By Matthew
Klein | Wednesday, April 1
Pain Trades. The second quarter got off to a sour start
with each of the major U.S. stock indexes down 4.4% on Wednesday. Walmart was the only stock in the Dow
Jones Industrial Average to end the day on a positive note.
The gloom was
spread across asset classes, with the yield on the 10-year Treasury note
dropping to just 0.63%, barely higher than the all-time low of 0.5% reached in
March. The U.S. dollar continued its ascent and is now up 5% since the start of
the year.
Today’s losses
were concentrated on the industries harmed most by social distancing: cruise
ship operators, airlines, live events, and restaurants. Every one of the major
industry sectors in the S&P 500 was down for the day. Financial stocks were
hit hardest, down 6.1%, followed closely by real estate and utilities. That’s
unusual -- most of the time, higher interest rates cause banks to earn higher
profits, while falling rates tend to boost the relative value of real estate
and utility.
The current
economic outlook is bad enough, however, that the usual rules may not apply.
The Federal Reserve’s “stress
tests,” I wrote on
Barrons.com today, may not have prepared the banks for the
coronavirus downturn. If the economy fails to snap back quickly, the resulting
loan losses could force banks to reduce cash payments to shareholders.
Bad news was
everywhere today, from purchasing manager indices pointing to a global recession, to plunging U.S. auto sales, to new research suggesting
deaths from the coronavirus are being understated. The Institute
for International Finance reported that foreign investors sold more than $80 billion in
emerging-markets stocks and bonds in March, dwarfing all previous records.
Speaking of dwarfing
previous records, the U.S. Department of
Labor will
report tomorrow just how many Americans applied for unemployment benefits for
the first time in the week ending March 28. Last week’s initial claims figure
was 3.3 million, and news reports from a bunch of U.S. states indicate that
this week’s number could easily top 5 million. For perspective, the all-time
weekly high before coronavirus was under 700,000.
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