The Wall Street Journal - 22.02.2020 - 23.02.2020

THE WALL STREET JOURNAL. ** Saturday/Sunday, February 22 - 23, 2020 |B13

stocks and haven investments

this year underscore the jitters

that have rattled markets. Typ-

ically, investors ditch haven as-

sets like gold and government

bonds as stocks crest to fresh

highs. This year, they have

bought risky and safe assets

alike as they have navigated a

murky economic outlook.

“It’s absolutely unusual

from a longer-term historical

perspective,” said Katrina

Lamb, head of investment

strategy and research at MV

Financial.

“There’s a concern in terms

of wondering if we may be

heading into a stretch of trou-

ble after this very long, gentle,

benign rally.”

Cracks in the growth story

dented some of investors’ con-

fidence this week.Appleon

Monday became the first ma-

jor U.S. company to say that it

won’t meet its revenue projec-

tions for the current quarter

because of the coronavirus,

warning the epidemic limited

iPhone production and

crimped demand for its prod-

ucts in China. Apple shares

dropped 3.7% this week.

demand goes beyond OPEC.

The International Energy

Agency warned Feb. 13 that

demand for oil is likely to be

435,000 barrels a day less in

the current quarter compared

with a year ago. Vitol Group,

the world’s largest indepen-

dent oil trader, cut its forecast

demand for the quarter to 98.3

million barrels a day, down 2.2

million barrels a day from its

previous forecast for the pe-

has compared the virus’s ef-

fect on oil demand to a fire

that needs to be put out, ac-

cording to a person familiar

with the matter. In one option

under consideration, Saudi

Arabia and its two Persian

Gulf neighbors would reduce

production without coordinat-

ing with a group of 10 non-

OPEC nations led by Russia.

The divergence of opinion

over coronavirus’s effect on oil

ter said. Russian delegates say

business activity in China is

recovering and the impact of

the virus on oil demand is lim-

ited, the people said.

Saudi exports to China have

remained stable since the crisis

began, though sales from other

OPEC members have shown

weakness, according to com-

modities-data provider Kpler.

Saudi energy minister

Prince Abdulaziz bin Salman

where it aims to reach a con-

sensus on how much crude to

deliver to an already oversup-

plied market.

At an emergency meeting

earlier in February, Russia re-

jected a Saudi push to deepen

the alliance’s existing oil pro-

duction curbs by 600,000 bar-

relsaday.

Russian officials still don’t

see a need for reductions, the

people familiar with the mat-

ing the challenge many inves-

tors face in trying to time the

market.

In one sign of the tug-of-

war across financial markets,

the two best-performing sec-

tors in the S&P 500 this year

have been technology and util-

ities. That’s unusual because

the two groups often move in

opposite directions—tech

stocks tend to rally when in-

vestors feel confident taking

on riskier investments, while

utilities tend to advance when

investors grow more uneasy

about the economic outlook.

Markets have swung in re-

cent weeks based on the num-

ber of new coronavirus cases

that have emerged. Unlike cor-

porate earnings or cut-and-

dried economic data, the social

and commercial implications of

the virus can be tough to pin-

point, leaving investors uneasy

about the depth and length of

its ramifications.

Fears that the domestic

economy would tip into a re-

cession had ebbed earlier this

year as the U.S. and China ap-

peared to reach a trade truce.

Since then, lackluster eco-

nomic data and the uncertainty

about the impact of the virus

have clouded the outlook for

growth, sending investors into

assets they think will perform

well in times of uncertainty.

The concurrent gains in

Procter & Gamblefollowed

Thursday, saying the virus will

have a material impact on its

sales and earnings for the cur-

rent quarter because of

weaker store traffic in China

and disruptions to its supply

chain. Its shares ended the

week 0.4% higher.

Lackluster economic data

added to those concerns. IHS

Markit’s flash reading for an

economic indicator measuring

manufacturing and services

business activity fell Friday to

its lowest level in more than

six years. Additionally, new

data showed that sales of pre-

viously owned U.S. homes

sputtered in January. Existing-

home sales decreased 1.3% in

January from December.

The manufacturing data

drove government-bond yields

sharply lower. The yield on the

10-year Treasury note also

traded below the three-month

yield this week as investors

sought longer-dated govern-

ment bonds as a safe haven

asset. Gold prices rose 3.9%

this week.

The intraday yield of the

benchmark 30-year bond fell

to a record of 1.889%, well be-

low the previous all-time low

of 1.905% in late August, ac-

cording to data from

Tradeweb. The bond yield

later rebounded to close at

1.917%, still down from 1.971%

on Thursday.

“The bond market was

clearly the expression of the

fear,” said Alicia Levine, chief

strategist at BNY Mellon In-

vestment Management. “Peo-

ple are piling into fixed in-

come because of the concerns

out there.”

The anxiety in the bond and

precious-metals markets could

eventually trickle into stocks.

Goldman Sachs Group Inc. an-

alysts warned in a research

note this week that “the risks

of a correction are high,” re-

ferring to the chance of a pull-

back of 10% or more among

stock indexes. The analysts

also cautioned that equity in-

vestors may be too upbeat

about corporations’ ability to

withstand the epidemic.

Other investors are more

optimistic and say they still

expect bigger gains ahead for

stocks, particularly among

shares of tech companies,

which have outperformed the

broader market for much of

the bull market.

“People are desperately

looking for organic growth,”

said Dev Kantesaria, founder of

Valley Forge Capital Manage-

ment, who says he’s optimistic

about the prospects for soft-

ware companies. “High-growth

stocks should prosper.”

—Matt Wirz

contributed to this article.

points, or 1.1%, Friday to
3337.75, while the Dow Jones
Industrial Average shed 227.57
points, or 0.8%, to 28992.41.
The technology-laden Nasdaq
Composite fell
174.37 points, or
1.8%, to 9576.59.
All three indexes
suffered declines of at least
1.2% for the week but have
posted double-digit gains over
the past year and set repeated
highs in 2020.
Even now in the midst of
the epidemic, few economists
are calling for an imminent re-
cession, and many investors
are wary of calling it quits on
a decadelong bull run in
stocks. The Federal Reserve’s
three interest-rate cuts last
year have also boosted opti-
mism that the central bank
can help buoy the current ex-
pansion. Recession fears came
to the forefront last year, only
to subside shortly after, help-
ing the S&P 500 finish its best
year since 2013 and highlight-

Continued from page B1

Stocks Fall

On Virus

Worries

MARKETS NEWS

strategies. The plan attracted

opposition from a variety of

critics who said it would harm

investors and unfairly discrim-

inate against some market

participants in favor of others.

Asset managers BlackRock

Inc. and T. Rowe Price Group

Inc., electronic trading giant

Citadel Securities and the

SEC’s Office of the Investor

Advocate, among others, urged

the commission to reject the

plan.

“We believe that it will in-

troduce needless complexity

and have a detrimental effect

on U.S. equity markets,” Black-

Rock told the SEC in a letter in

August.

The SEC first gave the

green light to speed bumps on

U.S. exchanges in 2016 when it

allowed IEX Group Inc.—the

startup market operator fea-

tured in Michael Lewis’s book

“Flash Boys: A Wall Street Re-

volt”—to become a full-

fledged stock exchange.

In June, Cboe proposed to

add a speed bump to EDGA,

the smallest of the four equi-

ties exchanges it runs. The

Wall Street Journal first re-

ported that Cboe was consid-

ering introducing the speed

bump in 2018.

Cboe’s proposed speed

bump would have been differ-

ent from IEX’s. IEX imposes a

brief delay on all orders to

buy or sell shares. But Cboe’s

delay would have applied

only to orders that come to

EDGA seeking to be immedi-

ately executed. Incoming or-

ders that are posted on EDGA

so they can wait for a buyer

or a seller wouldn’t have

been subject to the delay.

Cancel messages, in which a

trader withdraws an order

that has already been posted,

also wouldn’t have been sub-

ject to the delay.

Such a design was intended

to benefit market makers—

firms that quote prices for

stocks—by giving them a split-

second pause to cancel or ad-

just their quotes in response

to market-moving information.

Currently, market makers’

quotes are often picked off by

speedy trading firms that zip

in and execute against the

slightly out-of-date quotes, a

strategy known as “latency ar-

bitrage.”

Cboe’s proposal won sup-

port from some electronic

trading firms and academics,

who argued that it would re-

duce latency arbitrage.

Critics, however, said the

Cboe speed bump would un-

fairly benefit market makers

at the expense of other firms.

They argued that if a market

maker expected the price of a

stock to change, it could can-

cel its quotes just as another

firm—for instance, a pension

fund or other large investor—

was trying to access the

quotes. In that scenario, the

pension fund would be subject

to Cboe’s four-millisecond de-

lay while the market maker

wouldn’t be, allowing the mar-

ket maker to yank its quote

and block the fund from exe-

cuting its order.

An SEC spokeswoman de-

clined to comment.

The Securities and Ex-
change Commission rejected a
hotly disputed proposal to add
a new “speed bump,” or split-
second trading delay, to the
U.S. stock market.
In an order posted on its
website on Friday, the SEC
disapproved a plan from Cboe
Global Markets Inc. to intro-
duce a four-millisecond speed
bump to one of its exchanges.
The regulator called Cboe’s
proposal “discriminatory” and
said Cboe hadn’t provided
enough evidence to show that
it would benefit the markets
by curbing ultrafast trading
strategies.
Speed bumps work by forc-
ing traders to wait a fraction
of a second before their orders
to buy or sell stocks are exe-
cuted at an exchange. That can
trip up certain ultrafast strate-
gies that depend on getting
trades executed as quickly as
possible.
By turning down the plan,
the SEC has put the brakes—at
least for now—on the prolifer-
ation of speed bumps on U.S.
stock exchanges.
“We are extremely disap-
pointed that the SEC has dis-
approved our proposal to in-
troduce Liquidity Provider
Protection,” Cboe said in a
statement, using its term for
the proposed speed bump.
Cboe “will continue to work
closely with our regulators
and industry to develop inno-
vative products that benefit
the marketplace,” the com-
pany added.
Cboe, the country’s No. 3
stock-exchange operator by
trading volume, had said its
proposal would help curb the
impact of high-speed trading

BYALEXANDEROSIPOVICH

SEC Rejects ‘Speed Bump’ Proposal

Some strategies rely on the ultrafast execution of trades. A transmission tower near a trading platform.

DANIEL ACKER/BLOOMBERG NEWS

riod. Under either scenario, a

quarterly decline would be the

first since the height of the

global financial crisis.

However, Moscow says

weakened demand would be

offset by reduced supply re-

sulting from Libya’s oil shut-

down and new sanctions tar-

geting Venezuela’s crude sales,

one person familiar with the

matter said.

Libya’s oil output has fallen

to 120,000 barrels a day from

1.2 million daily barrels since a

renegade general shut pipe-

lines and oil ports in January

in a dispute with the central

government.

The U.S. on Tuesday im-

posed sanctions on a subsid-

iary of Russian state-run com-

pany Rosneft Oil Co. that had

become the main marketer of

banned Venezuelan crude. The

new restrictions could cut Ven-

ezuelan exports by 600,000

barrels a day, said energy con-

sulting firm FGE, which sees

the market tightening by June

as a result of the Libyan and

Venezuelan disruptions.

“Russia’s arguments for do-

ing nothing may have some

validity,” it said.

—Sarah McFarlane

contributed to this article.

Saudi Arabia is considering a
break from its four-year oil-pro-
duction alliance with Russia, ac-
cording to people familiar with
the matter, as China’s coronavi-
rus outbreak contributes to a
drop in global oil demand.
The Saudi kingdom, Kuwait
and the United Arab Emir-
ates—which collectively repre-
sent over half of OPEC’s pro-
duction capacity—are holding
talks to discuss a possible
joint output cut of as much as
300,000 barrels a day, the
people said.
The coronavirus outbreak
hascreatedariftinthepart-
nership between Russia and
the Saudi-led Organization of
the Petroleum Exporting
Countries. The two sides have
collaborated since December
2016 in an effort to balance
global oil supply amid a surge
of crude from U.S. shale pro-
ducers. If the Saudis, Kuwait
and the U.A.E. break with the
Russians, the split could fur-
ther weaken OPEC’s ability to
influence oil prices.
The new tensions come
ahead of the group’s early
March gathering in Vienna,

BYSUMMERSAID
ANDBENOITFAUCON

Saudis Weigh Breaking With Russia Over Outlook for Oil

Precious Metal

Rally Presses On

Gold and silver prices ex-

tended a recent surge Friday,

capping off a strong week for

safe-haven assets amid inves-

tors’ con-

cerns that

the corona-

virus will have a long-lasting

impact on global growth.

Front-month gold futures

advanced 1.7% to $1,644.60 a

troy ounce on the Comex divi-

sion of the New York Mercan-

tile Exchange, continuing a run

that began last summer and

has sent the metal to seven-

year highs. Prices are up 8.2%

so far this year.

In another sign of investor

enthusiasm for precious metals,

front-month silver futures ral-

lied 1.2% to $18.521, also post-

ing an outsize weekly gain.

Recent signs that the

deadly coronavirus is spreading

around the world and could dis-

rupt global supply chains have

powered the rally, with inves-

tors seeking shelter in assets

considered safer including pre-

cious metals and bonds. A syn-

chronous decline in global bond

yields has in turn supported

gold and silver because lower

yields make the metals more

attractive to yield-seeking in-

vestors. Yields fall as bond

prices rise.

The drop in bond yields and

gains for precious metals accel-

erated Friday after IHS Markit

Ltd. said its U.S. composite pur-

chasing managers index fell to

its lowest level since October

2013, a sign that tepid activity

in the travel and tourism indus-

tries due to the coronavirus

could dent growth this year.

Stocks around the world fell

Friday, and some analysts

warned that a prolonged de-

cline in equities could add more

fuel to the surge in safe-haven

assets.

In another positive sign for

precious-metals bulls, the dollar

pared some of its recent gains,

making commodities denomi-

nated in the U.S. currency

cheaper for overseas buyers.

The WSJ Dollar Index, which

tracks the dollar against a bas-

ket of 16 other currencies, fell

Friday after closing at a three-

year high a day earlier.

Investors will be closely moni-

toring coming economic data

points and signals from global

central banks, with some expect-

ing interest rates globally to fall

in response to the coronavirus.

Elsewhere in commodities

Friday, oil pared some of its

weekly rebound on the fresh vi-

rus concerns, sending U.S.

crude futures down 0.9% to

$53.38 a barrel and Brent

crude, the global gauge of

prices, 1.4% lower to $58.50 a

barrel. Concerns about weaker

fuel demand due to the virus

have kept prices well below a

peak hit in early January.

COMMODITIES

Regulator nixes plan

from Cboe to add

trading delay to one

of its exchanges.

FRIDAY’S
MARKETS

The top-performing sectors of the S&P 500 this year are utilities

and technology—one group that is generally associated with

safety and the other with risk.

Source: FactSet

Utilities

Informationtechnology

Real estate

Consumer discretionary

Communication services

S&P500

Consumer staples

Industrials

Health care

Financials

Materials

Energy

8.3%

8.2

8.1

4.5

4.1

3.3

2.7

2.4

1.3

–0.3

–1.8

–11.1