(New York)

Markets are on a brutal run. At their peak, they were off 15% last week, and the worst news is that it is likely not over. According to Citigroup, the market is still positioned to fall considerably. Despite the big losses, futures are positioned as a net long, which means there is plenty of room for the market to fall. “There is not capitulation yet, not at all”, says Citigroup. According to the bank’s quantitative analysis team, stocks would have to fall 23% for the long bets to be cleared out. “The futures market has got less long [or positive on] equities but it’s still not short and that’s the problem”.

FINSUM: This makes pretty good sense. Markets were very overbought before the fall, and with Bernie in the lead, there is little to calm investors right now.

(Boston)

Variable annuities have been going through a difficult period recently. Fixed and fixed index annuities have been grabbing market share in the year since the DOL rule got canceled. However variable annuities just escaped an important new regulation. Massachusetts just implemented the first state fiduciary rule—which may become a template for liberal states all over the country. However, variable annuities have officially been categorized as insurance products, not securities, so do not fall under the purview of the best interest rule.

FINSUM: This is a major development for the variable annuities industry because there were a lot of fears the rule would consider them securities. It seems like the Massachusetts rule will become the standard template for state adoption all over the US, so this is a big victory.

(Washington)

The OECD sounded a big alarm this week about the threat of coronavirus to the economy. The group of rich countries announced that coronavirus may have a devastating effect on the economy, cutting growth in half. The organization said that growth this year could shrink to 1.5% from its previous forecast of 2.9% growth. It said the outbreak and actions taken in China would cut global growth by 0.5 percentage points alone, not even factoring in the rest of the world’s outbreak and response.

FINSUM: So long as the virus keeps spreading and negative headlines keep coming, more and more economy-shrinking actions will follow. Markets will react in kind.

(New York)

Stocks are in a very dark place right now. At the bottom last week, indexes had seen a 15% fall. What comes next is the big question. Have we seen bottom, or are we settling in for a long period of weakness? Analysts from BNY Mellon say you should not buy stocks until you see a certain signal. That signal is clarity on when the virus threat might be abating. “If you think it is essentially a short-term problem, a hit to growth, but then it is over by the summer, then you’re fine going into the market. But if you think it is worse than that, then you have to play that out”.

FINSUM: Here is our view—coronavirus is unlike the other threats indexes have seen since the Crisis. This is not something that can go away instantly (like rate fears), and not something in the Fed’s control. It is an ongoing threat that creates uncertainty. Because of this, worries could linger and stock prices could stay lower for some time.

(Washington)

Bernie is a long, long way from the White House. He has not even won his party’s bid. Yet, his odds of winning the Democratic ticket, and thus his effect on markets are growing. The reality is that even if you think Trump is likely to win the election, Bernie is probably going to have a big effect on markets this year because of how tight polls are likely to be. With that in mind, here is some advice to protect your portfolio. Analysts are still working through how Bernie might impact specific sectors, but there is one area where all agree he will be devastating—defense. Bernie favors heavy cuts to the defense budget—a position unique to him among the Democratic field of candidates. Therefore, selling defense companies or buying puts on the defense sector seems smart. Such puts are still quite cheap, so not a bad time to prepare.

FINSUM: If Sanders wins the bid he is going to have a stronger impact on markets every week (provided the polls stay close). Best to start thinking about this now as it may be a theme for the rest of the year.