Oct. 28 is historically the best day of the year for the U.S. stock market going all the way back to 1950, but if 2020 has taught us anything, past patterns are meaningless in a pandemic. European and U.S. equity markets melted down today as sellers went into a frenzy on news that France and Germany will institute temporary lockdowns to control the renewed spread of the virus.
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Every sector of the S&P 500 fell hard. Recovery-related sectors like travel, energy, and financials bore the brunt of the pessimism, but tech and internet stocks, which have been quasi-safety havens, were also on sale. Facebook, Twitter, and Google were already facing another problem (more below), but the indiscriminate selling was reminiscent of late March when the animal spirits scared investors away from everything but gold and the U.S. dollar.
The VIX reached a four-month high as anxiety took over and when the smoke cleared, the DJIA, the S&P 500, and the Nasdaq all tumbled around 3.5% or more, wiping out all of October's gains. The losses were steep — but we've seen worse before, especially this year (charts below).
It is notable that big drops right ahead of an election are quite rare, according to LPL Financial. In fact, only twice did the S&P 500 fall 3% or more within six trading sessions of the presidential election: in 1932 and 2008. The incumbent party lost both times.
When the metals get loud, we have to listen. They are making a riot right now as futures for copper, platinum, and silver — all of which are key to industrial production and manufacturing — have been in a multi-day sell-off. Their recovery from their April lows has been breathtaking, but it was all based on the hopes that the virus would be fading by now — not rising.
With France and Germany announcing temporary lockdowns, investors remember what happened the last time economies grounded to a halt, and they don't want any part of it. The heavy metals and cargo loads tell the true tale of the global economic recovery, which by the looks of it, is about to hit a major speed bump.
Social Media Stocks are Sweating
- Twitter CEO Jack Dorsey, Alphabet CEO Sundar Pichai, and Facebook CEO Mark Zuckerberg faced regulators (virtually) today to defend Section 230 of the Communications Decency Act. That act, passed in 1996 before these companies became advertising juggernauts, has allowed these Internet giants to be shielded from liability from false advertising and any claims made on their platforms by any of their users. The act states the following: No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.
- No provider or user of an interactive computer service shall be held liable on account of:Any action voluntarily taken in good faith to restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected; or
- Any action taken to enable or make available to information content providers or others the technical means to restrict access to material described...
What's at Stake?
The hearing, organized by the Committee on Commerce, Science, and Transportation, comes as lawmakers have been targeting these companies over antitrust concerns and for enabling advertisers and foreign governments to make false claims and manipulate elections. Republicans accuse the platforms of using Section 230 to shield themselves from claims of bias and Democrats accuse them of failing to effectively remove harmful content.
The future of this act will likely be decided by the next presidential administration, but the drumbeat around breaking up big tech is getting louder and investors are listening. By the looks of it, investors think Twitter (TWTR) is the least exposed.