02-28-2020, 11:47 AM
Quote:The way to tell whether the discounting has been fully reached is when the market stops reacting negatively to every bad headline, which has yet to happen. But once it happens, the market can truly bottom and begin to recover when some of the expected negative events fail to materialize, even though it may rally in the face of other “bad” news it already discounted. What is preventing this from happening? Two things. The first is a disbelief or lack of urgency about the scope of the coronavirus problem.
This lack of panic takes many forms, with the most common being the refrain that this is “just the flu.” Seasoned market watchers should be reminded of similar dismissals in late 2007 that “subprime is only 2% of mortgage market.” One exception is the Chinese government, which did not shut down its economy and quarantine hundreds of millions of people because they are needlessly panicking. Those actions signal a seriousness that the rest of the world should not dismiss.
The second is the Federal Reserve. The foundation of the post-crisis period has been that accommodative monetary policy rides to the rescue of every market decline. So, a parallel discussion that is going on is whether the Fed will cut interest rates at its next monetary policy meeting that ends on March 18. Data compiled by Bloomberg show the probability of a reduction in the Fed’s target rate at that meeting is slightly better than even money. In other words, hope is at a fever pitch that easier monetary policy can help stabilize markets. But, again, the coronavirus is not a problem that easy money, either via lower rates or additional asset purchases, can fix. Such actions will, at best, only temporarily support markets, but they won’t prevent them from reaching a true bottom. How to Tell When Markets Finally Reach a Bottom
Quote:The disturbing coronavirus driven selloff across global stock markets this week may be the tip of the iceberg for one simple reason. Stocks have yet to price in a mild — or somewhat bruising — recession in the U.S. as coronavirus infection cases pile up and bring consumer activity and businesses to a standstill. Up until now, equity strategists Yahoo Finance have talked with, say the stock market’s six-day drubbing largely reflects de-leveraging by hedge funds and speculators on momentum names (see Microsoft, Apple, etc.). That suggests there could be another shoe to drop in stocks soon as (1) more strategists severely slash S&P 500 earnings growth targets as Goldman Sachs did Thursday; and (2) investors digest what is likely to be terrible global macroeconomic data in the weeks and months to come.Coronavirus just sent the Dow crashing 1,100 points and it could get worse