What has been happening to the global stock market in March?
According to the stock market overview in March, global stocks have accelerated the downward momentum that started in January this year. In the United States, the Dow Jones Industrial Average, S&P 500, NASDAQ, and Russell 2000 are more than 25 per cent lower from their year-to-date highs. This month alone, the four indices have declined by more than 16 per cent, 14 per cent, 14 per cent, and 25 per cent respectively. The Russell Index has suffered the most since it is mainly made up of small companies with no significant global footprint.
The same downward trend has been seen internationally, where the MSCI World Index has shed 17 per cent. In Europe, the German DAX, French CAC 40, and British FTSE have all plunged by more than 21 per cent. Meanwhile, in Asia, South Korea’s KOSPI, China’s Shanghai Composite, and Japan’s Nikkei 225 have also dropped by more than 20 per cent. This price action has happened in a period of increased volatility. The CBOE volatility index (VIX), which is an ideal measure of volatility levels, has more than doubled.
The market has been affected by two main factors. First, the coronavirus pandemic has continued to spread around the world, leading to a significant shutdown of global travel and manufacturing. As a result, most analysts see a recession in the first and second quarters of the year before rebounding in the third.
Second, oil prices have fallen by almost 50 per cent in March after Saudi Arabia and Russian failed to agree on production cuts. Generally, low oil prices are usually positive for the global economy. The present challenge is that many leveraged American shale producers will be forced to bankruptcy if low prices persist. According to Moody’s, oil and gas companies have more than $200bn debt maturing in the next four years.
What are the five most traded stocks in March 2020?
In March, trading volumes in stocks increased around the world as investors exited or added to their holdings. The high volume also occurred due to the large scale trading by high-frequency traders and quants. Below, we take a look at some of the most actively traded stocks in March 2020.
Apple was among the first companies to warn about the negative impact of coronavirus on its business. The business is now facing significant supply and demand challenges. Its Chinese manufacturers have been inactive, and the company was forced to close its retail stores around the world. This means that its operations have been curtailed. Apple also suffered a blow after the French regulator fined it €1.2bn for engaging in anti-competitive practices in the country.
The company’s stock will likely see more price action ahead of the April 28 earnings release.
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Tesla has been one of the most traded stocks in March 2020 in Wall Street. The company’s stock price more than doubled in the first two months of the year as traders cheered a strong fourth quarter, exciting forward annual guidance, and the start of production in its Shanghai plant. They were also hyped up about its plans for a new German factory to be opened. This enthusiasm has since changed, and the stock has pared most of the gains.
Market participants are concerned about four things. They are worried about low demand for the company’s cars, potential plant closures in the United States, and the recent decision by a German court to halt the construction of its plant. Another concern is that Tesla will raise more money after it has already got $2bn in February this year. Raising capital would dilute existing shareholders.
The success of Tesla shares in the near term depends on the duration of the coronavirus pandemic, normal plant operations, and strong forward guidance when it releases its quarterly earnings on April 24.
Royal Caribbean (RCL)
Royal Caribbean has been one of the top traded stocks on Wall Street. Its share price has dropped by more than 78 per cent this year. Other cruise lines such as Norwegian and Carnival have also experienced a similar decline.
There are three primary reasons for such a steep price drop. First, cruise lines have been forced to halt their operations because of the disease. This happened after major infections in two large cruise ships: Diamond Princess and Grand Princess. The challenge is that the company is not making money, and it has more than $2bn in debt due this year. This could pose its existential threat.
The second challenge is on government bailouts. While Trump has talked about bailing oil and airline companies, there are doubts that the government will bailout cruise lines because they are not considered essential.
Third, even if the company is bailed-out, the biggest challenge is whether there will be enough demand for their services going forward.
The company is scheduled to release its earnings on April 28. However, this date will not be significant. Instead, investors will be looking at whether the companies will be included in the government bailout package.
Boeing has been battling serious challenges in the past year. Its flagship 737-Max is still grounded, and there are signs that it will not fly in the foreseeable future. The company is being investigated in Washington, and negative headlines continue to dominate the media.
Moreover, the airline sector has been heavily affected by the coronavirus disease, which means that the company could see further order cancellation. Another factor is that its defence arm could see lower demand if Joe Biden beats Donald Trump in the upcoming US presidential election.
All in all, these are some of the key reasons for Boeing stock losing more than 50 per cent of its value in March alone.
Boeing has requested bailout money from the government. Still, even with bailout funds, the stock will likely suffer because of low demand for its planes, ongoing investigations, US politics and the ongoing 737 saga.
Chesapeake Energy (CHK)
Chesapeake Energy’s stock has one of the most traded shares in the energy sector in March. This has seen the company’s share price drop by more than 70 per cent in the past two months. Today, the business is valued at shy $422m, while at its peak it was worth more than $30bn.
In response, the company has hired restructuring advisers to chart the way forward. This restructuring will likely lead to bankruptcy because the company has negative free cash flows and more than $9bn in debt.
In the worst scenario, it will be difficult for shale companies to receive a government bailout because of opposition from democrats.
What happens next: stock market forecast for April
April will be a pivotal month for global stocks as investors will receive the first reading of Q1 economic growth. Most importantly, the earning season will kick off on April 14 as big Wall Street banks release their earnings. Economists at Goldman Sachs (GS) expect the economy to stagnate in Q1 and to contract by 5 per cent in Q2 while those at Morgan Stanley (MS) believe that we are already in a recession.
In the season, we will look at how companies have been affected by the macroeconomics and their guidance for the year. The likely scenario is where most businesses report a weak quarter and weaker-than-expected future forecasts.
However, with the most traded stocks being oversold, we will likely see some stabilisation as coronavirus cases start to ease, and as the government starts implementing a fiscal stimulus.