Feb 25, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

Good morning! I'm still in The Swamp at the National Association for Business Economics policy conference.

📺Don't sleep — Season 3 of “Axios on HBO” kicks off 6 pm ET/PT Sunday, March 1! (Today's Smart Brevity count: 1,056 words, 4 minutes.)

1 big thing: What happened yesterday
Expand chart
Data: FactSet; Chart: Axios Visuals

As someone has certainly told you by now, the Dow fell by more than 1,000 points yesterday, its worst day in more than two years, erasing all of 2020's gains. Most news headlines assert that the stock market's momentum was finally broken by "coronavirus fears," but that's not the full story.

What's happening: The novel coronavirus has been infecting and killing scores of people for close to a month and, depending on the day, the market has sold off or risen to record highs.

  • The virus has pushed out of China and into Europe, the U.S., much of Southeast Asia and the Middle East, but this was not entirely unexpected and the World Health Organization at a press event yesterday declined to label the outbreak a global pandemic.
  • It's clearly having an impact on business, but it's not yet clear what that impact will be.
  • Further, as my colleague Felix Salmon pointed out in a very long and dramatic email Monday evening, it's unlikely the market was surprised by these developments.

Felix's thought bubble: "In most cases where there are big stock market moves, there’s no obvious big and surprising event that causes the move. Market reports cite 'worries about global growth' or 'concerns about the trade war' or (in this case) something something coronavirus. Even though, as we’ve seen, the market is perfectly capable of ignoring coronavirus news."

Keep it 100: The stock market, like most economic indicators, is generally only useful when you step back and look at the trend.

Axios Markets readers know: Coming into 2020, fund managers expected the stock market to see increased volatility but to ultimately rise by around 5% from its end of 2019 level — the most cited target was for the S&P 500 to end the year at 3300, a mark it had surpassed by Feb. 5.

  • U.S. Treasury yields have fallen consistently, with the yield on the benchmark 10-year note 50 basis points lower than at the start of the year, and yields on the 30-year bond falling to a record low Monday.
  • The yield curve has inverted. Again.
  • Stock traders have consistently "bought the dip" after down days in the market, a strategy that has been incredibly successful over the past decade and is likely to continue.
  • The value of the dollar and gold have risen to three- and seven-year highs, respectively, and seem to be the market's favored safe havens.
Bonus: Be cool

At the NABE conference in Washington yesterday a number of economists weighed in on the coronavirus outbreak and market reaction.

What we're hearing: Cleveland Fed president Loretta Mester just smiled and shook her head when I asked her about the market's nosedive during a cocktail reception last night.

  • "It’s one day of a very strong reaction in the market," she told me at a press briefing earlier in the day. "The Fed has to be forward looking, and we have to just wait and see how things develop."

Tomas Philipson, acting chair of the White House Council of Economic Advisers, said the Trump administration is "sort of taking a wait-and-see approach."

  • "We don’t know yet," he added, noting that last year's seasonal influenza death toll is still much higher than that of COVID-19.

Roger Ferguson, president and CEO of TIAA and a former Fed vice chair, when asked how he thought the Fed should respond to the coronavirus outbreak, said it was "too early to have a strong point of view about that just yet."

  • "They will decide over time whether the coronavirus is actually having a major impact on either the U.S. economy or a spillover from the global economy back to the U.S."
  • "So at this stage I would say they should do what they most likely are doing: just continue to monitor the situation closely."
2. Catch up quick

S&P 500 returns for the 10-year period ending June outperformed U.S. private equity returns, a new report shows. (Axios)

United Airlines withdrew its 2020 guidance and announced it is suspending flights to multiple Chinese cities through April 24 due to the coronavirus outbreak. (Reuters)

Expedia plans to lay off 12% of its workforce, or about 3,000 employees, in an effort to “streamline and focus” its business. (GeekWire)

3. Why big banks are breaking up with (some) fossil fuels

Illustration: Sarah Grillo/Axios

Axios' Ben Geman writes: JPMorgan Chase is the latest financial giant to unveil new climate commitments, and like its peers, it is hard to disentangle how much is motivated by pressure, conscience or simply following the market.

Driving the news: JPMorgan said Monday that it will not provide project finance for Arctic oil-and-gas projects or coal-fired power plants unless they trap CO2 emissions, per Axios' Amy Harder.

Some of the other pledges include...

  • Refusing lending, capital markets and advisory services to companies that derive the majority of their revenues from coal extraction.
  • Increasing financing for clean energy and sustainable development projects.
  • Creating an environmental, social and governance (ESG) "solutions group" to advise clients on cutting emissions.
  • Having its asset management arm join Climate Action 100+, an investor group that pushes energy companies to make new emissions commitments.

Why it matters: JPMorgan is the banking sector's largest provider of fossil fuel finance, per analysis from several green groups led by the Rainforest Action Network.

  • JPMorgan is the latest financial giant to make new pledges in recent years. Among U.S. giants, Goldman Sachs unveiled similar lending restrictions last year, while big European banks have pulled back from the sector with similar and stronger steps.

But, but, but: While JPMorgan is emphasizing its engagement on climate and clean energy, it's also following market trends as energy companies move away from some forms of carbon-intensive and expensive projects.

  • Eurasia Group senior analyst David Livingston says that when it comes to Arctic oil, JPMorgan's pledge also makes financial sense. He called it a "lagging indicator."
  • "With the advent of short-cycle oil production options like shale, and the mid-term oversupply in the oil market, no serious private financial player is really thinking of Arctic oil as even a top 10 oil project to finance," he tells Axios.
4. Opioid companies in bankruptcy

Legal and financial troubles continue to mount for two prominent opioid manufacturers, Axios' Bob Herman writes.

Driving the news: As part of its bankruptcy proceedings, Purdue Pharma launched a $24 million ad campaign to tell people how they can file claims against the company if they or family members were hurt or killed by Purdue’s prescription opioids, AP reports.

  • Bankruptcy may finally be a reality for Mallinckrodt’s business that sells generic oxycodone and hydrocodone pills, according to the Wall Street Journal.
  • Mallinckrodt’s branded drug business, which includes the controversial Acthar Gel, would not be affected.

The big picture: The prospect of multibillion-dollar settlements — which are still a long way from being hashed out — is bringing painkiller companies that were once immensely wealthy to their knees.

Dion Rabouin

RIP to the amazing and awe-inspiring 👑Katherine G. Johnson, who died Monday at the age of 101.

Born Aug. 26, 1918, Johnson was "a NASA mathematician, trailblazer in the quest for racial equality, contributor to our nation’s first triumphs in human spaceflight and champion of STEM education," according to her biography on NASA's website. "Katherine G. Johnson stands among NASA’s most inspirational figures."

  • She was hired in 1953 and her calculations of orbital mechanics were critical to the success of the first-ever manned U.S. spaceflights.
  • Johnson pioneered the use of computers to perform complex tasks during her 35-year career at NASA and was a pioneer for black women in the sciences.
  • Her life was profiled in the movie "Hidden Figures."