Mar 30, 2020

Axios Markets

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🎙“I know what I’ve done for music, but don’t call me a legend. … A legend is an old man with a cane known for what he used to do. I’m still doing it.” - See who said it and why it matters at the bottom.

1 big thing: Investment pros sell while mom and pop buy the dip

Illustration: Aïda Amer/Axios

As traders around the globe have frantically unloaded positions in recent weeks, so-called mom and pop retail investors have kept level heads and not sold out of stocks.

  • In fact, "the typical trader is buying equities on the dips," passive investment firm Vanguard notes in a research paper, adding that "older, wealthier traders are moving modestly to fixed income."

Quick take: Jeffrey Kleintop, chief global investment strategist at Charles Schwab, points out that through the end of last week, passive equity ETFs had seen a net $20 billion in inflows.

  • "Obviously selling is big among traders, institutions, computer algorithms ... but the one stabilizing factor in this market has been individual investors," he tells Axios.
  • "That has never been true before, and it’s a very unique aspect of this downturn."

What's happening: The contrast between professional and amateur investors could not be more stark. As the pros sold out of risky assets like stocks and oil and even safe havens like gold and Treasury bonds, amateur traders were "maintaining a long-term perspective despite the market turmoil," Vanguard said.

  • Google Trends data show that throughout the month of March, searches for “how to buy stocks” and "Dow Jones" are soaring.
  • On the other hand, money market funds, used ostensibly as savings accounts and cash positioning by money managers, saw record inflows each of the past two weeks, rising to the highest level of holdings on record.

Why it matters: Retail traders "buying the dips" is normally a contrarian signal, meaning that it's time to sell.

  • Over the past 30 years, like clockwork, retail investors have sold as the market hit its floor and a recovery was underway, and bought when the market was at or near its zenith and began to fall.

Watch this space: Thus far, "U.S. equities continue to run in lockstep with the day-to-day moves of late September/October 2008," DataTrek Research co-founder Nicholas Colas says in a note.

  • After October 2008, stocks fell for another four months, piling up 40% of losses before the recently ended bull market began in March 2009.

The bottom line: The key to finding a bottom is a peak in confirmed COVID-19 cases and the beginning of a recovery from the pandemic, Kleintop says.

  • "Until we get to that peak in new virus cases on a global scale, we just don’t know how deep the downturn is going to be."
Bonus: Not freaking out yet
Data: CivicScience surveys; 14,940 total respondents; MOE ± 2%; Chart: Axios Visuals

New data from CivicScience show Americans remained calm about their retirement savings between late January and mid-March, despite significant losses in the stock market.

The intrigue: Bank of America Securities' Bull & Bear indicator has fallen to its lowest possible level, zero, indicating a strong buy signal. However, the last time the indicator fell to this level of "extreme bearishness" was in July 2008 ahead of the Lehman Brothers bankruptcy four weeks later.

  • BofA global research analysts note that it's unlikely we've yet hit the lows — "perversely this only likely [happens] once virus numbers improve and recession numbers don't improve."
  • They're expecting the S&P 500 to fall another 90 points to 2,450.
  • Goldman Sachs analysts see the index falling to 2,000, another 20% down from its current level.

The last word: "The stock market is a leading indicator of business trends, and corporate activity continues to deteriorate with no signs yet of a bottom," Goldman analysts said in a recent note.

  • "The speed of business erosion is unprecedented."
2. Catch up quick

The U.S. will extend social-distancing guidelines for another 30 days through the end of April, President Trump said. (WSJ)

The DOJ has started to probe a series of stock sales made by lawmakers ahead of the market downturn that followed the spread of COVID-19 into the United States. (CNN)

New York Mayor Bill de Blasio warned that the city has only one week's worth of medical supplies and the CDC urged New York, New Jersey and Connecticut residents to avoid nonessential travel. (WSJ)

COVID-19 cases in the U.S. are approaching 150,000, on pace to double the number of confirmed cases in China, as Anthony Fauci of the White House's coronavirus task force said the number of U.S. deaths could reach 200,000 with "millions of cases." (CNN)

3. Investment fees continue to fall
Data: Investment Company Institute; Chart: Axios Visuals

As the popularity of passive investment vehicles has grown, money managers have consistently reduced their fees, particularly in stock funds and hybrid funds.

Driving the news: The cost of investing in equity and hybrid mutual funds through 401(k) plans fell again in 2018, a new report from the Investment Company Institute shows.

  • Despite the growth of ETFs, which still broadly have lower costs, mutual funds still represent the majority of assets held in 401(k) plans, ICI senior director of retirement and investor research Sarah Holden notes in a statement.

Between the lines: "Hybrid funds contain the bulk of 'alternative strategies' funds, which had a lot of demand between 2009 and 2013, and which generally have higher expense ratios," ICI associate economist James Duvall tells Axios in an email.

  • "These funds attracted $68 billion in net inflows, helping to boost their total net assets from $29 billion to $110 billion," during that four-year stretch.
4. Locust update: "This is a scourge of biblical proportions"

Cloud of locusts flying in Mwingi North, Kenya, in February. Photo: Fred Mutune/Xinhua via Getty Images

Traveling locust swarms in Africa, the Middle East and South Asia, that had reached the size of Manhattan in some places, are still growing in East Africa, and the problem is now compounded by the coronavirus pandemic.

Driving the news: New cases of COVID-19 have been discovered in much of the region this month, and the pandemic also is slowing the delivery of pesticides that can kill the insects.

  • "In Kenya, Ethiopia, and Somalia widespread breeding is in progress and new swarms are starting to form, representing an unprecedented threat to food security and livelihoods at the beginning of the upcoming cropping season,” the UN’s Food and Agriculture Organization said last week.

The organization added: "Along with climate shocks, conflict and acute food insecurity, the East Africa region now faces a hunger threat from Desert Locust. This is a scourge of biblical proportions."

State of play: The locusts could multiply by 400 times this year, as swarms are maturing and will be ready to lay eggs beginning in early April.

  • That could decimate crops in a region that relies on agriculture for about one-third of its GDP and more than 65% of employment.

The big picture: East Africa was the standout performer for economic growth in the African subcontinent prior to the locust outbreak, and with more cases mounting in Africa's two economic hubs, South Africa and Nigeria, the continent's growth could grind to a halt.

  • New swarms also are forming in Yemen, and Iran, which both have been ravaged by violent clashes for much of the past year, and the selloff in oil markets has compounded the economic toll.

On the positive side: Government agencies say the locust situation is under control in Sudan, Eritrea, Saudi Arabia, Oman, Iraq, Pakistan and India.

Quote: “I know what I’ve done for music, but don’t call me a legend. … A legend is an old man with a cane known for what he used to do. I’m still doing it.”

Why it matters: On March 30, 1970, Miles Davis released the landmark jazz double album "Bitches Brew," one of the genre's greatest albums.

  • Weeks before the release of that album Davis performed on March 6–7 at the Fillmore East, opening for Neil Young and Crazy Horse and the Steve Miller Band. Young's performance was included on a live album that was released in 2001.

Years later, Davis said this about Steve Miller:

  • “I remember one time — it might have been a couple times — at the Fillmore East in 1970, I was opening for this sorry-ass cat named Steve Miller. Steve Miller didn't have his shit going for him, so I'm pissed because I got to open for this non-playing motherfucker just because he had one or two sorry-ass records out. So I would come late and he would have to go on first and then we got there, we smoked the motherfucking place, everybody dug it.”