Week-In-Review: Volatility Surges On Wall Street
Someone on Twitter wrote, “1,000 points in the Dow is the new 100 points” and that’s true based on last week’s wild action. It’s important to step back and put this move in perspective, the market has had a huge run over the next 11 years and is now “correcting” as it is down 12-15% from its 52-week high. Corrections are normal in a bull market. Eventually, one correction too many ends and turns into a bear market (defined by a decline of 20% or more). Eventually, that will happen it is a matter of when, not if. But until then, remember these steep and scary corrections tend to be good buying opportunities when they pass. Another important point, the stock market bottomed in March 2009 and has pretty much gone straight up since. That’s not “normal” because the average bull market lasts between 5-7 years, we are now 11 years into this bull market. Central Banks aggressively cut rates last week and the IMF and several world government’s all pledge billions of dollars to help offset the economic impact of the coronavirus. That could be enough to help stop the selling but only time will tell. For now, February 28, 2020’s lows are the next important area of support to watch and if that level breaks, I have to expect lower prices will follow. On the upside, I’m watching the 50 DMA line for the next area of resistance. Until either level breaks, I have to expect this sloppy sideways action to continue.
Monday-Wednesday’s Action:
Stocks vaulted higher on Monday as rumor spread that global central banks will come to the rescue. In fact, the Dow had its largest single day point advance in history, jumping nearly 1400 points! On Tuesday, several countries met and said they will take action when needed. That was a big disappointment for the market as investors where expecting a big coordinated cut across the board. Shortly after the open, the Federal Reserve cut rates by 50 basis points and Jay Powell held a press conference. Jay basically said that he cut rates because the Fed’s economic outlook has changed. Put simply, he’s worried that the coronavirus will adversely impact the economy and it is prudent to cut rates now to try and offset some of that weakness. Immediately, the market popped but sellers showed up and the Dow fell 1,000 points within a few hours. That’s never a good sign for the bulls to see the market sell off on the same day the Fed cuts rates unexpectedly. In fact, it is very rare for the Fed to cut rates between meetings unless there is a major event such as 9/11 or the 2008 financial crisis. Clearly, the Fed is taking this threat very seriously. Australia’s central bank also cut rates to help offset the economic slowdown. NYC shut down one a high school due to fear of the coronavirus. Stocks soared over 1,100 points on Wednesday after the global community cut rates and pledged more financial aid to help combat the impact of the corona virus. The IMF pledged $50 billion, the Bank of Canada cut rates, even the U.S. Congress agreed to $8 billion in emergency aid.
Thursday & Friday Action:
On Thursday, the market got smacked after new cases continued to spread and the yield on the 10-year Treasury note fell to an all-time low. Before Friday’s open, the Labor Department said US employers added 273,000 new jobs last month beating estimates for 175,000. The unemployment rate slid to 3.5%. This was before the corona outbreak got really bad. Stocks were down close to 800 points but a late minute rally cut those losses so the market could end “higher” for the week. One of the Fed officials came out and hinted that the Fed should be allowed to buy stocks, if needed.
Market Outlook: Coronavirus Hits Wall Street
The short-term trend is down as the major indices imploded in late February after fear spread that the coronavirus will cripple the global economy and spark a world-wide recession. Global central banks cut rates to help “stimulate” markets. Let’s see if the patient (the market) continues to react well to all the easy money or if it has had “enough” and finally falls. As always, keep your losses small and never argue with the tape.
