Monday's stock market declines weren't unexpected, though the extent of losses was shocking.
Investors had been selling stocks for the previous two weeks on coronavirus fears, starting immediately after U.S. benchmark indexes made record highs on Feb. 12, 2020.
A "dead cat bounce" last week didn't fool seasoned traders, who saw huge inflows into U.S. Treasuries last week as a warning sign there was more equity selling to come.
As COVID-19 hotspots cropped up across the globe and infections rose along with fatalities in U.S. cities and states over the weekend, right on cue, sell orders flooded brokerages before markets even opened Monday morning.
So many sell orders in fact, markets couldn't open. Instantaneous and extraordinary selling knocked stocks "down limit," or 7%, at the open, triggering a "circuit breaker" halt to trading for 15 minutes.
After 15 minutes, exchanges let stocks trade again, and they fell another 1% before buyers, probably computer-driven algorithms, started buying beaten-down names like Microsoft and Amazon.
But buying volume was thin all day, and sellers more often overwhelmed attempts to lift stocks higher.
Stocks closed 144 points off their session lows of 2,158, ending down 2,013.76 points to 23,851.02. That's a 7.79% drop in one day and a 19.3% drop since Feb. 12.
Most evident in yesterday's carnage were the market's worst enemies: fear and panic. That tells me something about what I'm watching today...[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
Investors are looking at earnings prospects in the face of the coronavirus impact and are afraid potential demand destruction will eviscerate corporate sales, revenue, earnings, and profits.
It doesn't matter that most market commentators said the selling was "orderly," which opening up "down limit" automatically negates - the truth is there was panic-selling.
Markets don't drop 7% in literally a New York second unless investors are running for the exits.
The frightening collapse of oil, whether measured by the drop in WTI or Brent crude, more than 25% for both at one point, added to the fear and panic.
Investors sold oil companies with abandon. Some of the biggest losses on the day were in the energy sector. Exxon Mobil Corp. (NYSE: XOM) lost 12.24%... ConocoPhillips (NYSE: COP) lost 24.84%... BP Plc. (NYSE: BP) lost 19.07%, Transocean Ltd. (NYSE: RIG) lost 37.99%, and smaller players lost even more.
The fear now in the oil patch is that overleveraged shale producers and frackers won't be able to meet debt service obligations if they can't sell their expensively drilled oil at even breakeven prices.
But it wasn't just oil and energy company stocks investors dropped like an invitation to cruise the Caribbean.
Airlines got hit again. American Airlines Group Inc. (NASDAQ: AAL) fell 7.64%. Delta Air Lines Inc. (NYSE: DAL) fell 5.16%.
So did cruise lines. Carnival Corp. (NYSE: CCL) fell 19.93%.
And gaming stocks.
Tech stocks were hit.
Almost every sector took big hits.
And it's not over.
Once fear gets rooted in investor psychology, look out below, panic selling isn't far behind.
Until there's good news on the coronavirus front - meaning there's a demonstrable reversal of infection rates, especially in the U.S. - investors are going to continue discounting companies' earnings prospects and will keep repricing equities downward.
Sure, we'll see "rip-your-face-off rallies" that lift markets a couple of percentage points per day, but until fear of the unknown short-, medium-, and long-term impacts of the coronavirus on mankind, companies, and markets are squeezed out of investor psychology, they'll only be selling opportunities.
You've been warned.
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
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Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.