The Wall Street Journal - 20.03.2020

THE WALL STREET JOURNAL. ***** Friday, March 20, 2020 |B11

MARKETS

AUCTION RESULTS
Here are the results of Thursday's Treasury auctions.
All bids are awarded at a single price at the market-
clearing yield. Rates are determined by the difference
between that price and the face value.
FOUR-WEEK BILLS
Applications $148,036,254,200
Accepted bids $52,713,414,200
" noncompetitively $1,420,909,300
" foreign noncompetitively $837,000,000
Auction price (rate) 99.997667
(0.030%)
Coupon equivalent 0.030%
Bids at clearing yield accepted 53.83%
Cusip number 9127962C2
The bills, dated March 24, 2020, mature on April 21,
2020.
EIGHT-WEEK BILLS
Applications $121,914,449,500
Accepted bids $42,170,379,500
" noncompetitively $304,075,900
" foreign noncompetitively $672,000,000
Auction price (rate) 99.995333
(0.030%)
Coupon equivalent 0.030%
Bids at clearing yield accepted 67.57%
Cusip number 9127962M0
The bills, dated March 24, 2020, mature on May 19,
2020.
NINE-YEAR, 10-MONTH TIPS
Applications $29,414,800,000
Accepted bids $13,613,368,400
" noncompetitively $17,846,500
Auction price (rate) 94.992914
(0.680%)
Interest rate 0.125%
Bids at clearing yield accepted 71.06%
Cusip number 912828Z37
The Treasury inflation-protected securities, dated
March 31, 2020, mature on Jan. 15, 2030.

U.S. stocks are on the cusp
of losing their “Trump bump.”
Since fears about coronavi-
rus began to rip through mar-
kets a month ago, stocks have
been in a free fall. The Dow
Jones Industrial Average and
S&P 500 have lost about 30%
since they peaked in mid-Feb-
ruary, and it is unclear when
stocks will find a bottom.
The blue-chip index plum-
meted nearly 3,000 points
Monday in its worst session
since the Black Monday crash
of 1987 and is on course for a
weekly decline.
Further declines could wipe
out the market’s advance since
the November 2016 election.
The Dow industrials are up
9.6%, through Thursday, from
their close of 18332.74 on Nov.
8, 2016. At the Feb. 12 peak, the
index had climbed 61% from
Election Day and was within
about 450 points of crossing
30000 for the first time.
The S&P 500, which had
risen as much as 58%, is up
13%.
The bull market found fresh
legs after President Trump’s
victory on expectations that his
administration would boost the
economy through higher infra-
structure spending, lower cor-
porate taxes and cuts to regula-
tion.
“It was an environment that
contributed to growth,” said
Thomas Martin, senior portfo-
lio manager at Globalt Invest-
ments. “What you’re seeing
now is an environment where
growth is just coming un-
glued.”
Mr. Trump has lauded the
rising stock market and
seemed to take credit for its
gains. He tweeted Saturday
about the “biggest stock mar-
ket rise in history yesterday,” a
day after he held a press con-
ference to declare the corona-
virus pandemic a national
emergency.
The swift selloff has pushed
nearly half of the constituents
of the S&P 500—that is, almost
50%—below their Election Day
closing prices, according to
Dow Jones Market Data.
The intervening time has
seen stark differences in the
performances of the S&P 500’s
11 sectors.
Among the hardest hit since
that date—and over the past
month, in particular—are
stocks in the energy sector,
which have been battered by
worries about slowing demand
and a potential price war
among the world’s biggest oil
producers.

BYKARENLANGLEY

Trump

Bump

In Stocks

Withers

U.S. Oil Posts Record Percent Gain

Energy Department

seeks to buy up to 30

million barrels for

strategic reserve

But the Stoxx Europe 600

then rebounded after the BoE’s

rate cut, rising 2.9% in its big-

gest one-day gain since June

2016.

Policy makers in Europe

have, like their counterparts in

the U.S., taken action to try to

reduce the pandemic’s hit to

the economy.

The ECB has launched a

new €750 billion ($818.7 bil-

lion) bond-buying program,

which it hopes will help ease

worries about the most debt-

laden nations in the eurozone

and their ability to meet their

obligations as spending de-

mands increase.

“Confidence in bond mar-

kets is crucial because of the

fiscal expansion we’re likely to

see broadly as a result of coro-

navirus,” said Paul Markham,

global equity portfolio man-

ager at Newton Investment

Management.

Earlier in Asia, stock in-

dexes plummeted to multiyear

lows as investors dumped as-

sets and paid dearly to swap

local currencies into dollars.

Soaring demand for the dol-

lar is exacerbating dislocations

in markets, sending other cur-

rencies tumbling and pressur-

ing companies and investors

that need the U.S. currency to

pay off debts and meet other

obligations.

South Korea faced the big-

gest rout, with the Kospi

benchmark index dropping

8.4% as its currency, the won,

tumbled to a decade low.

In the Philippines, Indonesia

and South Korea, exchanges

halted trading temporarily af-

ter stocks fell steeply and

tripped circuit breakers. Indo-

nesia’s central bank also cut its

benchmark rate.

for the week through March 14

showed.

Economists fear that num-

ber will only rise in the coming

weeks.

“When you have whole

economies or whole popula-

tions shut down, it is going to

have a massive economic effect

and no one knows how long

that will go on for,” said Altaf

Kassam, head of investment

strategy for State Street Global

Advisors in Europe, the Middle

East and Africa.

In the U.S., shares of tech-

nology companies led Thurs-

day’s rally.

Shares of Zoom Video

Communications, whose tech-

nology is being used by busi-

nesses, universities and indi-

viduals to hold video

conferences while at home,

rose $5.06, or 4.3%, to $123.77.

The rally also extended to

other businesses that are likely

to receive a boost while con-

sumers isolate themselves at

home.

Netflixrose $16.56, or 5.3%,

to $332.03, whileAmazon.com

added $50.93, or 2.8%, to

$1880.93.

Elsewhere, European stocks

initially fell after data from the

Ifo economic think tank

showed a measure of confi-

dence among German manu-

facturers posted its sharpest

drop in 70 years.

Continued from page B1

Central

Banks Lift

Shares

S&P 500, percentage change
since the presidential election

Source: FactSet

60

0

10

20

30

40

50

%

2017 ’18 ’19 ’20

STREETWISE|By James Mackintosh

Shutting Down the Market

Is Likelier to Hurt Than Help

Look at

what a stock

market is for,

and it is easy

to conclude

that given the

chaos, they should just be

shut down now. Some big

fund managers have already

told regulators exactly that.

It is true that markets are

failing in some of their most

important roles. Companies

cannot use them to raise capi-

tal, they are not sending use-

ful information to chief exec-

utives about how to run their

business, and the wild price

swings look like the opposite

of an efficient market.

Yet, markets should stay

open. Stocks are a vital

source of cash for many of

the investors who are selling.

Prices are also providing a

broad measure of how bad

the economy might be. That

is especially useful informa-

tion for politicians and cen-

tral bankers who have been

dithering before taking emer-

gency measures.

There has been a frantic

rush to sell anything and ev-

erything, breaking many of

the ways markets normally

work. Safe-haven assets such

as gold and Treasurys fell in

price in recent days even as

stocks plummeted, because

people wanted cash.

At the same time, banks

and other financial groups

that usually grease the wheels

of the markets pulled back,

and the usually safe overnight

lending markets needed gov-

ernment support.

B

ut wanting cash is per-

fectly normal behavior in

a crisis, and this is a cri-

sis. Some are raising money

because they need it to pay off

loans used to buy assets now

worth less, a nasty deleverag-

ing that accompanies every

market fall. Many with savings

will be dipping into their in-

vestments as they face unem-

ployment, already showing up

in withdrawals from mutual

funds.

Pension funds, university

endowments and charities

need money to pay pensioners

and running costs. As compa-

nies slash dividends, funds will

likely need to dip further into

capital to replace lost income.

They can only do that if the

market is open.

The falls in prices aren’t a

sign that markets aren’t work-

ing, either. It is quite right that

prices have dropped, and by a

lot. J.P. Morgan predicts the

U.S. economy could shrink 14%

in the second quarter on an an-

nualized basis, the worst ever.

Markets may be moving

wildly, but the winners are ex-

actly those one would expect:

Regeneron Pharmaceuticals

Inc., working on a cure, and

CloroxCo., maker of disinfec-

tant wipes.

The price signals make lit-

tle difference to CEOs, who

have more urgent things to

worry about. However, they

convey a useful message to

governments, telling leaders

and central banks that they

haven’t done enough to offset

the damage that coronavirus-

related restrictions are doing

to the economy. With a presi-

dent who often focuses on the

stock market, that is even

more relevant than usual.

One argument for closing

the market is that it is vulnera-

ble to a self-reinforcing spiral

of decline, because of margin

calls, short selling or sheer mo-

mentum.

There is no doubt that

margin calls lead to forced

selling. But closing the market

only delays the moment when

those who leveraged up will

be hit. And it hurts those who

lent the money. It also flips

selling to other markets, as

people sell what they can, not

what they should.

Short sellers, who borrow

stock and sell it in the hope of

profiting when prices fall, have

been blamed for market falls

for centuries. Already several

European nations have re-

stricted short selling, even

though such bans have repeat-

edly failed to work in the past.

T

hey appear particularly

irrelevant now because

there isn’t much short

selling going on, according to

data from Robert Sloan,

founder of S3 Partners and

author of “Don’t Blame the

Shorts.” The net new short

positions of about $53 billion

in March are insignificant

compared with the trillions

traded in total.

“It’s not the short selling

that is driving the market,”

he said. “It is the long sell-

ing.”

Self-reinforcing momentum

is a real risk. Circuit-breakers

designed to pause downward

momentum have been repeat-

edly triggered. Downward mo-

mentum doesn’t seem to be

the problem, though. The mar-

ket has had several violent

snapbacks, including the two

biggest one-day jumps since

the 2008-09 bear market.

Those betting on constant

daily falls will have been

forced to reduce their posi-

tions by such violent swings.

The one good argument for

the government to close the

market briefly is that it needs

a few days to hammer out the

details of a rescue plan. Just

as individual stocks are often

suspended ahead of major

news to avoid a disorderly

market, the same could be

done while working out a

proper economic plan.

Still, the market is provid-

ing useful feedback on

whether the White House

plan is big enough to calm in-

vestors. A suspension fol-

lowed by a big fall when the

market reopens would sug-

gest a loss of faith in the plan

when it was too late to fix

quickly.

The market looks grim. But

at a time when governments

are having to reassure people

about food supplies and the

military is being called on to

help, it is merely reflecting

the problems of society, not

causing them. Keep it open.

Friday is shaping up as po-

tentially one of the most vola-

tile trading days in years, as

scheduled changes in futures,

options and other derivatives

markets threaten to add to a

frenzied trading month that

has already had some of the

biggest daily stock-index

swings ever.

The S&P 500 rose or fell at

least 4% in eight straight ses-

sions this month, the longest

stretch in history, according to

Dow Jones Market Data. The

stock index snapped that

streak Thursday, gaining 0.5%.

The Cboe Volatility Index, the

Wall Street fear gauge known

as the VIX, hit its highest level

in history this week.

Traders are bracing in part

because of so-called quadruple

witching, the Friday near the

end of each calendar quarter on

which options and futures on

both indexes and stocks expire

simultaneously. Options con-

tracts outstanding tied to the

S&P 500 index hit a record this

week. More than $1.5 trillion

worth of S&P 500 options were

slated to expire Friday, about a

third of the contracts outstand-

ing, according to Trade Alert

data.

“Right now I would say

buckle in,” said Steve Sosnick,

chief strategist at Interactive

Brokers, on the next few trad-

ing sessions. “Those moves in

both directions can really be

exacerbated.”

Trading volumes, which have

already been at near-record

levels in recent weeks, tend to

pick up on quadruple-witching

days. On the last such day, Dec.

20, about 11.8 billion shares

changed hands in the U.S. stock

market, compared with an av-

erage of about 7 billion shares a

day last year, according to

Rosenblatt Securities.

Many big traders will likely

be closely following overnight

moves in the markets from

Thursday to Friday because

they hold options on the S&P

500 that expire Friday morning,

said Russell Rhoads, head of re-

search and consulting at

EQDerivatives. Such overnight

swings are unusual, but they

have grown more common with

the coronavirus pandemic. “The

overnight risk is much greater

than it has been in a long, long

time,” Mr. Rhoads said.

The volatility is likely to ex-

acerbate concerns about the

market that have arisen during

the crash of the past month.

Within the U.S. stock market, li-

quidity—a term used to de-

scribe how easily buyers and

sellers can transact with each

other—has evaporated by many

accounts.

The spread between the

price buyers are willing to pay

for a stock and the price sellers

are willing to accept is the wid-

est in at least the last eight

years, according to Goldman

Sachs. Meanwhile, a measure of

liquidity for futures tracking

the S&P 500 has fallen to the

lowest level since 2006.

The result? Stocks, espe-

cially those with lower liquid-

ity, including many smaller-

capitalization companies, have

been more susceptible to out-

size swings—particularly to the

downside. The Russell 2000 in-

dex of smaller stocks is down

37% this year, compared with a

30% decline in the Dow indus-

trials and a 25% drop in the

S&P 500.

A big swing in the markets

overnight could quickly turn a

profitable options trade into a

money-losing one, so traders

could seek to hedge their

trades with futures on the S&P

500. But those futures are lim-
     ited to 5% moves up or down
     overnight, and in the past two
     weeks they have repeatedly
     slammed into such “limit up”
     or “limit down” levels. An op-
     tions trader seeking to hedge
     with S&P 500 futures when
     trapped at the limit-down level
     would be “in a really precarious
     position,” Mr. Rhoads said.
     Extreme volatility in credit
     markets this week prompted
     traders to question whether the
     rebalancing of widely followed
     corporate bond derivative in-
     dexes will take place as sched-
     uled Friday.
     IHS Markit, which operates
     the CDX and iTraxx indexes of
     credit-default swaps on invest-
     ment-grade and high-yield
     bonds, said the removal of cer-
     tain companies from the in-
     dexes and the addition of oth-
     ers will go forward as planned.
     The CDX index for U.S. high-
     yield bonds was quoted at
     around 89 on Wednesday, down
     from 98 last week. The index is
     at its lowest level since the Eu-
     ropean debt crisis in 2011, ac-
     cording to data from Markit.

BYGUNJANBANERJI

Calendar Sets the Stage for Frantic Friday

Options contracts outstanding tied to the S&P 500

Source: Trade Alert

25

0

5

10

15

20

million contracts

2018 ’19 ’20

U.S. oil prices rebounded

from their lowest level in 18

years with their largest one-day

percentage gain on record, ex-

tending a recent period of tur-

bulent moves as a price war be-

tween Saudi Arabia and Russia

ripples around the world.

U.S. crude rose 24% on

Thursday to $25.22 a barrel,

while Brent, the global gauge

of prices, rose 14% to $28.47 a

barrel.

Prices climbed early in the

session after the U.S. Energy

Department formally re-

quested to buy up to 30 mil-

lion barrels for the Strategic

Petroleum Reserve to help

soften the blow of low crude

prices on U.S. producers.

Oil prices extended their

gains after The Wall Street

Journal reported that the U.S.

was considering a diplomatic

push to get the Saudis to cut

oil production back to levels

they had originally signaled.

The Trump administration is

also weighing possible sanc-

tions against Russia.

Saudi Arabia and Russia

have been locked in a price

war that has sent crude prices

plunging.

The kingdom this month

tried to persuade Russia to

join its plan to support oil

prices by cutting output

through the end of the year.

Russia refused, and the Saudis

slashed prices and signaled

they would boost output,

sending oil prices crashing.

Even the president’s an-

nouncement last week that the

U.S. would buy oil for the

country’s Strategic Petroleum

Reserve did little to prop up

prices, which slipped below

$30 on Monday.

That has pressured U.S.

producers, who were already

grappling with a well-supplied

market and flagging demand.

Many are cutting spending

and output and some are even

slashing dividends.

Despite Thursday’s gains,

many say the outlook for oil

prices remains bleak.

Prices were already falling

for much of 2020 due to lag-

ging demand as the coronavi-

rus shut down travel—first in

and around China and then

world-wide.

Oil prices remain down

about 60% in 2020.

Although there is some

hope among traders that a U.S.

intervention might help the

Saudis and Russians reach a

compromise, part of the day’s

rise was also being driven by

short sellers covering their

bets, said Robert Yawger, di-

rector of the futures division

at Mizuho Securities USA.

“The fundamentals are still

very bearish,” said Mr. Yawger.

BYSARAHTOY

Crude-oil futures price, biggest one-day gains

Source: Dow Jones Market Data

Note: Based data available back to March 1983 for front-month contract.

March 19, 2020

Sept. 22, 2008

March 23, 1998

June 22, 1998

Aug. 4, 1986

Sept. 16, 2019

Aug. 6, 1990

Dec. 31, 2008

Feb. 19, 2009

Jan. 22, 1991

+23.8%

15.7

15.3

15.3

15.1

14.7

14.5

14.3

14.0

13.5

Wanting cash is

perfectly normal

behavior in a crisis,

and this is a crisis.