Despite titanic intervention by The Federal Reserve and $2 trillion Congressional spending bill (packed with pork-barrel spending unrelated to the coronavirus), the Dow continued to nosedive.
Or as Buzz Lightyear once said “To infinity … and beyond!” He was referring to government spending and The Fed’s balance sheet.
The Dow has whipsawed over the week, but particularly Friday. When The Fed announced it will reduce Treasury QE from $75BN to $60BN per day, the Dow dropped.
Oddly, the Dow has been fairly predictable .. until The Fed/Congress got involved.
According to the Elliott Wave, the Dow has broken from the major wave.
Equity markets are still hypersensitive to coronavirus news and its impact on the economy.
At least Chilean markets are up!
The WHO (World Health Organization, not the 60s/70s rock band) announced that the coronavirus is a new PANDEMIC.
Or it is a bubble pop? Not tiny bubbles as Don Ho sang. But a BIG bubble … burst.
Yes, The Federal Reserve and other Central Banks kept their target rate near zero for almost the entire Obama Presidency, then started to raise rates only to lower them again. But the S&P 500 and NAREIT – all equity indices have risen dramatically as well.
A bear market in equities is when prices fall 20% from their peak. Over the past month, we are almost in a bear market.
Is this that fast 20% in history? Nearly.
And there is lots of downward rotation in global equities.
Yes, equity markets are fragile thank to the central banks. And now the bears have been awakened.
Now this is something you don’t see every day. A true market blitzkrieg at opening.
A 15-minute trading halt took hold after the S&P 500 Index fell 7% to 2,764.21 as of 9:34 a.m. in New York, triggering the breaker for the first time since December 2008 at the depths of the financial crisis.
And the US Treasury 10-year yield plunged 33.3% to 0.429%.
Leaving the entire US Treasury and Dollar Swaps curves below 1%.
Commodities are getting crush too. Thanks in part to Saudi Arabia turning on the oil flow (but not if spot price < extraction cost).
Put skew is in play.
The VIX is at its highest level since the financial crisis.
Where is Jerome Powell and The Federal Reserve?
The Federal Reserve said on Monday that it will increase the amount of money it is pumping into short-term borrowing markets during the current turmoil, reversing an attempt to wean investors off financing it has been providing.
Update at 4:00 pm EST. Dow down 2025 points or 7.83%. For today.
No, the Coronavirus is not the same as the film “28 Days Later” where a virus turns people into flesh-munching zombies.
True, the one-day drop on February 27th was -11.7%. But we don’t know yet what the return will be after 10 days. But if history is a guide, only the correction of 10/10/08 was followed with continued declines out to 90 days.
So, while Coronavirus cases increasing, the morality rate is low. So far.
There is not even a red-flashing warning from the Hindenburg Omen that “predicted” the 2008 stock market crash.
The NYA is below its lower Bollinger Band indicating that a rally is forthcoming.
Wow, that is one steep Elliott wave.
And the Ichimoku cloud is far above the latest reading for the stock market, indicating a rebound is forthcoming.
And we see a declining VIX index as Friday trading concluded.
So, what will happen Monday morning or this coming week?