Bear Market beats out Feds Emergency Measures

Author: Lindsey Boycott

Estimated read time: 3 minutes

Publication date: 17th Mar 2020 12:16 GMT+1

The markets are falling almost as fast as the sky as the Coronavirus hits North America. Recent events are triggering a chain reaction that has thrown breakers on stock trading and collapsed OPEC. The only constant, some analysts say, is change.

“The only certainty at this point is more volatility and I would expect the market to price in a recession,” Chris Zaccarelli, the chief investment officer for the Independent Advisor Alliance, said in an interview.

“If that turns out to be the case – or if credible and specific fiscal and public health policies are put in place to contain the economic and public health risks – that is when you will begin to see a bottom in the stock market.”

Global stocks and US market futures plunged last week – with three major US indexes falling more than 4.5 percent – after President Trump announced a travel ban between Europe and the United States. The Dow dived down 20 percent into bear country, which ended one of the longest bull runs in recent history. Likewise, the S&P 500 and Nasdaq slipped but managed to catch balance before falling into similar territory.

Late Sunday, the Feds brought out the big guns and slashed its benchmark interest rates by 1 percent with its key rates ranging between zero and 0.25 percent. The Central Bank also assured it would buy $700 billion in treasury bonds to counteract Covid-19 market woes. Other measures were announced, but Monday morning's markets showed little investor confidence in the face of pandemic fears and its economic impact.

Stocks plummeted again that morning as Covid-19 qualms continued to batter the markets. The S&P dropped 8.1 percent, which sparked a 15-minute market-wide trade suspension. The Dow dropped another 2,997 points before the stoppage in what became its most significant loss since 1987 before the halt.

In a telephone press conference, Federal Chairman Jerome Powell announced that the virus's interference with life and business would likely lead to weak second-quarter growth. "The thing that fiscal policy, and really only fiscal policy can do, is reach out directly to affected industries, affected workers," Powell said. "We do know that the virus will run its course and that the US economy will resume a normal level of activity. In the meantime, the Feds will continue to use our tools to support the flow of credit."

Goldman Sachs (NYSE: GS) stated Sunday it was downgrading its US GDP first and second-quarter forecasts. For the first three months, the investment bank adjusted its growth forecast from 0.7 percent to zero. For Q2, it predicts -5.0 percent growth as opposed to its previous prediction of zero. Despite market upsets, the US Bank believes the economy will start rebounding in April, with strong growth expected for in the second half. Goldman observes that this forecast depends on many factors, such as how much Corona-curbing measures like social distancing and warmer temperatures affect the course of the virus.

However, the firm expects increased growth at 4 percent in the fourth quarter and believes that significant gains will be made in the first part of 2021.


Photo by Andre Tan on Unsplash



Disclaimer: The writer is an experienced financial consultant who writes for The observations he makes are his own and are not intended as investment or trading advice.