Oct 29, 2020

Axios Markets

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🎙 “Hysteria, it was hoped, had met its master in the Banking Power of the U.S.” - See who said it and why it matters at the bottom.

1 big thing: Investors have nowhere to hide

Photo by Jeenah Moon/Getty Images

The massive losses in oil prices and U.S. and European equities were not countered by gains in traditional safe-haven assets on Wednesday.

Why it matters: The unusual movement in typical hedging tools like bonds, precious metals and currencies means they are not providing investors an asset that will appreciate in the event of a major equity selloff.

  • That could be a serious threat to savings and retirement portfolios, which are built to minimize losses by investing in a combination of stocks, bonds and other assets that are supposed to provide a safety net.
  • The erosion of these correlations has boosted the popularity of so-called buffer ETFs, which function almost like annuities for stocks, and cash among investors.

What happened: The S&P 500 fell 3.5%, its largest drop since June 11, and the Nasdaq fell 3.7%, outpacing earlier losses in European stocks as France imposed a new nationwide lockdown and Germany moved to implement one-month partial restrictions.

  • The pan-European Stoxx 600 closed 3% lower.
  • The Cboe's volatility index jumped above 40, reaching its highest since June.
  • Brent crude oil prices fell by more than 5%, and U.S. West Texas Intermediate (WTI) crude dropped by 6%.

What they're saying: “Risk sentiment took a nose dive on Wednesday amid more concern around the spread of COVID-19 and renewed restrictions in Europe,” ANZ analysts wrote in a note. “This was seen alongside ongoing concerns about failure to agree on U.S. fiscal aid before the election next week, adding to a weak economic picture.”

On the other side: Treasuries were flat on the day, even though yields have risen significantly since the beginning of October.

  • Gold fell by 1.7% in spot markets.
  • The Japanese yen gained just 0.1% on the day.
  • The dollar, which proved to be the world's most popular safe haven during March's market meltdown, also was little moved against most currencies.

Don't sleep: "An important nuance is that the risk-off move in the equity market also interacts with the presidential election and the likelihood of additional future lockdowns," Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, wrote in a note to clients.

  • "As Biden's odds of winning the White House are rising, so too are the chances that some form of additional lockdowns (be it targeted or broad-based) may occur this winter/spring; after all, the Democratic nominee has previously expressed a willingness to impose lockdowns if recommended by scientific advisors."
2. Catch up quick

A vaccine to help control the coronavirus outbreak likely won't be available in the U.S. until January at the earliest, says Anthony Fauci, the nation’s top infectious-disease doctor, as recent clinical studies have run into hurdles. (Bloomberg)

ExxonMobil kept its fourth-quarter dividend flat, signaling that 2020 will be the first year since 1982 that the company has not raised its shareholder payout. (Reuters)

Marvell is nearing a deal to buy semiconductor rival Inphi for as much as $10 billion in what would be the second multibillion-dollar semiconductor merger this week, following AMD's deal to buy Xilinx for $35 billion. (WSJ)

A group of 64 investors representing about $10.2 trillion has written to the boards of mining companies operating around the world to seek assurances about their social licenses to operate with First Nations and Indigenous communities. (Reuters)

"No central bank wants to admit that it’s out of firepower. Unfortunately, the U.S. Federal Reserve is very near that point," writes former New York Fed president Bill Dudley. (Bloomberg)

3. Earnings reports to show if tech can keep growing in a pandemic

Axios' Ina Fried writes: Apple, Facebook, Google and Amazon are all slated to report earnings after the markets close today, and that should give us a much better sense of how the tech industry is faring through the pandemic.

Why it matters: The reports should offer a clue of how sustainable tech's "new normal" is. That's especially important given that experts predict another and stronger wave of coronavirus in the U.S. that could force continued reliance on remote work for office employees.

The big picture: There is obviously much more to the economy, and even the digital economy, than these four companies. But their fortunes will reveal the degree to which tech companies can continue to enjoy success even with key industries like travel and entertainment still largely shut down.

  • We've already seen strong results from Microsoft, eBay and others, so there is reason to expect strength from other big tech firms.

What to watch:

  • Google (Alphabet): Last quarter Google reported the first quarter of declining revenue since the company went public. The question for this quarter is whether the ad spending pullback has leveled off or intensified, as well as what the search giant expects for the current quarter, which includes the holiday shopping season.
  • Apple: Of course, plenty of attention will be paid to the number of iPhones sold last quarter, but those sales were before the iPhone 12 launched, so more interesting will be what Apple forecasts for the current quarter. Expect the company to continue to talk up its growing services business as well.
  • Facebook: The social network is expected to show a 12% increase in revenue from a year ago — to nearly $20 billion — but profits are seen down 10%.
  • Amazon: The retailer, which has become even more vital to many Americans during the pandemic, posted a blowout quarter three months ago. The question now is, can it do the same once again?
4. Coronavirus cases are at an all-time high ahead of Election Day
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Data: The COVID Tracking Project, state health departments; Map: Andrew Witherspoon, Sara Wise/Axios

Axios' Sam Baker and Andrew Witherspoon write: In the final week before Election Day, new coronavirus infections have soared to an all-time high — virtually guaranteeing that the pandemic will be the most prominent issue in America as voters prepare to choose the next president.

The big picture: Cases are surging and local hospitals are straining at the very moment that voters are choosing between President Trump, who continues to insist that the pandemic is almost over, and Joe Biden, who has made the crisis a centerpiece of his campaign.

Where it stands: On average, nearly 72,000 people tested positive for the coronavirus every day over the past week. That’s the highest seven-day average on record.

  • Twice in the past week, the U.S. has set a new record for the most cases in a single day.
  • The virus gained strength over the past week in 41 states, including nearly every important battleground state.
  • New infections were up 16% in Arizona, 21% in Florida, 22% in Ohio, 23% in Wisconsin, 25% in Michigan and 33% in Pennsylvania.
  • The only exception was North Carolina, where infections held steady at about 2,200 per day.

What’s next: This third wave of infections is already beginning to strain hospitals’ resources in some parts of the country, and will inevitably lead to more deaths. It has already killed nearly 220,000 Americans.

  • Wisconsin, for example, reported new single-day records for cases, hospitalizations and deaths — all in the same day.
  • This will almost certainly get worse before it gets better. The virus is expected to spread more easily as colder weather causes people to move their socializing indoors.

The bottom line: Eight months into this pandemic, not only has the U.S. failed to contain the virus, it’s spreading faster than ever.

Each week, Axios tracks the change in new infections in each state. We use a seven-day average to minimize the effects of day-to-day discrepancies in states’ reporting.

Thanks for reading! See you on Monday.

Quote: “Hysteria, it was hoped, had met its master in the Banking Power of the U.S.”

Why it matters: On Oct. 29, 1929, the U.S. stock market crashed in what became known as "Black Tuesday," signaling the start of the Great Depression.

  • Five days later Time Magazine wrote the above quote in a story about the market bounce that followed.