Historic Drop Monday as Oil Price Collapse Adds to Corona Virus Panic

Monday, March 9, 2020 4:39 PM | Bobby Raines

March 9, 2020 - This week is already off to an historic start. Monday's session, which saw an incredibly rare volatility halt in the first 15 minutes of trading ended with major indices losing more than 7% in one of the worst days in stock-market history.

Adding to the covid-19 panic, is an oil-price war between Saudi Arabia and Russia. Oil prices have been sliding since the coronavirus outbreak prompted quarantines and travel restrictions in China several weeks ago, but the declines got worse as the virus spread around the world.

Late last week oil ministers from OPEC agreed to production cuts in an effort to try to keep prices higher, but Russia, which is not an actual member of the oil-price cartel, but has gone along with production cuts in recent years as part of a group known as OPEC+, declined to participate this time around. That prompted Saudi Arabia to offer steep price discounts to some of it's largest customers, essentially slashing the market price for oil.

Crude futures saw declines larger than 30% after trading opened Sunday evening, before trading 20% lower for most of the night and during the day today. A drop of that magnitude means that nearly every oil producer is selling oil at a loss, including a lot of on-shore companies in the U.S.

The stock-price implications of swinging from a profit to a loss overnight is pretty easy to figure out for those companies, but there are implications outside of the oil patch. A lot of the small and medium-sized oil companies in the U.S. are heavily leveraged, meaning they have a lot of bonds and loans outstanding. A drastic change in their financial situations could mean they have trouble refinancing their debts.

That is obviously bad for those oil companies, but it isn't great for banks either. As the old joke goes, "if you owe the bank $100 that's your problem. If you owe the bank $1 million, that's the bank's problem." A large number of highly-levered companies having trouble rolling over their debts could end up being a problem for a lot of banks.

Russia and Saudi Arabia are also both losing money at this price. At a certain point, how much damage this does depends on who blinks first in that standoff.

As for U.S. markets, we don't expect the underlying situation to improve much this week. The number of diagnoses covid-19 cases is going to rise as testing becomes available more widely. That's going to spook some investors, but as we've swung from all-time highs to very nearly a bear market in record time, we're not likely to just see the market continue to go straight down.

For some insight into how that might look, we're going to point you to Helene Meisler, who writes a long-running column technical analysis column for The Street.

Economic Events this Week

The CPI and PPI data would normally be important this week, but with Fed already cutting and coronavirus and energy prices driving the action, it seems less likely to matter. Consumer Sentiment Might be interesting, but again, new covid-19 data and energy prices are going to trump everything else.

  • Tuesday
    •  NFIB Small Business Optimism Index
  • Wednesday
    • 8:30 a.m. - CPI & Core CPI
    • 10:30 a.m. - EIA Crude Oil Inventories
  • Thursday
    • 8:30 a.m. - PPI and Core PPI
  • Friday
    • 10:00 a.m. - University of Michigan Consumer Sentiment - Prelim

Earnings Reports this Week

Earnings season is winding down, but there's still a few interesting names this week.

Tuesday:

  • Before the bell: IMOS, FLR, DKS, PSN, DSKE
  • After the bell: NEX, KFY, CLDR
Wednesday:
  • Before the bell: PDD, UNFI, EXPR, LK
  • After the bell: WUBA, HUD, KRO
Thursday:
  • Before the bell: BEST, DG, JBL, AZUL, LX, FINV, GCO, GNC, TUP
  • After the bell: ORCL, AVGO, GPS, ADBE, HTHT, ULTA, CAL
Friday:
  • Before the bell: HHR, BKE, GOGO

Sector and Industry Sentiment

As part of the upgrade and redesigned InvestorsObserver, we are now calculating a proprietary Sentiment Score for stocks. This score looks at price action, volume trends and data from the options market when available to try to get a sense of how the market feels about a stock. We're replacing the lists of sectors and industries that have performed well or poorly over various time periods with a ranking of all eleven sectors in order of sentiment and then the top ten and bottom ten industries.

Sector Sentiment

Utilities Consumer Defensive Real Estate Healthcare Basic Materials Financial Services Communication Services Technology Industrials Consumer Cyclical Energy

Top Industries

Grocery Stores Health Care Plans Utilities - Regulated Water REIT - Residential Discount Stores Insurance Brokers Confectioners Utilities - Regulated Gas Utilities - Diversified Drug Manufacturers - General

Bottom Industries

Oil & Gas Drilling Airports & Air Services Oil & Gas Integrated Lumber & Wood Production Coking Coal Aluminum Auto & Truck Dealerships Banks - Diversified Oil & Gas Midstream Oil & Gas Equipment & Services

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