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It’s Monday and stocks are falling again.
A number of U.S. states have started efforts to restart their economies, but that sliver of positive news has been cast aside by the ramping up of tensions with China and the economic impact of coronavirus.
Billionaire investor Warren Buffett’s gloomy remarks about airlines have also caught investors’ attention, as his company Berkshire Hathaway reported a near $50 billion loss in the first quarter and is sitting on a $137 billion cash pile. April produced the best monthly gains for the Dow Jones Industrial Average and S&P 500 in 82 years — after the worst first quarter in history — but May’s bad start looks set to continue on Monday with futures down.
In our call of the day, former Goldman Sachs analyst Will Meade said the rest of the year looked even worse for stocks, predicting a 40% drop over the rest of 2020.
Meade said the year was lining up to be “exactly like” the 2000 dot com bubble crash.
“The Nasdaq in 2000 did a similar bear market bounce as stocks this year — dropped 40%, then bounced 42% off the bottom retracing 61.8% of its drop. It stalled then fell 43%, making a new low four months later,” Meade said. He added that the presidential election on the horizon, as it was in 2000, creates further risk and uncertainty, while retail participation and leverage was near the 2000 bubble level.
Finally, the fact Warren Buffett was hoarding a “record amount of cash,” as he did in 2000, was another sign of what’s to come, he said.
Beyond his reasoning for the call, Meade offered some drastic advice to Americans, who he said should be building up as big a savings buffer as possible to weather a job loss or reduced income.
“Downsize your house if you can. With mortgage rates at record lows and with summer upon us, we’ll likely get a quick ‘dead cat bounce’ in the housing market.
“Anything liquid and of value, sell now: art, coins, handbags, stamps, extra cars.” He added that people should go to cash in retirement accounts if possible and reduce non essential spending, such as dining out.
The markets
After closing 622 points, or 2.6% lower on Friday, the Dow DJIA, -2.55% was set to open lower on Monday. All three major U.S. indexes fell sharply at the end of last week, after Apple AAPL, -1.61% and Amazon AMZN, -7.59% warned of coronavirus uncertainty and President Donald Trump threatened China with tariffs in response to Beijing’s handling of the outbreak. The trio were all set to open lower on Monday as U.S.-China tensions ramped up over the weekend. Dow futures YM00, -0.94% fell 1.2%, S&P 500 futures SPX, -2.80% were 0.9% down and Nasdaq NQ00, -0.58% futures also fell 0.9%.
European stocks tumbled as the continental markets, closed for Labor Day last session, played catch up on Friday’s losses for global markets. The pan-European Stoxx 600 SXXP, -2.39% fell 2.1%, while the German DAX DAX, -3.48% declined 2.9% and the French CAC PX1, -3.92% slipped 3.5%.
The buzz
Warren Buffett said Berkshire Hathaway dumped all of its holdings in the airline sector and said the industry had “changed in a major way.”
However, Southwest Airlines Chief Executive Gary Kelly said the worst of the pandemic was over for the company and that business should pick up from here.
President Trump said Americans can “have it both ways,” with some returning to work and others continuing to hold back over coronavirus fears.
Swiss pharmaceutical giant Roche has been given emergency approval for its COVID-19 antibody test by the U.S. Food and Drug Administration, while Gilead Sciences’ antiviral drug remdesivir will be available to doctors this week to treat patients.
Spanish company Telefónica said on Monday it is in negotiations with Liberty Global over the potential integration of their telecommunications businesses in the U.K. It follows press reports that the companies were in talks about the merger of Telefónica’s O2 and Liberty Global’s Virgin Media.
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