We will probably trigger some algos to block us on the social sites and ranking because we used the keyword here but the developments with this virus cannot be understated. We have now seen almost 100,000 global cases, with 53,797 people getting better and about 3,300 deaths thus far. There is an excellent tracker dashboard that Johns Hopkins is providing, you can find here.
Its pretty obvious to see this is a primary concern in the US, propped up by a convenient MSM push at just the right time, we have seen the stock market pull back 15.66% and supply chains interrupted now that China gets back to normal and the US just starts it battle with the virus.
FED Rate Cuts
In the height of the second day of extreme sell offs happening in the stock market, on March 3rd the Fed performed an emergency -50bp rate cut, which did help the market pickup about 700 points as a relief bounce started to take shape. In the past a rate cut like that would’ve been enough, but it was short lived and here we are two days later with volatility and sell offs still occurring. The 3,000 level has been reclaimed though and has been holding yesterday and today.
Emergency rate cuts like this, historically don’t paint a pretty picture and usually are an indication that the party is over. Smaller sample size only going back to 2005 but gives you a part of the story…
We get more of the story if we look even further back which I don’t have a visual for but here is that data…
- 03/03/2020- Coronavirus scares -50bp cut
- 08/10/2008- Collapse of Lehman Brothers -50bp cut
- 22/01/2008- Stock market drop & signs of recession -75bp cut
- 17/08/2007- Sub-prime mortgage collapse -50bp cut
- 17/09/2001- 9/11 attacks -50bp cut
- 18/04/2001- Slumping economy -50bp cut
- 03/01/2001- Tech bubble burst -50bp cut
- 15/10/1998- Russia Crisis -25bp cut
G7 Finance Ministers & Central Bank Governors Response
The G7 Finance Ministers & Central Bank Governors had a call on March 3rd with US Treasury Secretary Mnuchin to discuss Coronavirus and published the following statement afterwards…
“We, G7 Finance Ministers and Central Bank Governors, are closely monitoring the spread of the coronavirus disease 2019 (COVID-19) and its impact on markets and economic conditions.
Given the potential impacts of COVID-19 on global growth, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks. Alongside strengthening efforts to expand health services, G7 finance ministers are ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase. G7 central banks will continue to fulfill their mandates, thus supporting price stability and economic growth while maintaining the resilience of the financial system.
We welcome that the International Monetary Fund, the World Bank, and other international financial institutions stand ready to help member countries address the human tragedy and economic challenge posed by COVID-19 through the use of their available instruments to the fullest extent possible.
G7 Finance Ministers and Central Bank Governors stand ready to cooperate further on timely and effective measures.”
World Bank & IMF Response
The World Bank announced it would provide up to $12 billion immediate support for COVID-19 to the 60 countries currently facing virus outbreaks. The World Bank also co-hosted a panel with the IMF where the IMF proposed $50 billion in relief funding available immediately to fight the Coronavirus.
US Government Response
The US House also passed its own spending bill of $7.8 billion to help fund the Corona efforts after a lot of back and forth and sneaky representatives trying to include pieces of other bills they wanted passed into it, it appears it was passed as a clean bill just geared towards Coronavirus efforts.
Coronavirus & Stock Market
So far the Coronavirus has thrown a serious fork in the fan of ATHs that were hitting almost weekly, I mean it really did come at a time when people were just starting to feel confident about the US economy again. You had Gallup polls were up, employment is up, Phase 1 trade deal done, peace talks with the Taliban happening, things were really looking up and this managed to take the wind out of that sail pretty quick.
The fear/greed index has been pretty much parked on 9 (extreme fear) for the last week or so.
Historically emergency/unscheduled rate cuts like this usually don’t lead to great gains in the markets.
Now we all know that in bull markets/secular trends like this you will have pullbacks and times the market claws back at your gains, this was definitely a week to take a proactive and protective stance moving into cash and bonds vs holding tight and hoping the markets go back up.
We have been setting records on the way up with ATHs, and we are setting them on the way down with this being the fastest giveback 6-day period in history.
Here is a look at the now 27 corrections since WWII
For now we take it one day at a time based on the data we get and make decisions based on that. Keep an eye out for more updates on Coronavirus COVID-19 soon.