6:45 p.m. The U.S. Senate failed to pass a trillion dollar aid bill to combat coronavirus, and stock futures have hit “limit down” as soon as they opened. Oh, and President Donald Trump just called in the National Guard.
Dow Jones Industrial Average
futures have dropped 854 points, or 4.5%, while
futures have slumped 4.9%, and
futures have fallen 4.4%.
The Senate is working on a plan that would include payments of up to $1,200 to individuals, $50 billion in loan guarantees for airlines, $300 billion in loan guarantees to small businesses, among other proposals. On Fox News, Treasury Secretary Steven Mnuchin the Fed might funding could support $4 trillion in lending programs. It’s not helping yet.
“Panic in the markets has led to an equivalent policy reaction that many have claimed to be the most extreme course of action ever taken by the Fed,” writes MRA’s John Kolovos in a note released Sunday. “Coupled with massive fiscal stimulus markets will eventually find their footing but I suspect that equities will have more work to do on the downside as this is all part of the process.”
The question becomes how much more downside. And that, of course, depends on who you ask. But some numbers are starting to stick out. I was looking at 2350 as support for the S&P 500—a level that broke on Friday—but technicians interviewed by Barron’s cited 2300 as another possibility, though that may crumble if the mood doesn’t change before morning. After that, we could be look at something between 1700 and 1800.
Strategists also see 1700 to 1800 as an area where the market could find fundamental support. Let’s say earnings drops around 20% in 2020, from $165 to $139, the current target of RBC’s Lori Calvasina, and put a multiple of 12.6 on it—the valuation reached during the 1990-1991 recession—and you get a price target of 1750, Calvasina says. But she too sees the eventual floor, when it is found, to have come about over time, night overnight, especially because that’s been the case with the major bear markets the U.S. has experienced. “Bottoms were processes not a point in time,” she explains.
And we still don’t look to be at that point.
Write to Ben Levisohn at Ben.Levisohn@barrons.com