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Hey Snackers,
We know — it's been wild out there. But when you get too worried, just remember: sometimes a lion on the loose is actually just a dog with a bad haircut.
All 3 major US stock indexes closed down over 7% for the market's worst day in over a decade — that includes a market-wide trading halt and a dramatic drop in oil prices. More context:
- There were 4 worse days than this in 2008.
- And the market has experienced 18 bigger plunges in its history.
Pump
Oil takes its biggest plunge since 1991 — and the drama is reality-show worthy
When you're not blaming coronavirus... blame oil. Oil prices plunged 24% Monday, hitting multi-year lows and notching their worst daily drop since 1991. US prices fell as much as 34% (that won't translate to lower gas prices as fast as we'd all like). The drama starts with OPEC, the powerhouse org of 14 oil-exporting countries:
- Because of its oil producing dominance, OPEC can change oil prices by cutting/increasing output — in 2018, almost 80% of the world's oil reserves were in OPEC countries.
- It's led by Saudi Arabia, OPEC's big dog and also the world's largest oil exporter.
- Since 2017, OPEC and its ally Russia (also a huge oil-producer) have been keeping supply lower to boost prices.
But oil prices have been falling... because coronavirus has dented economic growth globally, causing the world to need less oil. So OPEC proposed a plan this weekend to cut production further in order to keep prices high. Now Russia and Saudi Arabia are the stars of a crude drama, worthy of its own reality show (Oiled and Spoiled? Sassy and Gassy?):
- Russia said "nah, I'm good" and refused to participate in OPEC's production cuts — it's reportedly doing this to hurt US oil producers (who've been gaining market share) with lower prices for their key product.
- Saudi wasn't feeling Russia's response, and in a #savage move, jacked up production to increase oil supplies, thereby cutting oil prices.
- Since Friday's drama, oil stocks have plummeted: Occidental Petroleum sunk 53%, Chevron fell 15%, and Exxon is down 12%.
Terrible time for this beef... Oil demand is already low since coronavirus has slowed travel. Now, Russia and Saudi Arabia are in an oil-pumping contest to see who can drive prices even lower. This hurts the rapidly growing US shale industry (exactly Russia's goal). It's also bringing other sectors down — heavily-invested bank stocks are getting crushed. Long term though, lower oil prices benefit us car-drivers and many businesses.
Stop
The 1st market-wide trading halt since 1997 (it's a "stop-the-drop" strategy)
15-minute meditation break sponsored by... the NYSE. On Monday morning, panicked investors — with coronavirus and plunging oil prices on their minds — unleashed a flood of stocks on the market. Just 5 little minutes into the trading day, the S&P 500 fell a stunning 7% on the selling frenzy. Then, there was silence: the drop triggered a circuit breaker that automatically halted trading across the entire market — for 15 minutes.
- Investors get 'time-out' because circuit breakers are meant to prevent a market debacle — they give investors time to calm down, absorb info, and slow the freak-out cycle.
- When investors returned from their 15-min breaks, indexes bounced up a tad from their lows.
3 strikes, you're out... There are 3 levels of breakers, each with a different severity (think grade-school punishments):
- S&P 500 falls 7% from previous day's close?: The only one we experienced yesterday and the "least bad" one. That triggers a 15-minute time-out.
- Falls 13% before 3:25 PM?: 2nd warning — another 15-minutes to get it together (this time, facing the classroom wall).
- Falls 20%: Final trigger that shuts down the market for the rest of the day (go home and think about what you've done).
Circuit breakers help prevent worst-case scenarios... They act as rational checks on emotional investors. The market stopped — not because it was broken — but because it was working (the pause eased the sell-off panic). The last market-wide halt happened in 1997 on "Bloody Monday." Since new breaker guidelines were implemented in 2013, the market has never triggered a 13% or 20% halt — a hopeful sign of its effectiveness.
Sell
NBC breaks up with Snapchat, packs $500M in an old shoe-box
It happened quietly... But it happened. We just found out that last year, Comcast-owned NBCUniversal sold its entire stake in Snap Inc — the Hollywood Reporter found the break-up note tucked away in a Comcast financial filing.
- When Snap went public 3 years ago, NBC revealed it had invested $500M.
- The OG content king wanted an in with the digital (non-cable) world of entertainment — Snap was that in. But now...
NBC has a new love interest... Streaming. And it's not just a fling. NBC has devoted over $2B to develop/launch its own streaming service, known as "Peacock". By dipping out of its Snap investment, NBC can splurge more on its own Millennial-friendly service. This drop the side-hustle, DIY-move could be a trend among content OGs:
Traditional media has a distribution problem... Think of media as a two-sided coin: content + distribution. A company can only be successful if it has both. NBC has spent 81 years racking up great content (cough, The Office) — but the way it traditionally distributes that content is shifting. It's main distribution channel (TV) is becoming outdated — that's why it's putting so much into its own streaming backbone.
What else we’re Snackin’
- Saved: Twitter CEO Jack Dorsey gets to keep his job after the company struck deals with 2 investment firms (one was trying to kick him out)
- Do You: Amazon begins selling its cashier-less Go tech to other retailers — the creatively called "Just Walk Out" offering has bagged "several" customers already
- Grounded: The FAA rejects Boeing's 737 Max proposal, calling the planes' wiring bundles "not compliant."
- Ripped: Stich Fix drops 40% after announcing poor earnings... on the worst day to have poor earnings
- Signed: Insurance broker Aon buys rival Willis Towers Watson for a cool $30B, creating the world's biggest insurance broker
Tuesday
- Earnings expected from Reynolds and Dick's Sporting Goods
Disclosure: Authors of this Snacks own shares of Disney, Twitter, and Amazon
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