Trump touts ‘biggest stock market rise in history yesterday’, but some investors think worst isn’t over amid coronavirus panic


— President Donald Trump

That is Trump Saturday morning referencing a late-Friday surge for the Dow Jones Industrial Average DJIA, +9.36%, S&P 500 index SPX, +9.28% and the Nasdaq Composite COMP, +9.34% that represented the major equity benchmark’s best daily gain since 2008.

However, Friday’s rally in U.S. stocks only recovered the losses suffered Thursday when the market saw its worst down day since the 1987 crash, and the Dow is now down about 20% from its record high and in a bear market.

Friday’s gain followed a week of unrivaled volatility across markets that elicited numerous references to the financial crisis 12 years ago that rocked global markets and the 1987 crash, except in some ways this crisis has felt more intense and unsettling to market participants.

“Investor psychology only is clear in hindsight, but we can all agree that panic infiltrated various aspects of our lives the last few days,” wrote Frank Cappelleri, executive director at Instinet in a research note to clients on Friday.

Indeed, all three stock indexes tumbled into a bear market at the fastest clip from a record high in history.

Check out the tweet here:

The catalyst presumably has been COVID-19, the infectious disease that was first identified in Wuhan, China in December and has rapidly spread to more than 100 countries, infected 147,000 and claimed 5,500 lives so far, according to Johns Hopkins University.

Friday’s rally came after Trump declared a national emergency, opening up access to $50 billion in funding for states and localities to combat the coronavirus pandemic, while saying that the country was ramping up testing and expanding the ability of hospitals and doctors to provide treatments for the COVID-19 pandemic.

Looking at Friday’s burst higher for risk assets, however, might be a big mistake given the week’s turbulent nature. The Dow for example registered swings of at least 1,000 points in the five consecutive sessions. Put another way, the Dow booked pieces of roughly 5% or better for the entire week.

Date Dow’s point change from March 9-13 Dow’s % change
March 13 1,985 9.36
March 12 -2,352.60 -9.99
March 11 -1,464.94 -5.86
March 10 -1,167.14 4.89
March 9 -2,013 -7.79

In all, those monster moves for the blue-chip index put a swift end to the longest running bull market in history, which turned 11 on Monday and was effectively dead by Wednesday, as the World Health Organization declared the disease derived from the novel coronavirus, SARS COV-2, a pandemic.

And one measure of implied volatility on Wall Street, the Cboe Volatility Index VIX, -23.37%, saw an intraday reading on Friday that was its largest since 2008—a period which marked its record peak at around 80. The index, also known colloquially as the “fear gauge,” usually has a historic average of 19 or 20.

Meanwhile, another measure of market fear, CNN’s Fear/Greed Index hit 2 on a scale of 100, its lowest reading in its history, with lower readings indicating extreme fear.

Last week, also was marked by a seizing up of the $15 trillion Treasury market, which resulted in the Federal Reserve intervening. The regulator took steps to stem what it described a “unusual disruptions” in U.S. government bonds by injecting some $1.5 trillion into Wall Street’s key funding markets.

The rate-setting group of the Fed, the Federal Open Market Committee, is expected to cut federal-funds rates by 1 percentage point next week after the conclusion of its two-day March 17-18 meeting. That is after the FOMC cut rates by half a percentage point to a 1%-1.25% range on March 3, in the first emergency rate cut in 12 years.

And more action is expected to come from monetary policy makers and those in the government as the world attempts to curtail the substantial economic damage expected from efforts to mitigate the spread of the deadly illness.

Read: Fed seen cutting interest rates to 0% soon in bid to help weather coronavirus storm

Friday’s gains, of course, are better than losses but market experts fear that it is more indicative of a lurking bear market than an all-clear signal.

“We need to see that happen Friday or Monday, or we really are in uncharted waters,” wrote Nicholas Colas, co-founder of market research firm DataTrek Research.

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