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SUMMARY
On Monday, March 9, the stock markets saw their biggest sell off since the 2008 crisis, with the decline continuing throughout the week. There were two distinct trends driving the sell-off. Firstly, the increasing number of coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 20% after Saudi Arabia increased production.Newmont (NYSE:NEM) stock fell 15% between 8th March 2020 and 12th March 2020, but is down only by 1% since early February, considering the impact that the outbreak and a broader economic slowdown has increased the value of gold as a safe haven for investment.During the 2008 economic slowdown the company's stock was down as prices of gold dropped on account of banks selling the metal to overcome the liquidity crunch. However, with no major liquidity problem in sight currently, global gold prices are on an upswing, which has led to rise in the company's stock price even when the market is down. Thus, when the market rebounds post the coronavirus crisis, NEM's stock will not have much upside, which is likely to lead to the stock underperforming the broader market.In this analysis, we take a look at how the company’s stock reacted to the economic crisis of 2008 and compare its performance with the S&P 500.
2020 Coronavirus/ Oil Price War Crisis
Timeline of 2020 Crisis So Far
12/12/2019: Coronavirus cases first reported in China1/31/2020: WHO declares global health emergency.3/9/2020 to 3/12/2020: S&P 500 sees 17% drop over 4 days, as U.S. cases accelerate and oil prices crash, amid Saudi led price war.
Newmont Corporation Performance During 2020 Coronavirus/Oil Price War Crisis
Newmont's stock declined by about 15% between 8th March and 12th March 2020, however the stock is down only by about 1% since February 1, after the WHO declared a global health emergency.
NEM Stock: Key Values During 2020 Crisis
% Change for Key Dates: 2020 Crisis
S&P 500 Index Performance During 2020 Coronavirus/Oil Price War Crisis
The S&P 500 declined by 17% between 8th March and 12th March 2020, and has fallen by 25% since February 1, after the global health emergency was declared by the WHO.
S&P 500 Index: Key Values During 2020 Crisis
% Change for Key Dates: 2020 Crisis
2007-08 Financial Crisis
Timeline of 2007-08 Crisis
10/1/2007: Approximate pre-crisis peak in S&P 500 index9/1/2008 - 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)3/1/2009 - Approximate bottoming out of S&P 500 index1/1/2010 - Initial recovery to levels before accelerated decline (around 9/1/2008)
Newmont Corporation Stock Performance Over 2007-08 Financial Crisis
NEM stock declined from levels of around $37 in October 2007 (the pre-crisis peak) to levels of around $34 in March 2009 (as the markets bottomed out) and recovered to levels of about $39 in early 2010.Through the crisis, NEM stock declined by as much as 8.5% from its approximate pre-crisis peak. This marked a much lower decline than the S&P which fell by as much as 51%.However, the stock recovered strongly, rising by 15% between March 2009 and January 2010. In comparison, the S&P rose by about 48% over the same period.
NEM Stock: Key Values During 2007-08 Crisis
% Change for Key Dates: 2007-08 Crisis
NEM Stock: Cumulative % Change from 10/1/2007
S&P 500 Performance Over The 2007-08 Financial Crisis
The S&P declined from levels of around 1540 in October 2007 to levels of around 760 in March 2009 and recovered to levels of 1120 by January 2010. Thought the crisis, the S&P declined by as much as 51% from its approximate pre-crisis peak.
S&P 500 Index: Key Values During 2007-08 Crisis
% Change for Key Dates: 2007-08 Crisis
S&P 500 Index: Cumulative % Change from 10/1/2007
Conclusion
While Newmont's stock has increased due to the Coronavirus/Oil Price War crisis, the stock was down during the 2008 slowdown, as the banks were selling gold in the market to tide over their liquidity issues.With no major liquidity problem engulfing the banking system currently, it's likely that NEM's stock could remain elevated and potentially underperform the broader market as the crisis winds down.
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Newmont Goldcorp Corporation - NEM
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