Investing.com’s stocks of the week
Yesterday will be remembered as a defining day for the current generation of market participants. It was the worst day locally and in the US, since 1997 and 1987 respectively. The JSE All-share is down 25% and is back at 2013 levels. Looking at the US, the S&P 500 has had an easier time and is back to early 2019 levels. As Paul points out below, the market seems to be pricing in an impending zombie apocalypse.
Walking into a local supermarket, you can see how fear drives irrationality. Why do you need 20 liters of hand sanitizer, and a trolly full of toilet paper? People assume the worst and then act on those fears. As a few people act irrationally, then that fear spreads to other people. The same happens in the market. Selling leads to more selling, and then momentum takes over. Is this the bottom? Who knows. Will the market recover? Yes. Humans are a resilient bunch.
Yesterday the JSE All Share closed down 9.72%, the S&P 500 closed down 9.51%, and the Nasdaq closed down 9.43%.
One thing, from Paul
The past two weeks have been really wild in global markets. In years to come, we will remember this time. The coronavirus crash of 2020, perhaps that's what we will call it. There are some other silly names going around, like the WuFlu Meltdown.
The week is not over yet, we still have another trading session to go. According to Eddy Elfenbein, yesterday (Thursday) was the fourth-worst day for the Dow Jones Industrial Average in percentage terms in its 124-year history. It fell by 9.99%. The only days worse than that came in 1929 and 1987.
Twice this week, trading in New York was temporarily was halted after the S&P 500 fell 7%. Under the rules of the New York Stock Exchange, trading is halted for 15 minutes after a 7% decline. These rules are called the "circuit breakers".
The fall from the all-time highs has been swifter than I thought possible. As Michael noted yesterday, the great bull market lasted 11 years but it ended on the 19th of February.
In my working career, I've lived through the Asian contagion meltdown, the Dotcom bubble burst, the market closures after the Twin Towers attacks of 9/11 and the subprime mortgage crisis of 08/09. Those were the big ones, anyway. There were other slumps that were less impressive.
In all of those, we did not sell anyone's shares, unless they bailed and explicitly asked us to. In every case, markets recovered and went on to make new highs. That's what will happen this time. All you have to do is wait!
As I said on Bruce Whitfield's Money Show on Talk Radio 702 last night, the market is currently pricing in the mass extinction of humankind. Which is ridiculous! This is not some zombie apocalypse like we've all seen in the movies. It's a nasty virus that is causing economic disruption that will end in due course. Rates of infection have already turned and declined in Asia.
Keep in mind that the market always moves back up again before the "coast seems clear". The bottom will be when everyone is feeling most desperate. I have no idea when that will be. Personally, I am always fully invested.
Fracking has made the US the biggest oil producer in the world. The current Saudi-Russia oil war has collapsed the crude price, pushing many US wells into a loss making position. For perspective, the price of Brent Crude has dropped from $68 a barrel in January to $33 a barrel now.
The graph above shows that there are very few US producers making money at the moment. Simple economics tells you that shale producers are going to start turning their taps off, which will reduce supply and might increase prices. Given the current glut though, even a reduction in supply might not be enough to move the market.
An important characteristic of the shale industry is that wells can be 'turned on and off' fairly quickly. That is good news for balancing supply and demand in the industry. What is doesn't help though is the cash flow of these oil companies, some who might not survive long enough for the market turn.
You can read more in this Bloomberg article - Shale's New Reality: Almost All Wells Drilled Now Lose Money.
Bright's Banter
The fast-moving consumer goods giant PepsiCo is said to acquire energy drink maker Rockstar Energy in a $3.85 billion deal. This is a very interesting move considering the fact that PepsiCo's Mount Dew energy drink business is not doing all that well and consumers are more health conscious than ever before.
According to Mintel data, the energy drink business is estimated to be a $13.5 billion business in the US alone and has grown by 29.8% from 2013 to 2018. PepsiCo and Rockstar inked a distribution agreement in 2009 which apparently restricted PepsiCo from innovating in the energy drinks business.
Coca-Cola has a stake in Monster Beverage Co and distributes its products. Coke also launched an energy drink in the US called "Coca-Cola Energy" after winning a non-compete case against Monster Energy. Coca-Cola Energy is already available in 25 countries including Mzansi.
These companies are clearly trying to diversify beyond their soda roots, moving into water, coffee, juice, and other drinks to ignite sales, which are growing at single digits these days. I'm personally not sold on the idea that energy drinks will be the next big thing for these businesses, the trend is in nutrition, health, and wellness!
Linkfest, Lap it Up
Having ghost flights is not great for the environment or for airline profitability - Airlines Are Flying Empty 'Ghost Flights' Amid Coronavirus Fears.
You can clearly see Mpumalanga on this map. All the white dots are coal fired power plants that are closing - All the World's Coal Power Plants in One Map.
Signing off
Asian markets are down but are off their lows of early trade. Looking at the US, the futures market is pointing to a higher open. The Rand has also strengthened over the last few hours, now trading at $/R 16.45. The JSE All Share is higher this morning. Apple announced overnight that all their Chinese stores have reopened.
Sent to you by Team Vestact.
