‘Trying Not to Panic’: The Collapse in U.S. Markets Spared No One

At 2:30 a.m., Anthony Minopoli popped out of bed to check on markets. The U.S. open was still hours away but Minopoli, who oversees $26 billion for the Knights of Columbus from New Haven, Connecticut, was too unnerved by what he saw in Asia before going to bed — a wave of selling that dragged down stocks and corporate bonds — to sleep much.

“Trying not to panic,” he’d say later.

And yet panic is exactly what overtook investors across all major U.S. markets Monday.

Triggered by Saudi Arabia’s full-blown oil price war with Russia, the S&P 500 plunged 7.6%, its biggest loss since the financial crisis. Thirty-year Treasury yields fell by the most on record, with the entire curve dipping below 1% for the first time. In credit markets, the perceived risk of investment-grade company bondsjumped the most since September 2008. Prices on dozens of energy bonds fell to distressed levels. And oil itself, which ended Monday down 25% in New York, had the worst one-day drop since 1991.

“It was a long night,” said Bryce Doty, senior vice president at Sit Investment Associates. “We were buying Treasuries when Japan opened. The volatility overnight was just crazy. You looked like a hero one moment, a goat the next, and then hero, goat, hero, goat, all night long.”

The first hints that Monday was going to be a historic, and historically ugly, day in financial markets began trickling in on Saturday afternoon, when Saudi Arabia made a surpriseannouncement that it was aggressively slashing the prices it charges for its crude.

“What, are you kidding me?” was the reaction from Jurrien Timmer, director of global macro at Fidelity Investments, as he watched the news cross his computer screen on Saturday.

The oil industry had already been the center of investor concern since the novel coronavirus began decimating demand from airlines, shipping companies and drivers last month. The moves from Saudi Arabia and then Russia to flood the market with cheap crude followed the collapse of talks among the OPEC+ alliance last week that were meant to shore up prices with supply cuts. West Texas Intermediate crude oil prices have fallen 35% this year to about $31 a barrel, while S&P 500 energy companies have tumbled 44% in 2020.

The frenzy of trading Sunday night and Monday morning set off circuit breakers that are meant to arrest volatility in panicked markets. When U.S. equity index futures opened on Sunday evening at 6 p.m. New York time, the front-month S&P 500 contracts plunged over 4% within the first few minutes. About two hours into the session, the drop would reach the 5% threshold that triggered a temporary after-hours halt.

When stock exchanges officially opened at 9:30 a.m. New York time, it took only four minutes for the S&P 500 to fall 7% and trigger a 15-minute market-wide pause. Dozens of individual stocks would see disruptions in trading after dropping fast enough to trigger limit-down trading pauses.

In Treasury futures, the regular 30-year bond contract and the ultra bond contract both triggered four trading halts as they rose more than 12 points during extended trading before Monday’s open. CME Group Inc., where the contracts are listed, briefly stops trading during extended hours when the price rises 3, 6, 9 and 12 points from the previous day.

“What we’re seeing today that’s concerning is it feels like the market’s starting to not function,” said John Fath, managing partner at BTG Pactual Asset Management and a primary Treasury dealer trader from 1993 to 2008. “Literally, other than futures, the market is untradable.”

Julian Rimmer, trader at Investec Bank in London, says that despite the steep declines, it’s far too early to tell whether the worst is over.

“This is a sell-off of decadal dimensions and as with all moves of similar magnitude, investors sense it is a buying opportunity long-term, but determining how much lower it can go is the imponderable,” he said. “Most market participants are observing and commentating with circumspection rather than prognosticating.”

— With assistance by Elizabeth Stanton, Vildana Hajric, Claire Ballentine, John Gittelsohn, and Selcuk Gokoluk

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