The Dow Jones tumbled 1,000 points on April Fools’ Day as a fresh wave of selling ushered the stock market into the new month.
Dow bulls have plenty to be concerned about. Bloomberg’s leak of a secret U.S. government report appeared to confirm concerns that China’s coronavirus data is highly inaccurate.
All three of the major U.S. stock market indices struggled on Wednesday:
Gold rose just 0.28% despite the glaring weakness in risk assets.
In the oil market, Brent stole the headlines with a 6% loss after a sizable build in gasoline inventories. Crude remains stuck around $20 per barrel, with Morgan Stanley forecasting prices could fall as far as $10.
In a perfect example of how dangerous the current trading conditions are for retail investors, today’s ISM Manufacturing PMI beat expectations comfortably, and the Dow plunged anyway.
ING Chief International Economist James Knightley explained this strange price action, demonstrating how the vital reading is being misrepresented by a key component of the index.
The headline index is being artificially boosted by a surge in the supplier delivery times component of the report. Normally, when delivery times are longer, this reflects demand outstripping supply – a good situation.
However today delivery times are extended because of the supply shock relating to Covid-19 with firms struggling to get inputs from China and increasingly from domestic suppliers because of company shutdowns, which is clearly a bad situation. As such, the ISM headline is painting an overly rosy picture right now.
Investors shrugged off this seemingly-positive data and have turned their attention back towards the jobs report.
Goldman Sachs predicts a significant contraction (200,000 jobs) in non-farm payrolls this week, and jobless claims could explode to 5.5 million.
Fueling the suspicion about China’s coronavirus statistics, Bloomberg revealed that a secret U.S. government intel report concluded that Chinese COVID-19 data is underreported.
The report claims a significant number of patients were not diagnosed, leaving the official data “intentionally incomplete.”
This allegation had been on the White House’s radar, with President Trump alluding to the possibility on multiple occasions.
While this discrepancy is disheartening, it is not entirely unexpected given what has transpired in Spain and Italy.
Yet the news could put pressure on Dow 30 giants like Apple and Caterpillar, both of whom have substantial exposure to the Chinese economy.
Meanwhile, coronavirus cases continue to climb. The United States just surpassed 200,000, and global infections are creeping toward the 1 million mark.
Yet some economists say that today’s stock market plunge is less about new coronavirus developments than technical dynamics. The theory is that pension funds bought stocks during the past week’s end-of-quarter rebalancing period. Now that portfolio balancing is over, the “fast money” appears to be wreaking havoc on the Dow Jones.
It was a rough session in the Dow 30 as April Fools’ Day brought a fresh wave of selling to a nervous marketplace.
Erasing its recent rally almost as quickly as it appeared, Boeing crashed 11% as airline stocks came under intense pressure. Adding to the sell-off, the Air Force found a major issue in the company’s KC-46 Pegasus aerial fuel system. BA stock is currently trading at $132.
Likely hurt by the leaked intel report on China, Apple stock fell 5.5%. Caterpillar and Nike, who also have significant exposure to the region, were down 4.7% and 4.5%, respectively.
Only one Dow stock was left clinging to a slight gain as the brutal session finally approached its conclusion. Walmart shares edged 0.59% higher.
Last modified: April 1, 2020 7:45 PM UTC