A year ago this week the stock market was hitting new highs and it was all aboard. Buyers had all but ignored the so-called Wuhan virus and were buying pretty much everything in sight given the strong earnings just reported during an excellent reporting season.
Underneath, though, there was a story simmering that would cause one of the swiftest bear markets in history.
This is the story of that bottom.
At the end of Part 1 of "The Birth of a Market Bottom," Federal Reserve Chairman Jay Powell was doing his level best to compensate for a president and Congress that seemed dumbstruck by the sudden disruption to the economy and financial markets caused by the onset of the deadly coronavirus, or what would come to be known as Covid-19. The arsenal of monetary weapons that Powell suddenly unleashed on Sunday, March 15, 2020, far exceeded the steps the Fed took to staunch the financial crisis of more than a decade before.
But as noted in Part 1, the market did not take kindly to the Fed's unprecedented actions. Indeed, it was hard to see whether the aggressive measures would turn the tide and help the market find a bottom.
It certainly did not look that way on Monday, March 16, when the S&P 500 would plunge a stunning 12% from its Friday, March 13, close as it dropped to 2,386 from 2,711.
Yet a day later, on Tuesday the 17th, the markets recovered. The yield on the 10-year rose the most in a single day since 1982 as Treasury Secretary Steven Mnuchin talked about President Trump wanting to give out cash now, "and I mean now." Trump had gotten off the payroll tax cut, which was worthless to the burgeoning unemployed. Now he was throwing his lot in with the Democrats to get something big passed. The Dow Jones Industrial Average, which had opened at 20,487, closed at 21,237. Most observers identified it as a relief rally.
At the same time, corporate America, dazed and confused, seem to have some leadership. Amazon (AMZN) CEO Jeff Bezos decided to add 100,000 new jobs, the first of hundreds of thousands, as the company's orders swelled out of consumers' fear of going out. Boeing (BA) drew down its credit line; the company saw the tsunami of order cancellations coming.
Even so, Wednesday, March 18, was simply horrendous, with the Dow starting at 20,188 and nosediving to 18,917 before struggling to finish at 19,898, a close below 20,000. I have scoured that day multiple times looking for a catalyst for that decline. Looking at earnings news it was mighty hard to find. But not if you watched television.
The intraday low came during a soulful, intense rambling about an apocalypse as predicted by hedge fund manager Bill Ackman, who said "Hell is coming." He wanted the president to shut down the economy, telling CNBC's Scott Wapner, "It is the only answer." Interspersing many references to what would happen during the pandemic, including wiping out whole industries if the president didn't act, Ackman portrayed himself as an armchair expert on the disease. We learned that 50% of the world was going to become infected. He also admonished us, "It's killing young people. Assume it is going to kill your child." Not anyone's finest hour.
Oddly, Ackman also made it clear that he was buying stocks, including the stock of Hilton (HLT) , even though it "could go to zero" if no action was taken. Why? He was optimistic that Trump would listen to him -- to him. How could he not, Ackman pontificated. "America will end as we know it, I am so sorry to say, unless we take this option," he said.
I was watching stocks basically stop trading with the offers showing up below the bids in many large capitalization stocks as Ackman alternately spewed his medical and financial jeremiads and at the same time talked about putting money to work. Believe me, the latter did not counteract the former. The Dow did not properly reflect the true decline and it would mark the second-lowest moment in the crisis, although given the jumble of prices it might very well have touched the coming formal intraday low of March 23 at 18,213.
It was a hedge-fund-induced bloodbath couched in a very nice non-common attempt to express faith in a president that was out-of-body entirely. It might have been the single best "get short go long into your own negativity" I have ever seen, and it was pitch perfect.
Bill Miller, the redoubtable stock picker, came on not long after and said he was picking up some Amazon as he noted, "I am an investor, not a doctor, so I will leave that to the government health authorities." Amazon's stock was at $1,800 then. It's now at $ 3,200.
Score that stock picker, 1; hedge fund medical chieftain, 0.
Meanwhile, the S&P oscillator, my benchmark for all things positive and negative, after readings of minus 21 for two days straight, hit minus 24, the lowest reading ever, taking out the Crash of 1987.
Thursday, March 19, was remarkably calm, in part because the market had decided to key on oil, which rallied $2.63, or 12.9%, to trade at $23 a barrel after dropping nearly 25% the day before to an 18-year low. U.S. senators, bizarrely, were reaching out to Saudi Arabia and Russia to stop a price war that was wreaking havoc with Texas producers, which, of course, was the goal as the Permian had become the swing producer. It was the first of many sideshows that clouded the judgment of many: This decline had nothing to do with the price of oil. But it did highlight that the balance sheets of the oil companies could become stretched, causing what some were eager to cause, namely a credit crunch.
We began to get the first of across-the-board downgrades and estimate cuts, which had been in abeyance until that moment. Why not? We got real estate news that showed a dramatic decrease in the desire to buy a home, mostly because of a decline in the stock market. American Airlines (AAL) grounded half its fleet.
Amid multiple stories of all sorts of fixed-income markets freezing, I counted 79 companies with stocks that had declined 50% with 5% yields. A total of 119 stocks had withered 40% with a 4% yield. That's when you had to hold your nose and start buying given that there was nothing new that seemed horrendous. Just the same old same old, sans Ackman's medical riff.
Two more oddities: Domino's Pizza (DPZ) gave an aggressively positive forecast, again because of delivery, and GameStop (GME) -- egads, GameStop -- with a stock at $4.19 declared itself essential retail. Now there's a bottom.
March 20, a Friday, was plain bad as we learned of snags on a bailout package coming from a rancorous Senate. The Secretary of Treasury did announce that Tax Day had moved from April 15 until July. Nice. But New York Gov. Andrew Cuomo announced a stay-at-home order.
Boeing suspended its dividend. The stock had fallen ceaselessly from $440 in March 2019 to $92, the bottom. Stocks often bottom when dividends are cut.
And some mid-tier quality retailers died on the vine: Macy's (M) down 74% from its high, PVH (PVH) off 74%, Gap (GPS) down 71%. The autos, Ford (F) and General Motors (GM) , had collapsed, each down more than 50%. ViacomCBS (VIAC) was particularly hurt, losing 70%, a stock that fooled me entirely. The homebuilders were almost all down 50%, a move that turned out to be a total head fake as investors couldn't yet comprehend what Zillow (Z) would later call "the great reshuffling."
This story was far from over...