Stresses Build Up on Wall Street in Week That Felt Like Eternity

(Bloomberg) -- Alex Manzara’s normal routine involves helping clients prepare for what’s coming next in markets. This week, however, the veteran derivatives broker at R.J. O’Brien & Associates found himself making a different kind of calculation: how much food to stockpile in case the swiftly spreading coronavirus triggers a run on Chicago-area grocery stores like it has in Hong Kong and Italy.

“If you have food for three weeks, you’re OK,” he concluded, assessing his stash of canned goods, rice, pasta and a case of three-liter cans of olive oil.

It was a week for the history books in global financial markets, with Treasury yields crashing to record lows, the U.S. stock market plunging into a correction at the fastest pace on record, and assets like gold proving to be less of a haven than usual. However, that was only one part of the drama. For the first time since the Sept. 11 terror attacks in 2001, the stress that flared up during a wild week on Wall Street was not only about investment losses. It also involved the very health and safety of loved ones, and the ability to carry on with life as usual in a world that seemed to be changing dramatically -- and alarmingly fast.

Those two separate sources of stress were inextricably linked. Traders and fund managers report waking up in the middle of the night to check futures prices, showing up at work at 2 a.m. to trade the European session and catching naps on yoga mats in the office. At the same time, they were scrambling to make contingency plans to work at emergency backup locations or at home, wondering if their kids’ schools will close, and deciding whether they’ll have to cancel business trips and spring break getaways.

The potential disruptions threaten to exacerbate stresses in markets following a week of historic moves in asset prices that saw investing playbooks for 2020 ripped up across the globe. The S&P 500 plunged 11% in the week, its worst loss since the financial crisis in 2008. It’s down 13% from its last record on Feb. 19 and entered a 10% correction at the fastest pace ever.

Donald Selkin, a veteran chief market strategist at Newbridge Securities Corp. in Boca Raton, Florida, had a hard time keeping his eyes off the screen, whether it be checking his iPad during an open house at his grandson’s school -- or those pesky trips to the bathroom in the middle of the night.

“When I get up to go, I look at futures,” he said. “It’s demoralizing, it’s awful when you see that. It’s depressing.”

In the bond market, the entire U.S. yield curve is now below 1.75%, the upper bound of the Federal Reserve’s target rate, a sign of the pressure on the central back to ease policy as early as next month. Yields on U.S. 30-year bonds surpassed a prior record low as investors piled into assets that have traditionally acted as havens in challenging times. Ten-year rates plunged past their previous low, ending the week below 1.15%.

Two-year debt now pays almost as little as it did in the aftermath of the 2008 crisis. U.S. high-yield bond funds had $4.2 billion of outflows in the week that ended Wednesday, the biggest since 2018. The yen had its steepest rally since 2017 on Friday.

Although there’s a simple explanation for the large price moves amid coronavirus fears, the outbreak has brought to the fore many of the underlying tensions within markets and the global economy. Already accommodative central banks are again under pressure to lower rates, prompting renewed debate about the function of monetary policy, while one inverted part of the Treasury curve is signaling that a U.S. recession -- seen by many as overdue -- could finally be coming.

In addition to a flood of calls and and emails from clients panicked by the sea of red spreading across trading screens, Invesco Ltd. fund manager Alessio de Longis got another alarming message: pictures of empty supermarket shelves in Milan sent by his sister, who is working from home after the virus suddenly began to sicken hundreds in Italy.

“This all started on Monday and it feels like eternity,” said de Longis.

Amid the chaos in the hedge-fund enclave of Stamford, Connecticut, Glen Capelo mulled whether he’d have to make a capitulation far sadder than any trade: canceling a trip planned for next month to Florida’s Walt Disney World with his wife and 3-year-old twin daughters. While the moves in markets are conjuring many comparisons to the global financial crisis of 2008, Capelo, the head of interest rates trading at broker-dealer Mischler Financial Group, compared the vibe more to the aftermath of the Sept. 11 terrorist attacks.

“Markets are blowing up, but at the back of your mind you’re worried about the family at the same time,” Capelo said.

Trading volumes were overwhelming. In the U.S. stock market, more than 19 billion shares changed hands on Friday -- the most since October 2008 -- marking a record in dollar terms of about $1 trillion. Some 20.7 million eurodollar options contracts traded over four days, when normally 1.5 million change hands on a good day.

The distractions, too, could be overwhelming.

“Every time a person coughs or sneezes, you’re looking over your shoulder, like, ‘Everything OK over there?’” said Albert Marquez, a rates broker specializing in eurodollar options at Chicago Capital Markets, who works adjacent to the CME trading pit.

Coping strategies to deal with frayed nerves varied, though some were predictable. Capelo, the Mischler Financial broker, poured himself a Casamigos Reposado tequila on the rocks more than one night this week, an indulgence he usually saves for the weekend.

Despite it all, that famous Wall Street bravado appeared to be alive and well. Brad Bechtel, the New York-based head of global currency trading at Jefferies, hasn’t changed his globe-trotting ways. He got back from London on Thursday, following another recent trip to Germany. This weekend he’s off to Jackson Hole, Wyoming, to hit the slopes.

“In some ways, it’s like, bring it on,” he said. “I’ll get sick, get over it in a week.”

--With assistance from Katherine Greifeld, Rachel Evans and Vildana Hajric.

To contact the reporters on this story: Elizabeth Stanton in New York at estanton@bloomberg.net;Claire Ballentine in New York at cballentine@bloomberg.net;Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Michael P. Regan

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