The Wall Street Journal - 13.03.2020

(C. Jardin) #1

© 2020 Dow Jones & Company. All Rights Reserved. ***** THE WALL STREET JOURNAL. Friday, March 13, 2020 |B


Treasury prices extended
their declines Thursday while
U.S. stock indexes suffered their
worst losses since 1987—an un-
usual dual downturn that


raised concerns that the Wall
Street rout is entering a painful
new stage: The forced unwind
of a number of popular trading
strategies, some of which in-
volve leverage, or borrowed
money.


ByGregory
Zuckerman,Julia-
Ambra Verlaine
andPaul J. Davies

TECHNOLOGY: BROADCOM PULLS ITS GUIDANCE FOR THE YEAR B


S&P2480.64g9.51% S&PFINg10.77% S&PITg9.84% DJTRANSg10.67% WSJ$IDXÀ1.23% LIBOR3M 0.741 NIKKEI (Midday)17081.14g7.97% See more at WSJ.com/Markets

BUSINESS & FINANCE


suffered coronavirus outbreaks.
But few parts of the market
were immune. All 11 sectors of
the S&P 500 tumbled, with
losses led by the real-estate
and industrial sectors. Even
companies that investors
thought would reap the bene-
fits of the virus tumbled.Clo-
roxended the day down 6.3%.

Gilead Sciences, which has
started testing a virus treat-
ment, fell 6.1%.
The steep losses in stocks
Thursday underscored that so
far, there has been little rem-
edy provided by governments
and central bankers that could
calm jittery investors. After
markets resumed trading

shortly before 10 a.m. after the
second circuit breaker was
triggered this week, U.S. stocks
plummeted. The Fed’s an-
nouncement sent shares briefly
higher before tumbling again.
Central banks and govern-
ments around the world have
tried to step up in recent
weeks with efforts to help pro-

tect the economy. This week,
beyond the Fed’s announce-
ment, the European Central
Bank said that it would roll out
cheap loans for banks and step
up bond purchases, while Pres-
ident Trump’s administration
outlined a series of steps to
backstop the economy and cer-
Please turn to page B

U.S. stocks plunged Thurs-
day in their worst day since
the 1987 Black Monday crash,
which sent the Dow Jones In-
dustrial Average down more
than 20%.
On Thursday, the Dow fell
10%, and the S&P 500 and Nas-
daq tumbled nearly as much to
join the blue-chip index in a
bear market.
The furious falls in share
prices on rising fears of a
global slowdown due to the
rapid spread of coronavirus oc-
curred despite a $1.5 trillion in-
tervention in short-term fund-
ing markets by the Federal
Reserve.
The S&P 500 shed more
than 7% early, pushing the in-
dex into bear-market territory
and triggering a 15-minute halt
in trading shortly after the
market’s open. The day before,
the Dow Jones Industrial Aver-
age had fallen into a bear mar-
ket, defined as a 20% drop
from a previous high, bringing
to a close the longest-ever bull
market for U.S. stocks.
For the day, the Dow indus-
trials shed 2,352.6 points, or
10% to 21,200.62. The S&P 500
sank 260.74 points, or 9.5%, to
2,480.64. And the Nasdaq Com-
posite slid 750.25 points, or
9.4% to 7,201.80.
The Dow dropped 508
points on Oct. 19, 1987, what
became known as Black Mon-
day. The 22.6% decline remains
its biggest ever.
Companies most exposed to
the coronavirus outbreak were
particularly hard hit, and air-
line and cruise shares helped
lead the tumble.United Air-
lines Holdingsdropped 25%,
Delta Air Linesfell 21%, and
Spirit Airlinestumbled 33%.
Royal Caribbean Cruises
plummeted 32%. On Thursday,
Princess Cruises canceled all
voyages for the next two
months after two of its ships


BYCAITLINMCCABE
ANDCAITLINOSTROFF


the financial crisis. But their
earnings likely will suffer.
Fears of the impact of the
coronavirus have erased all of
the “Trump Bump” gains that
the KBW Nasdaq Bank Index
Please turn to page B

sap their investment-banking
and trading revenues as deal
activity and investors pause.
Banks entered the year bet-
ter capitalized and less reliant
on flighty, short-term funding
than they were on the eve of

The Dow industrials dropped
2,352 points, or 10%, bringing
their decline to 27% in the
month since the last record
high. The yield on the 10-year
Treasury note, which hit a re-
cord low Monday at 0.501%,
rose to 0.842%. Bond yields rise
when prices fall.
Sharp stock declines aren’t
unusual, particularly at a time of
economic stress following a long
bull market. But the sight of
bond and stock prices declining
sharply together unnerved some
traders, suggesting further sell-
ing could follow in response to
margin calls, risk limits at banks

and investment firms, and other
factors. Also surprising investors:
Gold, a traditional haven,
dropped 3%, marking its third
straight decline.
“There was nowhere to hide
today with stocks, bonds and
gold all hit hard,” said Jonathan
Krinsky of Baycrest Partners LLC.
The latest carnage came
even after the Federal Reserve
said it would inject more than
$1.5 trillion into Wall Street to
prevent ominous trading condi-
tions from creating a sharper
economic contraction.
Investors view the Fed inter-
vention as providing relief to

banks facing demands for cash,
as economic shocks force com-
panies to tap credit lines and
draw down revolving loans.
The Fed’s action marks an
effort to interrupt what some
analysts and investors view as
a dangerous negative-feedback
loop, in which market declines
beget further declines, even ab-
sent changes in financial and
economic fundamentals.
But the Fed announcement
only paused the selling, adding
to concerns in the market in-
volving two long-running
trades: The “basis trade,” which
Please turn to page B

Traders Forced to Unwind Strategies


United Parcel ServiceInc.
said Chief Executive David Ab-
ney is stepping down from the
role and will be succeeded by
board member Carol Tomé,
the first outsider to run the
century-old delivery giant.
Ms. Tomé, a longtime UPS
director and former finance
chief at Home Depot Inc., will
take over as CEO on June 1.
Mr. Abney, who also serves as
chairman, will become execu-
tive chairman on that date and
retire from the board entirely
on Sept. 30.
UPS said William Johnson,
its lead independent director
and former longtime CEO at
food company H.J. Heinz Co.,
will become nonexecutive
chairman on Sept. 30.
Mr. Abney, like many UPS
leaders, is a company lifer. He
has spent nearly a half-cen-
tury at the delivery giant,
starting as a part-time pack-
age loader in college and ris-
ing through the ranks to hold
several key posts, including
president of UPS Interna-
tional and chief operating of-
ficer. He took over as CEO in
September 2014.
His exit follows on the heels
of the departure of UPS’s No. 2
executive. Chief Operating Of-
ficer Jim Barber, 59 years old,
retired in January.
The company veteran was
widely seen as Mr. Abney’s
most likely successor and his
departure opened up the CEO
race. The company hasn’t
filled the vacancy created by
Mr. Barber’s retirement.
Ms. Tomé, 63 years old,
joined the UPS board in 2003.
She retired last year after 18
years as Home Depot’s finance
chief.
She worked with five CEOs
and helped the home-improve-
ment chain turn around after
the 2008 financial and hous-
ing crisis, but was never se-
lected for the top job.
Mr. Abney, 65, has steered
UPS through the explosion of
e-commerce. Under his leader-
ship, UPS was quick to em-
brace the rise of online shop-
ping, investing heavily to
upgrade its network to handle
the surge. RivalFedExCorp.,
by contrast, ceded the less-
profitable business of deliver-
ing internet orders to homes
before changing course re-
cently.
While FedEx has cut ties
withAmazon.comInc., UPS
has cozied up to the U.S.’s
largest online retailer. The
company said Amazon spent
$8.6 billion with UPS last year,
accounting for 11.6% of overall
revenue.
The large exposure to Ama-
zon has rattled some inves-
tors, who see that business as
vulnerable because the online
retailing giant is building up
its own delivery network and
increasingly delivering more
of its own packages.
UPS has also been under
pressure as it continues to
ramp up spending to handle
the growth of packages from
an increase in online shopping.
Last year’s performance fell
short of some internal goals,
Please turn to page B

BYPAULZIOBRO

UPS Chief


Will Hand


Reins to


Outsider


week period.
The outflows, which were
the first in more than a year,
reflect mounting investor con-
cern that the coronavirus will
drag down even stable invest-
ments such as taxpayer-
funded roads and sewers. They
may also signal the unraveling
of a hypercharged base of buy-
ers that crowded into tax-ex-
empt bond funds to escape the
consequences of the 2017 tax
law and pushed prices to re-
cord levels.
“Today was the weakest
day on record for the muni-
bond market and prices fell
faster than they ever have be-
fore,” said Matt Fabian, a part-
ner at Municipal Market Ana-
lytics. “To the upside, we’ve
gotten rid of some of the pric-
ing excesses of 2019.”
Amid the selloff, the Com-
monwealth of Massachusetts
decided to wait for the market
volatility to subside. Earlier in
the week, it had been planning
Please turn to page B

Municipal-bond prices
plunged to records Thursday
amid a selloff in stocks and
other assets, as investors
dumped even gold-plated debt.
Yields jumped 58% from
Tuesday through Thursday on
30-year bonds, according to
Refinitiv, the biggest three-day
increase since the firm began
keeping records in 1981.
The S&P Municipal Bond In-
dex experienced its biggest
one-day drop in more than a
decade. Bond yields rise as
prices fall.
As recently as Monday, the
municipal market seemed like
a refuge from stock volatility.
With fears growing over the
spreading coronavirus, inves-
tors scooped up munis, push-
ing yields to a nearly 40-year
low.
But prices fell drastically
this week after investors
pulled $1.8 billion from muni-
bond mutual funds over a two-

BYHEATHERGILLERS

Muni-Bond Index Hits


Lowest Level in Decade


Add together some of the
biggest challenges U.S. banks
weathered in the dozen years
since the financial crisis, and
you get an idea of how bad the
coronavirus epidemic could be
for them.
A decade ago, banks perse-
vered through a recession and
widespread loan defaults. Until
2015, they endured years of ul-
tralow interest rates and slow
loan growth that pressured
their profitability. In 2015 and
2018, banks survived selloffs in
the stock market. In 2016, the
industry came through a col-
lapse in energy prices with a
few bruises, but no big busts.
Now, banks face all those
threats simultaneously. Many of
their businesses mirror eco-
nomic activity, so falling
growth and rising unemploy-
ment can dent their profits.
Sharp drops in asset prices can


BYPETERRUDEGEAIR


For Lenders, Everything Is


Going Wrong All at Once


S&P, Nasdaq Enter Bear Territory


Dow falls 10% on fear


coronavirus will


paralyze global growth;


All sectors decline


Source: FactSet Peter Santilli/THE WALL STREET JOURNAL

April 23-
July 2, 2010

April 29-
Oct. 3, 2011

May 21-
Aug. 25, 2015

Nov. 3, 2015-
Feb. 11, 2016

Jan. 26-
Feb. 8, 2018

Sept. 20-
Dec. 24, 2018

Feb. 19-
March 12, 2020

49 trading days 108 days 66 days 68 days 9 days 65 days 16 days

S&P 500, declines of 10% or more since past bull market began in March 2009

–16.0% –19. 4% –12 .4% –13. 3% –10.2% –19.8% –26.7%

Highlighted Allothers

As of Feb. 19
record close
+35%
since 2018

Performance since the end of 2018

Feb. March April May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. March
2019 2020

5%

0%

10%

15%

20%

25%

30%

Thursday
–1%
since 2018

S&P 500 performance
since the end of 2018

2019 ’20 ’19 ’20 ’19 ’20 ’19 ’20 ’19 ’20 ’19 ’

Asofpeak Asof Thursday

S&P 500
As of Feb. 19
+35%
since 2018

ALPHABET
Feb. 19
+46%

MICROSOFT
Feb. 10
+86%

APPLE
Feb. 12
+107%

As of Feb. 19 peak
+176%since 2018

TESLA

As of
Thursday
+68%
+57% since 2018
+37%
+18%
–1% +6%
’19 ’

AMAZON
Feb. 19
+44%

FACEBOOK
Jan. 29
+70%

+12%

U.S.-Chinatrade
tensionescalates

U.S.andChinareportprogress
ontradenegotiations

Chinareportsfirst
deathfromnew
coronavirus

INSIDE


With the virus crisis, banks face simultaneous pressure from low
rates, the stock-market rout, falling oil prices and a potential recession.

SCOTT OLSON/GETTY IMAGES

BUSINESS
Tupperware names
new CEO to lead
comeback effort.B

MARKETS
Plunging oil prices
point to extreme
oversupply.B

GETTY IMAGES ANDREY RUDAKOV/BLOOMBERG NEWS
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