Monday’s really are the worst for equities as of late. For those that thought last Monday was bad, and it was, today was no better, as all three major domestic equity benchmarks plunged despite the Federal Reserve taking substantial action to shore up the economy.
- The S&P 500 plunged 11.99%
- The Dow Jones Industrial Average tumbled 12.94%
- The Nasdaq Composite slid 12.32%
- For those that aren’t tired of hearing bad news about Boeing (NYSE:BA), rest assured Monday brought more of the same as the stock was the Dow’s worst performer by a wide margin, slumping 21%.
As was the case earlier this month, stocks swooned following an epic Federal Reserve announcement: on Sunday March 15, the Federal Open Market Committee (FOMC) cut interest rates to near zero while unveiling a massive bond buying scheme.
“The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range for the federal funds rate to 0 to 1/4 percent,” said the Federal Open Market Committee (FOMC) in a statement. “The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
Monday’s price action suggests equities weren’t thrilled by the news, as all 30 of the Dow stocks were lower in late trading and only Caterpillar (NYSE:CAT) was sporting a loss of less than 1%.
With the aforementioned slide, all the positive returns accrued during prior CEO Dennis Muilenburg’s time at Boeing have been erased. Analysts are growing concerned about the company’s cash flow and there’s essentially no vision as to when the 737 Max passenger jet will return to the skies.
Making matters worse is Fitch Ratings putting Boeing and Boeing Capital Corporation on “Rating Watch Negative,” a distinction they see as “reflecting the impact coronavirus is having on the aviation sector:
“Boeing’s debt nearly doubled in 2019 to $27.3 billion as a result of $10.5 billion of long-term debt issuance and several billion dollars of CP issuance. Debt will continue to rise in 2020, potentially peaking at more than $40 billion, which is higher than Fitch’s previous estimate. In late 2020 and throughout 2021, Fitch expects Boeing will pay down debt and reduce much of its CP balance.”
Slammed by the Fed
Due to interest rates being low for a long time in the U.S. and the three rate cuts last year, investors have long been hearing about sectors that favor lower rates, namely real estate and utilities. However, there are groups that are responsive to higher rates, namely financial services.
With that in mind, Travelers Companies (NYSE:TRV) was the second-worst Dow stock today, because lower rates make it hard to generate returns on the large sums of cash insurance companies hold.
Perhaps you’re hearing about the coronavirus-induced phenomenon known as social distancing. Admittedly, I’m offering up an over simplified definition, but it basically means to stay as far away from other people as possible due to the virus.
As one might expect, this is terrible news for restaurant operators, highlighted by McDonald’s (NYSE:MCD) ranking among the Dow’s worst offenders today.
Large restaurant stocks, including McDonald’s, have been sturdy, relatively speaking, compared to the broader discretionary sector and could offer some buffer with their booming delivery businesses, but it’s still probably too early to get involved with this group today or tomorrow or anytime soon.
Theory of the Day
Neither Apple (NASDAQ:AAPL) nor Disney (NYSE:DIS) has been immune to the March market punishment, but an old rumor involving the companies got some new life today when Rosenblatt Securities analyst Bernie McTernan floated the idea of Apple pouncing upon Disney following the latter’s recent share price retrenchment.
In terms of Wall Street rumors, this one is ancient. Outgoing Disney CEO Bob Iger even said in a biography published in 2011 that had late Apple CEO Steve Jobs not passed away, there was a strong chance the two California-based behemoths would have considered a marriage or at least discussed it.
Based on Disney’s market capitalization after the close today and assuming a somewhat decent premium, an offer in the ballpark of $200 billion would probably be what it takes to get the company to the bargaining table. For those keeping score at home, Apple’s largest ever acquisition was Beats for $3 billion in 2014.
Bottom Line on the Dow Jones Today
There are some unpleasant facts for investors to mull over today. For example, at its nadir earlier today, the the S&P 500’s recent weakness meant all of 2019’s gains were erased. Second, many market observers decried the Fed move to almost zero because now, as has long been feared, there’s little more the central bank can do to help markets and the economy.
Some market observers are throwing in the towel on year-end S&P 500 forecasts while others are saying a decline to 2,000 could be what’s needed to end this bear market.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.