The Dow Jones recoiled on Wednesday as investors confronted horrific economic data that dented the resolve of even the most resolute stock market bulls.
Bank of America and Goldman Sachs each posted a 45% decline in Q1 revenue, while Ray Dalio compared the economy to the Great Depression.
These developments added to an already-rough day for the Dow Jones as crude oil slid back beneath a crucial price level.
All three of the major U.S. stock market indices suffered steep losses today.
While Donald Trump took a victory lap after successfully brokering a supply cut with OPEC+, investors have resoundingly written it off as irrelevant without a serious uptick in demand.
The price of crude oil briefly crashed below $20 per barrel today after oil inventories rose by 19 million barrels – roughly 8 million more than anticipated.
Collapsing oil prices are not typically good news for the stock market, as the stimulus it provides to households is negated by the impact on the United States’ huge energy sector.
Another weight on the Dow Jones was a slew of jaw-dropping economic data releases. Whether you look at the 8.7% nosedive in retail sales in March, the -78.2 reading in the NY Empire State manufacturing index, or a historic plunge in home-builder confidence, it was difficult to identify even the flimsiest of silver linings.
Wall Street has been anticipating a host of awful economic data, but its resolve clearly wobbled as it came face to face with the grisly reality.
Further weighing on the mood was financial giant Bank of America, who reported a dismal 45% drop in Q1 profit. This weakness is expected to continue, as lenders are forced to work with businesses and households unable to keep up with debt repayments.
The positive news is that Governor Andrew Cuomo announced the health situation is stabilizing in New York, with state governments on both coasts plotting an exit strategy from economic lockdowns.
It is obvious this will be a very gradual process, and Cuomo admitted it won’t be fully over until there is a vaccine – which could still be “12 to 18 months away.”
One of the world’s wealthiest hedge fund managers, Ray Dalio, has taken a lot of heat for his comments earlier in the year when he said “cash is trash” and called the end of the boom-bust cycle.
Well, the billionaire is back with another bold prediction.
In an interview with Bloomberg, he warns that investing in the perceived haven of government bonds is “crazy,” stating,
This period, like the 1930-45 period, is a period in which I think you’d be pretty crazy to hold bonds… If you’re holding a bond that gives you no interest rate, or a negative interest rate, and they’re producing a lot of currency, and you’re going to receive that, why would you hold that bond? Where is that bond, who owns that bond?
Dalio remains bullish on equities with strong balance sheets in this era of unprecedented financial intervention from the Federal Reserve.
Wednesday was a tough day in the Dow 30, as the relatively moderate loss for the index belied turmoil behind the scenes.
Bank stock JPMorgan Chase fell almost 5% as yields plunged, significantly underperforming competitor Goldman Sachs (+1.7%), who posted a 46% loss in its Q1 profit.
The Dow Jones was anchored by a reliable performance from Apple stock, which was down just 0.4% at $285 after its big rally on Tuesday.
Big oil stocks Chevron (-3%) and Exxon Mobil (-4.8%) fell as Brent crude dropped nearly 6%.
Boeing and UnitedHealth Group were the top performers in the DJIA with rallies of 4.3% and 3.9%, respectively.
Last modified: June 12, 2020 6:51 PM UTC