10th Biggest Rally In Stocks Ever

March Madness

March Madness college basketball tournament was canceled, but March madness in markets is still going. Many investors who have been in the game for decades have said this is the craziest action they have ever seen. Personally, I followed markets during the 2007-2009 recession and concur. Total decline in stocks might not be greater than that bear market and the recession might not be as bad. But the movement in stocks in 2020 takes the cake. 

In hindsight, the best tell that this would occur was the treasury market last week. We didn’t fully get the picture because stocks were already moving wildly before this week. It turns out that the prior two weeks were only appetizers for the main course that was this week. 

As you can see from the table below, this week had two of the 20 worst daily declines. Friday’s 9.29% gain was the 10th largest in market history. There were two greater rallies in 2008 and the rest were in the 1930s. Many think the 1930s market was more raucous than this, but none of us have traded through that obviously.   

In some ways many anticipated Friday’s rally, but we didn’t expect it to be that sharp obviously. Firstly, the stock market was very oversold. By many measures the stock market deserved to rally. Sentiment was such that investors believed none of the indicators even mattered. Reality is even if there is a pandemic, there will always be a floor for stocks to reach. 

Well capitalized buyers should be motivated to buy because most know COVID-19 is temporary. In my own personal trading account, I avoided most of the losses, yet I still felt the pain traders usually associate with bottoms. You’re supposed to buy stocks when it’s painful to do so. 

President Trump’s Presser

Besides stocks being oversold, we expected them to rally on Friday because the government couldn’t let this situation go on much longer. If it didn’t act, there would be large scale damage. Traders didn’t want the White House to say stocks are a buy or for the Fed to do another round of QE. They want the government to have a plan to combat COVID-19. 

Only after mitigation efforts are in place do markets want a fiscal stimulus. It was known during the trading session that Trump would speak before the close, yet stocks were barely up at one point. As President Trump started speaking there was a rally into the close like the last two Friday’s. Except this one was more vicious. S&P 500 rallied 6.38% in the last 25 minutes of trading which is when the President was speaking. 

At his presser, Trump declared a national emergency which freed up $50 billion in financial resources to help states and territories combat the virus. And Trump stated Google developed a web questionnaire to help people determine if they have the virus. However, he was mistaken as Verily, one of Alphabet’s companies, was working on a website just for healthcare workers. 

Since President Trump stated that, they pivoted to working on a website for everyone. It will start by servicing those in San Francisco on Monday and scale up from there. Plan is if the website determines people need to be tested, they will be directed to drive thru sites where people can stay in their cars while they are screened for the virus. 

President Trump expects to have 1.4 million test kits within a week. Many think that’s not ideal. The country has moved far too slow on this when you consider the fact that we have seen Italy crippled by COVID-19 for a couple weeks. He said America would have 5 million test kits within a month. Unfortunately, that’s only enough for less than 2% of the public. 

Furthermore, this virus has been going around for weeks. Personally, I know someone who likely has the virus and they have been sick for 16 days without having the opportunity to be tested. They will be healthy by the time the 1.5 million batch of tests is ready. Further bad news is that you can get sick even after you have already had the coronavirus. Like most people, I’m hoping the warm spring weather limits its spread.

House Passes Coronavirus Bill

The House came to an agreement with Trump on a coronavirus bill which passed 363 votes to 40. That’s a high total. Even though Senate Majority Leader McConnell hasn’t been part of the negotiations, it will likely easily pass the Senate. There is bipartisan support to combat this emergency appropriately. 

When House Speaker Nancy Pelosi announced the agreement, she stated the bill included free coronavirus testing for all who need it even for those without insurance. It includes up to 2 weeks of paid sick leave and up to 3 months of paid family and medical leave. It offers stronger employment insurance for furloughed workers. And, it buttresses SNAP and other food programs for school children and seniors. Finally, it offers more money for Medicaid.

Review Of Markets

In short, almost all stocks exploded to the upside. One of the groups which was an exception to that rule was the gold stocks which were destroyed. GDX gold miners ETF fell 14.84%. The rest of the market did amazingly as the Nasdaq was up 9.35% and the Russell 2000 was up 7.77%. 

VIX fell 17.64 to 57.83. Every sector was up obviously. The best 2 sectors were the financials and technology which rose 13.23% and 11.96%. The Fed is still going to cut rates 100 basis points on Wednesday. Fed Watch tool shows there is a 67.9% chance rates go to zero and a 32.1% chance they are cut 75 basis points. 

10 year yield was up 18.7 basis points which helped the financials. It’s now at 98.1 basis points. That’s a massive selloff from the bottom which was 38 basis points (hit on Monday). I expect rates to go to negative in recessions and this is likely a recession. 

However, the move in rates was impossibly fast. As economic data gets worse in the coming weeks, we might see a more controlled rally. It’s become clear a recession is almost here. Almost no one disagrees there will be a recession 2020. 

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1 Comment

  • Kevin Morgan

    March 16, 2020

    As I suspected, the entire Friday move RETRACED and ERASED on Monday.

    Look out below.

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