3/6/2020 – What a Roller Coaster!

A wild ride ended with stocks higher on the week. Each day Monday through Thursday, the major indices moved up/down by more than 3.6%. That’s unheard for volatility. Monday and Wednesday saw the Dow climb almost 2,500 points, while Tuesday/Thursday declined by a total of almost 1,800 points. Today’s 1% down move seemed tame by comparison. On the week, the Dow gained 1.8% while the S&P 500 increased 0.6%.

For consecutive Fridays, 500+ point rallies in the final hour of trading ebbed Dow losses. For all the bad news and down days we’ve had recently, I think it’s an encouraging sign that large investors were buying late on Friday. When panic really sets in, many investors prefer to sell and reduce equity exposure heading into a weekend. Weekends can be stressful because there are limited options to sell if bad news comes out. We’re still seeing a growing number of cases in the US, although the absolute numbers are still very small. My concern is I don’t see much/any evidence of containment and worry what that means in late April, early May. On the economic activity front, corporate travel is already being reduced. Numerous tech companies have cancelled conferences and stopped business travel. The well know SXSW conference held every March in Austin just announced it was cancelling this year after high profile companies like Facebook, Twitter and Tik Tok backed out. Other companies/industries are following suit. While a temporary situation, a prolonged halt in business/personal travel could push some airlines, cruise lines, hotels, etc into a dangerous financial position, including potential bankruptcies as they are dependent on daily cash in-flows to cover high fixed operating costs. Fear over an outbreak could push us into a recession, or near recession, although I would expect a sharp bounce back when the virus fears recede.

Mortgage rates are at historic lows right now. Refinancing activity is going through the roof. Wells Fargo announced today that all refinancings could take over 200 days because of the backlog of applications and appraisals. If you haven’t already, it’s worth a call to your lender/bank to see what rates they can offer. If you’re in PA, VA or MD, I’m happy to recommend a guy that is currently helping me refinance. Rates on 15-year mortgages were as low as 2.75% and 30-years were as low as 3.125%. If you need help deciding whether refinancing makes sense, send me your mortgage balance, current rate and current payment and I’ll give you some potential scenarios. If your current rate is 3.625% or higher, it could make sense to refinance. If your rate is over 4%, you should strongly considering locking in these low rates.

It tells you a lot about this week and what’s driving the market that the February jobs report didn’t get a mention until the fourth paragraph. The report was great, but realistically is pretty meaningless given what the outbreak could do to economic growth and employment in the months ahead. Microsoft came out today saying it would continue to pay its hourly workers even if the outbreak ended up reducing hours for certain employees. A generous offer for sure although one not every company can offer. Microsoft is holding $133 billion in cash so they can pay employees for a long time without bringing in another dollar of revenue. Most companies are not in that strong of a financial position. For the month, the economy added 273k net new jobs versus an estimate of 175k. Additionally, December and January were revised higher by a total of 243k new jobs. The unemployment rate dropped to 3.5%.

Oil sold-off sharply again this week, decreasing another 8.2% to close at $41.51/barrel. The yield on the 10-yearr Treasury collapsed to close at 0.77%, from 1.16% last week. During the week, the 10-yr Treasury set an all-time low on yield trading briefly under 0.7%. The average rate on a 30-yr fixed rate mortgage moved lower to 3.29% from 3.45% a week ago.

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