Ten Years On
March 6, 2009 was a “jobs Friday,” and that report was a disaster. The U.S. economy lost a staggering 651,000 jobs in February 2009. The details were even worse. The number for January was revised to a loss of 655,000 jobs, and the loss for December was revised to 681,000. That was the single-worst month for jobs in 60 years. There was bad news everywhere. The unemployment rate came in at 8.1 percent, which was a 25-year high.
During the day on March 6, the S&P 500 fell to a devilish low of 666.79. The Dow got down to 6,469.95. Adjusted for inflation, that’s unchanged from the Dow’s peak 43 years before: essentially forty-three years of no gains.
On Monday, March 9, 2009, ten years ago yesterday, the S&P 500 closed at 676.53. Since then, the market has more than quadrupled. Including dividends, it’s up fivefold: an amazing 17.37 percent annualized. Oh the power of compound interest!
The best time to invest in a generation was an incredibly hard time to invest. The news was horrible and stocks were on sale, but the “experts” were calling for things to get much, much worse.
For example, Nouriel Roubini, who had earned the nickname “Dr. Doom,” said the market had even further to fall. The Wall Street Journal ran an editorial entitled “Obama’s Radicalism is Killing the Dow,” by a former chairman of the President’s Council of Economic Advisors.
Every light was flashing red. The VIX was at 50! On that Friday, the S&P 500 was able to eek out a tiny gain, but the market sunk again in Monday, closing at 676.53, a 12-year low. As of today, that stands as the lowest close this century.
Even though everything looked about as bad as possible, within a month, the S&P 500 had soared 25 percent. The index gained 70 percent in less than a year. By the bull’s first birthday, Dr. Robert Shiller, a Nobel Prize-winning economist, said the market was due for a pullback. That idea has been repeated many, many times since.
On March 6, 2000, 19 years ago last week, then Fed Chairman Alan Greenspan, on his 74th birthday, seemed to endorse the stratospheric prices of tech stocks at a Boston College economic conference, following years of warning that stock prices were too high. Just four days later, 19 years ago today, the Nasdaq peaked and began tumbling in what then was the worst market crash since 1929.
If you think you (or anyone) can expect to call market tops and bottoms, think again.
Domestic stocks performed poorly last week, with the major indexes seeing declines on each of the five trading days and generally suffering their first down week of the year. The smaller-cap indexes, which are typically more volatile, fared worst. The S&P 500 slipped below its 200-day moving average, a threshold that many tactical managers watch closely.
Within the S&P 500, the typically defensive and interest rate-sensitive real estate and utilities sectors fared best as longer-term bond yields decreased to their lowest levels since the start of the year. Energy stocks were among the worst performers as oil prices fell, and industrials shares suffered from deepening concerns over a global slowdown. Health care shares also performed poorly, weighed down in part by a decline in pharmaceutical giant Pfizer. Transportation stocks, often considered a barometer of global economic activity, were also notably weak. The Dow Jones Transportation Average recorded its longest stretch of daily declines in nearly 50 years, according to Bloomberg.
Indeed, a variety of troublesome signs about the health of the global economy weighed on sentiment throughout last week. The most pronounced indicator may have been the decision by the European Central Bank on Thursday to inject further liquidity into the eurozone’s banking system to spur loan growth and economic activity. Traders also seemed unsettled by China’s announcement of new fiscal stimulus directed at its manufacturing sector.
Hopes that a U.S.-China trade deal would soon be announced seemed to fade as last week progressed, further weighing on stocks. Stock futures got a boost on Monday morning from a report in The Wall Street Journal that the two sides were nearing a deal that might be finalized at a summit between the country’s two leaders as early as March 27. The report also quoted insiders cautioning that “hurdles remain,” however, and no further reports of substantive progress emerged later in the week.
The week’s domestic economic data were generally upbeat, suggesting that the global slowdown had yet to cause significant damage to the U.S. economy. Gauges of both service and manufacturing activity in February indicated solid expansion, and December new home sales rose in defiance of expectations for a sharp drop.
The unemployment rate declined in February, but hiring growth slowed significantly, a sign employers could be struggling to find workers as the labor market tightens. U.S. nonfarm payrolls rose a seasonally adjusted 20,000 in February, the Labor Department reported Friday. The unemployment rate, a seasonally adjusted 3.8 percent, was down from 4.0 percent a month earlier. Economists surveyed by The Wall Street Journal had expected 180,000 new jobs and a 3.9 percent unemployment rate. Wages rose 3.4 percent from the prior year, the best pace in a decade. The consensus view seems to be that the economy is slowing from last year’s robust 3 percent pace, but the job market gives no reason to think it’s in trouble.
The yield on the benchmark 10-year Treasury note did not react decisively to the payrolls report but decreased substantially throughout the week in response to the ECB decision and continued dovish remarks from Fed officials. On Friday morning, the benchmark 10-year U.S. Treasury note yield touched its lowest point since January 4 and closed the week at 2.62 percent.
Across the pond, the pan-European STOXX Europe 600 fell after the ECB news. The move seemed to highlight the negative impact that trade tensions and geopolitical concerns have been having on growth in the eurozone and around the globe.
In Asia, mainland Chinese stocks ended a roller-coaster week lower, as poor February trade data and bearish broker calls on two high-flying financial stocks there led to profit-taking just days after the indexes there entered a bull market. For the week, the Shanghai Composite shed 0.8 percent, while the large-cap CSI 300, China’s blue-chip index, fell 2.5 percent. In Japan, the Nikkei 225 fell -2.7 percent for the week.
Other significant news and notes follow:
- The federal budget deficit ballooned rapidly in the first four months of the fiscal year amid falling tax revenue and higher spending, the Treasury Department announced Tuesday. The deficit grew 77 percent in the first four months of fiscal year 2019 compared with the same period one year earlier, while the total deficit for the four month period was $310 billion, up from $176 billion for the same period one year earlier.
- The OECD cut its global growth forecasts again in its new semi-annual report, citing “policy uncertainty, ongoing trade tensions, and a further erosion of business and consumer confidence.”
- The U.S. and China have yet to set a date for a summit to resolve their trade dispute as neither side believes an agreement is imminent. China lowered its economic growth target. The annual gross domestic product is expected to advance between 6 and 6.5 percent in 2019. Meanwhile, the government has found $1 trillion in off-balance-sheet stimulus. Is Chinese President Xi Jinping’s vision of an expansive Chinese state working? Chinese exports plunged 21 percent in February, compared with a year earlier. That’s the weakest performance in three years, and it was a lot worse than economists had predicted.
- Pure dumb luck plays more of a role in money management than many want to admit.
- The MMT wars have begun. According to Harvard’s Lawrence Summers, former Treasury Secretary, Modern Monetary Theory is “ludicrous.”
- 77 percent of Americans think the NATO alliance should be maintained, while 19 percent think it’s no longer necessary, according to Gallup.
- North Korea is steadily adding to its nuclear stockpile. Its Sohae rocket launch site is back to “normal operational status” just one week after the Hanoi summit ended in “no deal.”
- House Democrats Peter DeFazio and Alexandria Ocasio-Cortez proposed companion legislation introduced by Hawaii Sen. Brian Schatz to tax securities transactions.
- Merrill Lynch is planning for its clients to live to 100.
- Forbes lists 2,153 billionaires (worth a combined $8.7 trillion) on its 33rd annual World’s Billionaires list, down from 2,208 ($9.1 trillion) in 2018.
- American consumers have been saddled with $69 billion in added costs because of tariffs the U.S. imposed last year.
- Investors are putting money into emerging markets at the fastest clip in a year, highlighting how many have regained their taste for risk just months after selling buffeted global indexes.
- America’s least favorite “company” is the U.S. government.
- Fraudsters are beginning to target financial advisors in order to obtain client information and steal their money.
- The 12.5 percent jump in the 2018 trade deficit, reported last week by the Commerce Department, is the result of a growing economy. Despite President Trump’s regular promises to cut it and his failure to do so, it is not something amiss.
- Mark Zuckerberg’s announcement last week (“A Privacy-Focused Vision for Social Networking”) is a clear response to public outcry over Facebook’s flawed custody of users’ data (and ironic since selling your personal information is quite literally its business model).
- An energy fix for the planet?
- In the face of daunting odds, these women made history in finance, investing and economics.
- Theresa May warns Brexit may not happen.
- The 2019 edition of the JPMAM Guide to Retirement is out.