If you were to ask someone on Wall Street in mid-February where the markets were going, you would probably have heard – with great confidence – that stocks were probably on their way to more new all-time highs. If you had predicted that financial markets would refuel, you would certainly be mocked.
But when February ended, that was exactly what happened: investors saw a shocking deep withdrawal, something that the base figures do not fully show.
SPX Weekly TTM
As an example, the month ended with 8.4%. But the fall from the highest point in 52 weeks on February 19 was almost 13%.
Worst weekly losses since October 2008
In fact, the major indices suffered their biggest weekly losses since October 2008, when markets were in the grip of the worst financial crisis of this century. The overall performance in February was the worst for the month since February 2009, just before the stock market reached its low point. Moreover, all three most important averages saw a substantial profit for the young 2020 disappear completely after mid-February of this year.
The S&P 500 lost 11.5% last week alone. They suffered a loss of 12.4% this week and ended the month with 10.1%, almost 11% this year. The week fell 10.5% for the week, ending with February at 6.4%, lower by 4.5% for the year.
At the beginning of February there were four US companies with a market capitalization of more than $ 1 trillion: Apple (NASDAQ :), Microsoft (NASDAQ :), Google-parent Alphabet (NASDAQ 🙂 and Amazon.com (NASDAQ :).
AMZN Weekly TTM
By the end of the month, Alphabet and Amazon had fallen below $ 1 trillion.
But tech shares reached an impressive rally of their lows on Friday, with both Apple and Microsoft ending the day, suggesting that a rebound could occur this week. However, energy and stocks, which were badly damaged last week, also have to recover.
The apparent catalyst of this mess was the corona virus (or Covid-19), the flu-like disease that has spread from China all over the world. The first known death in the United States took place in the Seattle area on Saturday. The announcement a week ago that the disease had hit Italy caused the panic of the past week.
Yet the epidemic is only part of this story. The coronavirus was simply the trigger that eliminated the legs of overbought markets around the world, especially the United States.
Energy Shares Slump; Some biotech companies win
You could see in January and again in February that the major indices reached technical levels that strongly indicated that they were overbought. The relative strength index of the NASDAQ (a measure of the momentum) was above 70 for 15 of 21 days in January and another five in February.
And American stocks were not alone. Shares in, the, and each fell by at least 8% for the month.
There is a third mechanical idea to consider: that the sale was prompted by the Federal Reserve, which reduced the size of its interventions on the money markets, forcing a number of hedge funds to reduce their positions.
Some losses of 52 weeks high were amazing. Tesla (NASDAQ 🙂 reached a peak at $ 868.99 on February 4, an amazing 125.8% profit for the year.
TSLA Weekly TTM
The stock closed at $ 667.99 on Friday, a decrease of 31.1% from its peak. Nevertheless, it is at least an increase of 59.7% for the year.
Apple and Microsoft together lost $ 424.5 billion in market capitalization between their latest highs on February 12 and 11 and Friday, respectively. (They are both still slightly higher than in the year.)
Those declines are only 8% greater than the combined market capitalizations for Exxon Mobil (NYSE 🙂 and Chevron (1945). The oil and super majors are part of the sector with the biggest losers in February, energy stocks, a consequence of the steep dip in prices.
The Energy Select Sector SPDR® Fund (NYSE 🙂 fell 15.3% last week and fell nearly 25% this year. Exxon Mobil fell more than 17%; Chevron fell 12.9%
the global benchmark, fell nearly 13% in February. The $ Friday Friday $ 49.67 was the lowest finish for the commodity since July 2017; it is more than 24% off this year. West Texas Intermediate, with more than 13% for the week, has fallen by 26.7% since the start of 2020, raising fears that financially weak oil and gas producers would collapse.
Biotech shares were among the best monthly artists. Gilead Sciences (NASDAQ :), an increase of 9.75% in February, was the fifth best S&P 500 player because it seems to be closest to developing coronavirus treatment.
Fast recovery possible
Yet it is possible that for all the violence of last week's downturn a recovery will take place quickly.
Of course, the Federal Reserve will do what it can to support the economy, just like central banks elsewhere. If the Fed again, as some speculate, and add reserves to the credit system, which lowers interest rates, a recovery in stocks should follow.
Since January 2017, when Donald Trump took office, there have been some serious but relatively short episodes, two in 2018 alone. However, both had to do with market reaction to news from the US-China trade war .
The challenge in 2020 is that nobody knows much about the corona virus, especially how fast it can spread and how much damage it will cause.
Although most cases were initially related to those in China or people who had contact with people who had been to China, a growing number of cases seem to come from nowhere. That will almost certainly depress economic activity locally, nationally and globally.
Companies, including Apple and Microsoft, who bet that China will be the source of future growth, are already warning of profit and sales in the first quarter and are probably missing earlier targets.
Like so much that is unknown about this virus, the answers can come slowly and require hard work to clear up.
