MARKET WRAP: Worst two-day decline in two years, FTSE 100 below 7k, Iger leaves Disney

We’ve now had two seismic daily declines on global stock markets. Short term traders may well choose to grit their teeth for a short-covering rally but we’re getting the impression institutional investors are materially reassessing their outlook for stocks.

The Dow and S&P 500 have just notched up the worst 2-day decline since February 2018 with the Dow giving up over 1900 points in the process. The Nasdaq has closed in the red for the year. Alarmingly, it has been reported that Only 5 US states have the capacity to test for the coronavirus.

European shares look set for a lower open with the number of cases in China moving higher again. There are some stark instances of business being affected now – Royal Caribbean has cancelled 30 cruises in Southeast Asia. Nobody’s willing to ‘catch a falling knife’ with these kinds of headlines. Benchmarks in Europe look in bad shape. The FTSE 100 is back below 7000 and the DAX under  13,000. These have been significant psychological levels that could offer short term relief but there is no evidence of it yet.

The Japanese yen has renewed its appeal as a haven, even as Japan prepares to cancel or scale back all public events for the next two weeks as a precaution against spreading the coronavirus. We saw an inkling of the yen losing its haven appeal last week. Were we to get into the second quarter without the virus under control, we’d look for yen shorts in expectation Japan cancels the Olympics.

We’re starting to wonder -Does Jeff Bezos know something we don’t know!? Of course we’re kidding but it’s just great to have the best advice money can buy. Bezos sold over $4 billion worth of Amazon stock at the beginning of the month prior to the market sell-off.

Investors are positioning for another deflationary shock which has sent the US 10-year yield to record lows. The hoped-for growth rebound after the trade war looks to have been indefinitely delayed because of COVID-19. The two global headwinds to strike China in such short order could do the unthinkable and put the global economy into recession. The timing of the inverted US yield curve last year backs up that conclusion.

Talking of a true veteran. Bog Iger took the opportunity of a distracted market to say he would step down as Disney CEO to be replaced by Bob Chapek effective immediately. Iger has been a visionary true to the origins of Walt Disney himself. Even in recent years, clever purchases of Star Wars and Marvel brands have sent Disney profits and shares to new heights. Iger’s resignation comes just before the international rollout of Disney+, a new direction for the company that Chapek will have to deliver on.

How is the FTSE 100 faring?

A glass-half-full outlook would say the FTSE 100 is still well within its 2-year price range and valuations; they are not as frothy as elsewhere so particularly for dividend investors it’s no time to panic. The half-empty-glass outlook might say UK blue chips couldn’t even participate in the big upside of the last 6 months so that relative weakness points to a tough time if global markets turn sour.

Opening Calls:

FTSE 100 is set to open 43 points lower at 6974

DAX is set to open 77 points lower at 12713

S&P 500 is set to open 13 points lower at 3141

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