The Coronavirus Outbreak

Markets sold off around the globe, as news that the coronavirus, also known as COVID-19, has spread to South Korea, Italy, Japan, and Iran. Many European markets closed down more than 4%. While the U.S. stock markets sold off hard as well, with the S&P 500 Index down 3.35% and the Dow Jones Industrial Average lost 1,031 points by the end of trading on Monday.

“Although the fear over the pandemic is real, and the potential slowdown in the global economy could hurt 2020 corporate profits, let’s not forget that big down days are part of what long-term investors have had to accept,” said LPL Financial Senior Market Strategist Ryan Detrick.

As shown in the chart below, an average year has more than five separate days with at least a 2% correction for the S&P 500 Index. Even last year, with stocks up 30%, there were five separate days that saw the S&P 500 close down at least 2%.

The United States had held up relatively well in the face of the growing COVID-19 crisis. In fact, according to Sam Stovall of CFRA, the S&P 500 actually gained 1.6% a month after the first reported coronavirus case in the United States on January 21. As the chart below shows, stock market gains historically have been normal after the initial outbreak of various health crises have reached the United States.

Now, could the coronavirus impact the global economy more than previous epidemics and pandemics? That’s clearly a strong possibility, as global supply chains have come to a halt in the world’s second largest economy (China). The good news, though, is corporate America just reported a very impressive earnings season. The bad news is that this might change in the near future.

Lastly, we’d like to stress that pullbacks and market corrections happen and are part of long-term investing. In fact, since 1980 the average year has experienced a pullback from peak to trough of 13.7%. Even more impressive: Looking at the 29 years that stocks have been green since 1980, we see the average year had a correction of 10.9%!

We’ll continue to monitor the impact of the coronavirus situation very closely. In the meantime, we would suggest that long-term investors consider staying the course and possibly use this volatility as an opportunity to rebalance your portfolio or add to positions that have recently come down in value.

Disclosure: This website is solely for informational purposes. Nothing on this website should be considered as advice, research or an invitation to buy or sell securities.

Oil Falls on Greece Vote, China Stock Market Turmoil

© REUTERS/Lucy Nicholson/Files A pump jack is seen at sunrise near Bakersfield

© REUTERS/Lucy Nicholson/Files A pump jack is seen at sunrise near Bakersfield
© REUTERS/Lucy Nicholson/Files

Oil prices fell sharply on Monday after Greece rejected debt bailout terms and as China rolled out emergency measures to prevent a full-blown stock market crash, adding to worries about poor demand growth at a time of global oversupply.

The result of Greece’s referendum has put in doubt its membership in the euro, pulling down the single currency (EUR=) against the dollar.

A strong dollar tends to pressure commodities as it makes fuel more expensive for holders of other currencies.

Commodities were also sucked into market turmoil that has seen Chinese shares (.CSI300) fall as much as 30 percent since June due in part to an economy that is growing at its slowest pace in a generation.

Chinese brokerages and fund managers have agreed to buy massive amounts of stocks to support markets, helped by China’s state-backed margin finance company, which in turn would be aided by a direct line of liquidity from the central bank.

“Uncertainty over Greece is bearish for oil. It adds an extra negative factor on top of the turmoil in Chinese financial markets, the recent rise in U.S. drilling rigs, and a potential increase in Iranian oil supply,” said Olivier Jakob, senior energy analyst at Petromatrix in Zug, Switzerland.

“The main implication is for euro/dollar and I think it will put additional pressure on the euro,” he added.

Benchmark Brent crude oil (LCOc1) fell $1.42 a barrel to a low of $58.90 before recovering a little to around $59.00 by 0925 GMT. U.S. light crude (CLc1) fell as low as $54.34, down $2.59 from its close on July 2. July 3 was a U.S. holiday.

The falls left both crude benchmarks at their lowest since mid-April.

With markets already nervous due to the turmoil in Europe and China, fundamentals were also bearish.

U.S. drilling increased for the first time after 29 weeks of declines, the strongest sign yet that higher crude prices are coaxing producers back to the well pad.

Production in Russia and the Organization of the Petroleum Exporting Countries is also at or near records.

“Demand is good, but supply is better,” said Bjarne Schieldrop, chief commodities analyst at SEB in Oslo.

Putting further pressure on oil markets is a possible nuclear deal between global powers and Iran, which could add more oil to oversupplied markets if sanctions are eased.

“Reports increasingly suggest a deal is likely before July 9,” Morgan Stanley analysts said in a report.

Written by Christopher Johnson of Reuters

(Source: MSN)

Oil Gets Crushed as Price Correction Gains Momentum

© Provided by CNBC
© Provided by CNBC

Oil is expected to spiral even lower, as concerns about global growth collide with record production and the potential for more supply from Iran.

West Texas Intermediate crude futures plunged 7.7 percent Monday and were in official correction territory, with a decline of more than 11.5 percent since July 1. Brent was more than 6 percent lower.

Oil plummeted on fresh worries that Greece’s anti-austerity referendum could lead to its exit from the euro zone, creating negative fallout across the region’s economy.

“The drop in oil is going to stop, but not for now,” said Francisco Blanch, head of global commodities and derivatives research at Bank of America Merrill Lynch. “You’ve got every cylinder pointing south. You don’t want to try to grab this falling knife.”

Other factors that contributed to the drop were apparent movement in Iran’s nuclear negotiations and new focus this weekend on China’s stock market collapse. The stronger dollar could also add pressure, as the euro skids.

Strategists see the floor for WTI oil at around $50, but some say it could continue to fall toward the lows of about $42 from mid-March.

WTI crude futures settled down nearly 8 percent Monday, down $4.40 at $52.53 per barrel.

“This week is a huge week. We have two things that people in the markets have been worried about literally for years, and they’re both happening at the same time,” said Michael Wittner, head of commodities research Americas at Societe Generale. “The oil market is a little twitchy,”

Strategists say the market is worried about potential Greek contagion that would impair the European economy. But the situation is unclear, and the uncertainty could stretch on for weeks, which could also dampen economic activity and keep the market on edge.

“On the Iran deal, I think people are waking up to the fact that Iran is … saying it wants to double its exports once the ban is lifted,” said John Kilduff of Again Capital.

Blanch said while there is no agreement yet, the deal over Iran’s nuclear program appears closer and the market is beginning to price in the flow of Iranian oil.

“If a deal gets done this week, maybe it’s a few more dollars down. That may be a buying opportunity,” Blanch said. Blanch said the 30 million to 40 million barrels Iran currently has in floating storage could be on the market fairly quickly.

Negotiators have set a deadline of this week for the talks between Iran, the U.S. and five other powers. Iran is reportedly pushing for a complete lifting of the United Nation’s arms embargo.

Views vary on how quickly Iran will start to get more oil out onto the world market if there is a deal.

“I think oil markets understand very well, depending on what gets decided one way or the other, it’s going to be months,” said Wittner. “The only thing fast is the floating storage, but again, that’s going to have to wait until restrictions are lifted.”

Analysts agree it will take time for Iran to reach its potential. “You’re going to have 600,000 barrels a day of incremental supply heading into the middle of next year,” Blanch said. “All of that in my view creates a very negative backdrop for the oil market.”

As for China, traders have been watching its high-flying stock market melt down.

“So far, it’s the stock market. The argument is whether the Chinese government is worried. Are they acting aggressively on the stock market because they are worried about the real economy?” said Wittner. “That’s the issue. It’s too early to say on that one.”

But markets have been worried about slower Chinese growth, and the China stock market collapse has the potential to hurt the broader population of individual investors.

Blanch said another catalyst for lower prices will come with the Fed’s interest rate hikes, expected to begin later this year or early next year, because they could have a negative impact on emerging market economies.

A more near-term negative for crude, however, could be the slowdown in U.S. gasoline demand, expected to be peaking this week with Fourth of July holiday driving.

Blanch does expect some relief with a pending slowdown in U.S. oil production, so far holding near 40-year highs of 9.6 million barrels a day. He said the lower prices could make production to decline by 500,000 barrels a day, before picking up again some time next year.

Strong U.S. production has also been met by a pickup in Saudi Arabian production, also believed to be near record highs.

Gene McGillian, an analyst with Tradition Energy, said the market is waiting for new data on traders’ positioning, expected later Monday. As of last week, longs outnumbered shorts by a wide margin.

“The question is, does the market hold $50 and do we pivot back to the $40s?” he asked, adding at some point the longs could start bailing, adding further pressure on prices.

Written by Patti Domm of CNBC

(Source: MSN)