well be seeing the beginnings of a new age in technological adoption as consumer trends demand more of the digital economy. 

Certainly, it’s possible for the coronavirus to repeat history and recede into insignificance within a year. 

But, let’s not discount the alternative and all the changes, both economic and societal, that will bring. 

Is it really only March?