A Dose of Optimism, Airlines Get Some Air, Oil Jumps

A Dose of Optimism

The market recovered today from another rough week after President Trump declared a national emergency to combat COVID-19. This, along with the Federal Reserve’s plan to buy $37 billion of bonds, provided investors with a refreshing dose of optimism that sent the Dow up 9.36% to close on Friday at 23,185.62. The S&P 500 climbed 9.2% to 2,711.02 and the Nasdaq surged 9.3% to 7,874.23. Despite this rally, global equities still posted their worst week since 2008, ending an 11-year bull market.

Airlines Get Some Air

White House officials are discussing options to provide cash-strapped airlines with some financial respite as travel plummets and flights are cancelled. One option is to allow airlines to temporarily keep the 7.5% tax on air tickets that would normally go to a trust fund to pay for the U.S. aviation system. Another possibility is to allow airlines to temporarily keep a fee as high as $4.50 per passenger that would normally go towards airport construction and maintenance. Airlines are not the only ones suffering from the pandemic; airports are also sharing their share of the struggle as reduced flights mean lower revenue. Nevertheless, most airlines stocks climbed today with American Airlines, Delta Airlines, and Southwest Airlines jumping 6.77%, 8.96%, and 6.27%, respectively.

Oil Jumps

Oil climbed after President Trump said that he has directed the U.S. Department of Energy to purchase “a very good price large quantities of crude oil for storage in the U.S. strategic reserve.” Following this announcement on Friday, the U.S. West Texas Intermediate Crude rose $1.61 or 5.1% to trade at $33.13/barrel. International benchmark Brent crude was also up 5.1% to trade at $34.94/barrel.

This rally came after a week-long turmoil as Saudi Arabia effectively declared an oil-price war last weekend when OPEC+ failed to reach an agreement with Russia over production cuts in response to falling demand due to the COVID-19 outbreak. WTI is currently trading at 50% below its 52-week high level of $66.60, which it last traded at in April. Market participants appear to be in favor of the news citing the move was well-timed.

Gold Down

Gold was down more than 4% today, heading towards its biggest weekly decline since 1983. Spot gold closed 3.87% lower today at $1,528.90 per ounce. Conventionally thought of as a safe haven asset, gold no longer appears to be providing the hedging property that investors need during times of crises. After all, cash is the safest bet.

Fed Lifts Repo

Sensing the rising risk of a credit crunch amplified by the circuit breaker that seized the market on Monday, the Federal Reserve lifted the amount of temporary cash it was willing to provide markets in order to “ensure reserves remain ample and to mitigate the risk of money market pressures that could adversely affect policy implementation.”

Bill Gates Step Down

Bill Gates, the co-founder and former CEO of Microsoft, is stepping down from the board of Microsoft and Berkshire Hathaway in order to dedicate more time to philanthropic ventures. Gates previously served as the CEO of Microsoft until 2008 when he handed the baton to Steve Ballmer. While this move marks a further distance from the technology giant, Gates will continue to be engaged with Satya Nadella, Microsoft’s current CEO, on the company’s plans and ambitions. Microsoft is up 14.23% today.

No More Fun

In response to the coronavirus outbreak, Disney will close every theme park globally including Disney World in Florida and Disneyland Resort in California. Disneyland Park and Disney California Adventure in Anaheim, California will begin its closure on Saturday morning through the end of the month whereas Disneyland in Florida will close at the end of Sunday. Disney’s four-ship cruise line will also close.

Disney is one of the many companies in the travel & leisure space that is being hit hard by the coronavirus. The company’s Asian theme park operation, which has 4 parks in China and Japan that together attract 51.2 million visitors per year, has already been closed for weeks. The closing of its China park is estimated to cause a $175M loss in profit. Year-to-date, the stock is down almost 30%.