Wall Street ends Tuesday's session down sharply again, taking the two day drop to -6.3% for the S&P500 and -16 bps for the UST 10yr benchmark bond

Wall Street ends Tuesday's session down sharply again, taking the two day drop to -6.3% for the S&P500 and -16 bps for the UST 10yr benchmark bond

Wall Street has closed sharply lower today, down another -3.1% since yesterday, and down -6.3% in the first two days of trading this week.

These are major falls, wiping -US$860 bln from the NYSE equities alone. A -US$1 tln February fall is on the cards now.

At the end of 2019, the market capitalisation for the S&P500 was US$27.76 tln and at the end of January it was US$27.72 tln. It is now US$26.87 tln and falling.

Professional market participants 'know' that markets often overshoot when they correct, and many are taking that view now. It is a view that is US-centric and relies on the expectation that American companies and the American economy are somewhat isolated from global events and forces.

It is a view that will get tested in coming days. This week's sell-off is the largest since the -8.8% drop from January 26 to February 8, 2018 which was the prior modern record shortfall. The longer September to December 2018 market retreat cost -US$3.55 tln in market capitalisation and saw the S&P500 retreat by -17.5%. Both were followed by recoveries that made back the losses within five months.

A trigger today has been the American Center for Disease Control (CDC) warning to prepare for a pandemic. (And it's a warning that is directly opposite to the US President's claims.)

The big risk is that workplaces are where people gather and can catch and spread the virus. It is a major risk that health authorities will recommend that people don't go to work wherever there is an outbreak.

Bond market investors are watching with elevated fear.

The UST 10 year yield is now at 1.32% (down -4.2% on the day) and that is a record low. It is lower than the depths of the GFC where it only got down to 1.43% in July 2012. In July 2016 it subsequently got down to 1.37%, the previous low.

All eyes will now be on the NZX this morning which closed yesterday down -1.2% and is down -3% since the open on Monday.

Finally we should note that the current world economic growth cycle is now 126 months, the longest in modern history, and exceeding the 120 months between March 1991 and June 2001, and the 108 months between April 1961 and March 1970. We seem due.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

85 Comments

Comment Filter

Highlight new comments in the last hr(s).

This is basically only on overseas stats. Once numbers inside the States can not remain hidden she's all on.

How long before the reverse wealth effect makes people pull their heads in?

Those with asset portfolios weighted in favour of property will be relieved.

Shares/equities and various financial products are at much greater risk during periods like the current one......

TTP

16
up

Depends. Lending for property has arguably been the primary vehicle for money creation, particularly in Anglo Saxonia. You want your bubble, then live with the consequences.

11
up

Dumped my stocks last week - 1 minute of my time - now let's see how house prices hold as the pandemic heats up..

Exactly. In fairness prop bulls will be "la la la" until the cost of money changes forcing banks to review debt/equity conversations. Global trading conditions would need to drive mass unemployment to make that happen. Still on the fence but downside risks are definitely increasing.

TTP, you're dreaming with this. The NZ property market is overvalued, as is the sharemarket. Both will get a big hit if global stock markets crash, it'll just take a while longer to filter through. It's the massive amounts of debt that is the common factor. Both just need a catalyst to slide. If it's not the virus, it'll be something else. Value investors have been waiting with a lot of cash (like Buffett with 58% cash) for this to happen. It's inevitable, as the cycle has been very long.

10
up

Not sure how much financial markets experience TTP has.

11
up

He seems oblivious to how they are connected to property markets. Look what happened in the sub-prime debacle ffs.

12
up

he overlooks that property owners are leveraged to the moon, share market investors generally not. That's a major when a 'correction' hits

Yip. If you own one house and it's paid off it dosen't really matter how much the price drops because you will sell and buy in tbe same market.
If you owe money on a house and the value drops a lot you are exposed if the value drops below what you owe. I experianced that after 2008 when my RV was $40k below what we paid, if you can not service that loan you are in trouble!

You've just summarized the property price bulls. They don't know what they don't know ...

CN
1. So what do you know?
2. Your view on the house prices six months from now?

1) I know very few things are ever 100% certain. There are a range of possible outcomes with a range of probabilities.
2) I have no view on house prices six months from now.

Hi CN
Pretty easy then; you are not prepared to commit to an outlook - just sit back and criticise those that do.
No nous needed for that.

Just because someone asks or wants an outlook, does it mean that there is one to give? No.

What I have been saying is that property price risks are elevated in certain areas of NZ, and some highly leveraged property owners are vulnerable. Owner occupiers buyers should be aware of potential risks when making their decision to purchase (and not just focus on the property promoters who are highly visible in the media). Each geographical market is different, each property investor has their own unique set of circumstances, so they have to make their own assessments.

The comment that many people don't know what they don't know is an observation. Also, it is to raise an awareness that there is a gap in people's knowledge, and that they're overlooking something vital, which could cause highly leveraged property investors potential financial stress. People can choose to go and find out what it is, or they can choose to continue being unaware, until the issue matters to them. Those issues have been raised in past comments by many people.

Hi CN
Thought about being a politician? You would be great.
Cheers :)

The property market may correct, it's just on a longer timescale than equity markets.

If there is a bank failure or the cost of lending rises (and hence interest rates go up), the property market will definitely feel it. Remember there is greater and greater integration of global financial/asset/property markets due to lax regulation in major economies allowing things like margin lending, banks to mix and fold property market money into equity and futures/derivative markets. This makes it much more likely if there is a major drop in sharemarkets it will flow through to financial markets. So I wouldn't crow about property always holding it's value in the long term. It might be OK today... but if interest rates raise as a result and high equity loans are called in... there will be a blood bath in the already overvalued property market.

Interest rates will never be permitted rise enough to lower house prices. The crooked RBNZ will ensure that.

TTP just said Financial products etc. - Will it affect the Banks & Insurances? then central bank decision? since I'm sure they deal with money, financial matters - if it's affecting their bottom line, what do you think their next steps? - Just may be? those asset portfolios you've mentioned was achieved through means of bartering not via bank loan etc. - after all we started to see from time to time that there's a property that has been procured through bartering with crystal meth. It's mortgage/loan free, in this case you're correct. But how many now days? in that freedom/mortgage free status?

There was no mention of spoofing.

Hi Keen Observer,

If you're going to quote me, then please quote me accurately.

I stated above, "....... various financial products......"

TTP

More importantly, how much of Keen Observer's comment did you understand?

3, 2, 1...

I noted last week the percentage of new listings in Auckland that were going straight to auction, it was 40% in the 7 days from 28th of January, climbing to 44% in the 7 days ending 19th February.
In the last 7 days (20th to 26th February) that rose to 66% of new listings in Auckland going to Auction, someone is feeling the heat to cash out and i think this is the point where the game is up for many......

Agree. An auction is the fastest way out and many are taking that. How long till the masses figure out that the investors are selling up asap and prices drop?? Not long at all!

given the stock market is just reacting now, it is inconceivable that the property market would be that ahead of the game.

I think the auction activity is a responce to the recent upswing.

It will be months before the property market reacts

At least a 2-3 week marketing campaign for residential real estate to drum up buyer interest. And the real estate agent may have been selected about a week before that at the earliest.

Most investors have tgeir finger on the pulse. They tiok the new laws in their stride but this is something different. It was at least three weeks ago when face masks were on the hard to get list, so that stacks with auction rates comeing on now.
I unloaded two hoises months back becauae I thought we were at an end. Other investors are at it now I'm guessing.

This could be the beginning of the end for those thousands of "startups" that operate under promises of healthy returns in the long run while burning through piles of cheap cash.
The contagion risk of a major gig provider ( Uber, AirBnB, etc.) collapsing could be really high as it would put the livelihood of millions around the world in jeopardy.

Would be interesting to know just how much of the inner city Chch apartment build has been bought by investors for AirBnB ... from staying there four times since end of December, I wouldn't be surprised if it was more than 40% or higher.

New apartment market is going to struggle more than it is already. No idea about other sectors.

What about those projects currently under construction?. Presales of units. They may not be able to settle at completion. These owners could list for sale at lower prices to get rid of them. There was a case at Sugartree in Auckland of a purchase by a student, and couldn't settle, and was willing to sell at a loss.

You mean like the dotcom bubble in 2000......

VC funding is getting tight now. Softbank, a key source of funding hasn't raised their desired level of funds. The IPO window for growth tech businesses is narrowing.

Any start up that doesn't have funding for a long period of time with a high cash burn may not survive.

You mean like the dotcom bubble in 2000......

Next generation of investors learning the same lessons as the previous generation.

Exactly.....

It's gonna be very interesting to see where the stock prices of companies like Tesla and Uber go. Tesla shot up $917 from $300 in a year, making it more "valuable" than the whole VW group (that sells 30x as many cars per year and has waaaay more assets). It's just cheap money trying to find an investment with measurable ROI... "Value" determined by expectations to the 9th power. I wonder what happens when those expectations turn into negative.

The argument I see trotted out is that Tesla is an energy company not a car company.

Imagine what a hot war even at a regional level between two super powers could mean nowadays.

As President Xi said, we are living in a community of shared future for mankind. So let's work together to build a better world for us and future generations.

10
up

Does that mean working together in support of China’s ambition of being the worlds government for controlling the masses with surveillance etc in the Orwellian state ?

15
up

Respectfully dont want to share anything with Xi or the CCP. Especially not his surveillance state, media control, organ harvesting, meth manufacturing, state sponsored hacking and IP theft. I'm sure there are more.

Easy to say but hard to do? For example work together implies accepting international arbitration about ownership of remote islands. With work together you have wins and losses but on the whole everyone ends up ahead - so President Xi speaks well. However if unwilling to accept any losses then it is not 'work together' and the possibilty of a hot war increases.

Xi always said that, after all that's how the CCP try to win lower decile people understanding, via 'work together' 'same goal' 'shared future prosperity' - What he reluctant to mention is that: There's always a cost of everything on this planet, it is cost to achieve a shared prosperity, but really, do we share? - and? the unpleasant/poor by product of it.. do we share those burdens? - Look at JLR right now with other 3 prominent Chinese on the dock right now. When in prosperity? (do it silently) only shared with the preferred party, I don't see the green, lab, act, nzfirst there. And when have to go down? - blame each others. C'mon Xing albeit full of flaw for the sake of this 'British Commonwealth', you're here right? and possibly still okay if want to move to UK, OZ, Canada, Fiji etc. - Now, tell me in the 5000yrs of Chinese history. Where on earth do they created as such? 'Chinese Commonwealth' countries. And please, don't state Taiwan, Singapore & Hong-Kong - They're all full of Chinese BUT not created by China dear.
China is for Chinese, and Chinese is for China - it's never about the world, China cannot enforce/marching war with the world. When the world now started to opening up their eyes and may ponder if such a good idea... to source everything from China.. or Not. China current monetary strength/economic engine is as good as the world willingness to source their productions from China, The world may start looking somewhere now.. India perhaps? Russia? Brazil? Indonesia? .. throw your dart. - Here's my last point Xing, ..for future mankind, shared prosperity.. 'IF' Apple decided their production factory in China, do you think China? will subs some of that works to India, Japan, South Korea, Africa, Russia? - you now the answer

Steve Bannon said it best. The CCP are bunch of gangsters. And they unleashed this virus on the world.

JPY as a risk-off barometer appears to have lost its magic. Has appreciated 0.5% against USD but we would expect something greater considering Japan's position as a leading net external creditor and JPY's behavior from the GFC and the emergence of the "QE forever" bubble in asset prices.

J.C , respectfully disagree. Everything is reasonably orderly at present. If the yen is truly pulled back home , some currency pairs will be looking for a new floor. The yen is relatively stronger now than back in 2007/8 , against most currencies, including the USD, notwithstanding its recent share market highs and economic performance.

Fair point. I'm a bit too focused on USD/JPY.

Have to say even I am surprised at strength of this fall, and I'm a share bear since two years ago. Was expecting a little technical consolidation (even though a major correction is warranted on a contracting global economy since before Coronavirus, and the rather exaggerated effect virus has on our ag sales and tourism for New Zealand).

So you missed out of a bull run for the last 2 years...ouch!

10
up

No. Preservation of capital is the only goal at my age: on what I have I can live the life I basically want. If I lost half over that time, I have to be nice to clients again. Thus shares, in my case, were an unacceptable risk. And share values have been a bubble for well over the last two years: no one can time markets, but we should all be aware that market reality (price discovery) always beats state central planning in the end. No regrets at all, I've a portfolio that is set for long term low interest rates, and which beats inflation, for as little risk as I can manage (albeit still too much risk from the toxic environment central banks have ended us all in).

Individual circumstances.

The loopholes are now being exploited.

https://www.stuff.co.nz/national/education/119811050/covid19-travel-ban-...

Safe to say the ban is now pointless, and therefore a lot of the worries are coming to fruition. Expecting the slide to continue now.

There was a case in China where they did not show any symptoms for 27 days ...

Yes we can safely say with that in mind there is no stopping it coming to NZ unless there is a total lock down of the country, which would a really tough call and trade would be affected!
Rock and a hard place!

Export education seems to be at the receiving end of yet another subsidy. When (not if) some of these students, paying fees in the millions, end up bringing the virus to our shores, the taxpayers will have to shell out billions in medical expenses and quarantine.

The worst call ever to allow it! Jacinda has shown us she's not upto the game before this went down hill. Now we expect a better reaction in an even tougher enviroment?
I'm off for a bit, my perpping has gone from 20% to 70%. I'll grab the last of what I need on the way if certian thresholds are exceeded.

Lots of things are now becoming pointless.
Kiwi Build. Queenstown roading, inviroment concerns, roading infrastucture projects to a certain extent. The Govt needs to back off on some of these projects to see how it all plays out and save the dollars for other incentives that will become clear once the dust settles.
Yes bucks need to be pumped to keep the work / money flow moving but maybe think logically about outcomes and channeling dollars to projects that will see a faster recovery for NZ after the mayhem settles.

Let's not get carried away. Realistically, worst case scenario is the country gets a major infection and perhaps 1% of the population dies, weighted towards elderly people. This is less than 1 year's population growth, unless immigration is dramatically reduced. Potentially a terrible situation with lots of short-term pain, but I don't think it'll have a dramatic impact on long term infrastructure decisions.

Actually worst case is hospitals are overwhelmed and death rate goes up to 5% or more due to lack of treatment for severely afflicted. NZ hospitals only have about 5000 beds of excess capacity, which is only enough to deal with about 30,000 infected. We need to make damned sure it never comes to that.

Health wise / beds / etc.. we'll deal with it even if needs a tone of #8 wire and electrical tape. What will occure, will occure.
Coming out of a recession requires more forethought and is going to take a hell of a lot longer. Rock staring out of the doo doo's needs to be the focus. Proactive v reactive.

That is conceivable, but unlikely. Even in that extreme situation, we're talking about knocking back population growth by ~2.5 years, still not enough to cancel all infrastructure plans.

Yeah I agree but maybe there are better ways to spend bucks to come out of a recession. i.e. inovation took a massive leap forward in the GFC, pumping dollars in that direction now could see a speedier recovery for NZ.
Sonce we have freezers full of meat and ample veg, lets look at providing freeze dried meal packs to the world. Light weight, safe and readerly trasportable arround the world fast by air fright not a ship and needing chilled transport. Even if the world dosen't go into lock down and this all stops now, people will want to do a stock up for the next time.

Mfd
No worries at all. Clearly your expectation is that you are not going to be one of that 1%.

My age group has an estimated mortality rate of 0.2%, and I have no existing medical conditions, so I fancy my chances.

Not trying to belittle the impact of 1% of the population dying - clearly that would be a major event with dramatic consequences. However, in terms of infrastructure requirements it's a ~1 year delay.

About 1.25% die a year anyway. This just doubles it for the year.

I see your point but surely these projects just represent catchup for previous poor investment.

Maybe, hey I'm no expert. I just see issues and as I've got a logical / praticial solituon head, I'm 80% sure that the world is going to change quite a bit, so let's sit back and think how this can play out and better alocate dollars for a speader recovery. I get it that Gov'ts can't turn on a dime like that but maybe they should try. As a builder I use the 5 step rule. 5 steps back and tbink about it for 5 min's. It saves breaking my back and a lot of dollars.

The ripple effect of the virus and the super debt markets and the cost of the wars to end all wars and the sly roads to riches phenomenon and the climate effect making markets hot and cold and the exchange rate factors and the insurances, we are assured to buy to keep the sky wards building booms and inflationary factors and population explosions are bound to hit a rough patch....periodically.

Maybe the next 20 - 1000 years...who knows?.

I do believe and hope the United Nations will decline to be infected and we revert to a simple life, simply enjoyed, for as long as we live...Amen.

But we gotta keep the ball rolling, the bull in the China Shops and Trump flying his kite around the World, flogging more armaments to lots of Nations, cos the Natives, might get.....revolting.

Policing the States has become just the way of the future....Gotta keep the peasants from revolting . So hurry up and keep buying the Dip, says the Dipstick who has bankrupted himself over and over again. Orr we is in big trouble...here. In sunny NZ.

Is it the Emperors new cloths time?

The big reset has been building for years, bring it on. Margin call FTW. The computer creation of money with no real asset backing driving the amount of leverage used in real estate and stocks markets is a bane our times. It only serves to promote the interests of money lender, while offloading the risk to others. Perhaps all those mad doom preppers on tv will be shown to be not so mad after all.

Edit. Interesting comments https://www.infometrics.co.nz/assessing-the-impact-of-the-covid-19-outbr...

It's been interesting to watch the market reaction. Up until today pretty much all the market moves have fitted by the dip. Even yesterday's NZX fall by 3.2% retracted by the afternoon. Now certain shares have crossed the 180 day moving average and are close to crossing the 200 day moving average. I don't invest based on technical analysis but this is approaching a real change.

The US markets are down around 6% but some consider 10% an actual correction (also sustained drops often trigger margin calls which could drag down the market further this week).

The World Bank launched a $425 million 2017 catastrophe bond issue supporting its Pandemic Emergency Financing Facility (PEF). There are two tranches of PEF bonds outstanding, expected to mature in July, and this means investors of the bonds will collect massive profits if the bonds aren't triggered or will lose everything if the Covid-19 outbreak continues to escalate

https://www.zerohedge.com/markets/here-are-425-billion-reasons-why-who-r...

Americans are suffering from HUBRIS if they think the events outside America will not affect them .

Maybe history could teach them a few lessons ...........Just look at the Asian Banking crisis ............the US markets were not left unscathed .

It could be a lot worse for the US if the supply chains from China are affected , we seem to forget China is the worlds factory for almost everything

Now, we might start to wake up from hidden word of globalisation, cost restructuring.. out source everything on the planet from just one country. Some says jokingly, that only 2% of today's modern world created by God the rest is 98% Made in China. I just wonder if the big fella that being labelled created 2% started to move the wand as 'being God' to remind us, the human being.. that world mankind it is never about one country, race, party, faction. What we seems to forget too, what happened if this main worlds factory decided to hold the world in ransom.. stop the production. Imagine if Saudi have to bow to Chinese demand to sell oil to them at a fraction of the OPEC agreeable cost.. if NOT? they'll stop all Made in China to Saudi. Ouh that Audis, Lamborghinis, Tesla, Ferrari, Bentley, GM-Holden anyone?

cash is king at the moment
there will be a lot of bargains to buy once all this settles down

About to put a Condition Offer on my first house, should I chuck in an out clause in the case of financial armageddon...

sorry to be the bearer of bad news
the only person that knows that is yourself, only you know all the circumstances involved,
best to take any advice with an open mind
and remember for most people buying a house is the biggest decision they will ever make so its ok to be cautious

5m fled Wuhan before the quarantine. A reasonable ppn would have been covid19 carriers. Even with the CCP manipulating data and suppressing information they could not fully hide the enormous death toll outside of Hubei that will be occurring if the death rates in Wuhan can be reliably extrapolated. Some news of the physical evidence of plague death such as mass body collection from apartments etc would surely be rippling through the huge Chinese international diaspora. Some Chinese Kiwis would have lost relatives by now and one would expect media reports to this effect, but curiously none that I've seen.

People with family still in PRC have to be very careful about what they say - as it is very well known, with endless examples, that their relatives are used as hostages to control their behavior. Also it is very easy for the PRC to kill people that embarrass them using disease as a cover (remember that young whistleblowing doctor in a 0.2% death rate demographic who conveniently died?) - they have rounded up and confined millions of suspected exposed people in open plan facilities that ensure that everyone ends up exposed and infected. Also the great firewall has been dialed up to 11. Hard for info to get out.

Yeah, I'm very conscious of the ability of totalitarian states such as the PRC to control people and information but this horse bolted weeks ago, well before the politically stifled CCP bureaucracy wised up and cranked into action. If it is as transmissible as claimed then it will have travelled widely throughout the huge, mobile Chinese populace. News of the vast scale serious illness and mortality that is purportedly a product of this virus could not be fully contained by even the most suppressive regime. There are huge numbers of foreigners travelling in china at any one time and expatriates would quickly smell a rat if they encountered evasiveness when enquiring about a loved one back home. Even the hideously repressive North Korean regime cannot keep secret its periodic famines and environmental disasters. Might there be a simpler explanation ie that the infection and mortality rates in Wuhan's degraded environment are not being replicated elsewhere in China, despite the disastrously high smoking rates in that country ?

australia already gone to pandemic footing, the one good thing both nations have in common is we are islands whom produce enough food to sustain ourselves, interesting to see when we follow suit, my company is already planning for it and putting in measures so we can work remotely (from home) in case we have restrictions

https://www.smh.com.au/national/virus-emergency-blueprint-australia-pull...

Bag those bargains while you can people, I am! Corona virus is nothing compared to inluenza or scepticemia, yet. They kill tens of milions worldwide every year and the stockmarkets are full of companies that make billions each year treating those illnesses...if corona follows suite there will be plenty to make if you are in the right stocks!

already brought shares in the company that has made the first vaccine, its a gamble (so not much thrown in) But you never know

https://www.cnbc.com/2020/02/24/jim-cramers-mad-money-recap-stock-picks-...

Stock markets are in full David Lange 'demented reef fish' mode. Make sense of medical aspiration mask maker Fisher & Paykel healthcare rising 85cents on a market announcement that sales had risen strongly, partly due to Covid19 and a few days later crashing by several multiples of that on news that the news was becoming a reality.

"demented reef fish" mode is so appropriate at the moment - I'm in wait and see mode. If Napier Port Holdings get a bit cheaper I may be tempted.....

Bargain hunters were having a bit of a dabble earlier but seem to have backed off bit now. Wait and see is unlikely to get you bargains; by the time the 'see' bit arrives it's usually too late, you've missed the bus. If CV is indeed 'the' black swan financial system tipper then we are in for a mighty painful slide and you gonna do some dough but if you think it's not then you are saying this is a short term blip, that the walls of retirement savings money which continue to gush and must be homed will overcome the fear.

Your access to our unique content is free - always has been. But ad revenues are diving so we need your direct support.

Become a supporter

Thanks, I'm already a supporter.