I have been part of a historical event this week as an investor in Stocks and Bonds. There has been three key events that shaped the markets this week.
1) World Health Organisation characterized Coronavirus (Covid-19) as pandemic. on March 11th.
2) Saudi Arabia started a Crude Oil price war against Russia on Monday March 9th.
3) Trump has banned all travel from Europe to USA on March 11th.
4) Trump declared National Emergency for Coronavirus and announced US will buy OIL for its strategic reserves just minutes before the market closure on March 13th.
Check out this graph for the price of OIL in the last 30 years.
During the last week in one day OIL price dropped 26% in a single day. This has been the worst day since 1991. That is why this week was a historical one. After Trump’s announcement about US buying oil for the national reserves, price spiked 4.5%. OIL posts biggest weekly loss since 2008. Weekly change rate closed at -24%.
Let’s check out what is happening in the Stock Market lately
The S&P 500 dropped 7.6% to 2746.56 on Monday 9th, its biggest percentage drop since December 2008. On Friday 13th, U.S. stocks booked their biggest daily gains 9.3% since Oct. 28, 2008, after President Trump declared a national emergency to combat the coronavirus epidemic, a day after the Dow and the S&P 500 index suffered their biggest one-day plunge.
S&P500 Last three weeks performance following Coronavirus
-24% price volatility in the last three weeks. There has been a few times circuit breakers were introduced after 7% drop in any trading session. This is simply to halt trading for 15 minutes so traders can take a breath before crazy sell off goes on. There are three levels of circuit breakers at 7% (15 mins), 13% (15 mins) and 20% (closure for the rest of the day).
Fed kept pumping money in to financial system in order to protect banks liquidity problems but that was not enough as people were in the panic selling mood like the World was coming to an end. The Coronavirus impact will most likely cause recession as people are locked down in their houses and travel bans all over the world.
Imagine airline company’s losing so much money and still have to pay their employees. They cannot survive for long if the travel ban continues longer than a couple of months. The US company I am working for banned all travel until May. Imagine hotels being empty, bars and restaurants without tourists etc. There will be a significant impact for certain industries like hospitality, travel, entertainment etc.
There will also be some winners of course like Netflix, food delivery companies, healthcare companies working on the Coronavirus vaccination. Some cleaning companies like Clorox who produce anti-bacterial gel and wipes. And I still cannot understand why but there is a serious toilet-paper crisis mainly in Australia, Singapore and China. I cannot think of a better time for mask manufacturers, all run out of stocks everywhere.
I have decided to BUY crude oil (CLMO) this week. I cannot think of a better time for value. I expect Russia and Saudi to come to an agreement at some stage as they both cannot afford to keep this price war for long. I will keep you updated about my OIL adventure.