It was an ugly session for the bulls in the stock market today. The S&P 500 shed 1.75%, after falling 2% on Tuesday thanks to a late-session decline.
After a bottom-to-top rally of roughly 35%, investors have to be open-minded about a pullback. In fact, under the right circumstances, a pullback can even be healthy. But given the novel coronavirus outbreak, this has been anything but normal.
The question now becomes, how deep and how prolonged of a pullback do we get, and can the bears maintain any momentum?
The Big Wigs Talk
There was a lot of attention on Warren Buffett earlier this month, as investors looked to the Oracle of Omaha for some direction. He was a letdown for the bulls, staying conservative with his investments and seeming relatively downbeat about the situation.
Others heavy hitters are also dishing out a dose of reality — something the market has been immune to thus far. Stanley Druckenmiller said, “the risk-reward for equity is maybe as bad as I’ve seen it in my career.” He argued that given the circumstances, stock valuations are too high.
David Tepper echoed similar concerns, saying this is the second most-overvalued market he has ever seen. The first came during the dot-com bubble, which doesn’t exactly instill confidence. He argued that big tech — like Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB) — look fully valued.
Finally he said, “There might have been a bottom put in … but that doesn’t mean you can’t fall significantly from these levels.”
Last but certainly not least, we heard from Federal Reserve Board Chair Jerome Powell. Among other things, Powell warned of the potential for lasting economic damage without the proper stimulus. He added that more will need to be done — both from the Fed and from Congress.
He also said the Fed is not prepared to move to a negative interest rate environment. Powell added, “While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks.”
Movers in the Stock Market Today
Disney (NYSE:DIS) will tap the debt market with $11 billion in various debt offerings. Working with several banks, Disney will sell $1.5 billion in 1.75% notes due 2026, $1 billion in 2.2% notes due 2028 and $2.5 billion in 2.65% notes due 2031. The other $6 billion in notes are due in 20 to 40 years, paying between 3.5% to 3.8%.
Used car prices dropped 34% in April and Hertz (NYSE:HTZ) could play a role in that number decreasing further. Whether the company is pressured into bankruptcy or not, Hertz will be forced to sell part of its fleet. Doing so will add more supply to the used car market and likely further hurt pricing. The development has Cars.com (NYSE:CARS), Carvana (NYSE:CVNA) and Avis Budget Group (NASDAQ:CAR) on watch.
More rumors are swirling that J.C. Penney (NYSE:JCP) will file for bankruptcy — possibly as soon as Friday. The company is trying to secure $450 million in financing from lenders. If it’s able to do this, J.C. Penney may be able to draw $225 million right away, receiving the second half of the loan if it can hit certain milestones.
Another potential bankruptcy is looming, this time with Intelsat (NYSE:I). The company is down almost 20% after reports of a Chapter 11 filing that could happen as soon as tonight. Intelsat skipped interest payments on some of its debt last month, while its bonds are reaching record lows.
Tesla (NASDAQ:TSLA) shares were down about 2.3% in the stock market today, following its ongoing drama. Its Fremont facility restarted production despite orders from Alameda County. However, shares are climbing after hours on news CEO Elon Musk received the county’s green light. His plant can reopen as long as it follows certain safety protocols.
Uber (NYSE:UBER) and GrubHub (NYSE:GRUB) continue working toward a deal. The latest offer reportedly values GRUB around $60 per share and the deal near $6 billion.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Kenwell is long DIS.
