Eye On The Markets

After The Close... Part II

A Senate bill remains elusive, as the Fed steps in once again with support

Excerpts from a March 23, 2020 article published by Ameriprise Financial, written by Anthony M. Saglimbene, Global Market Strategist. Reprinted with permission. Visit here to read the full account.

There is little precedent for where we stand today. Coming off one of the most challenging weeks since October 2008, stocks continued their trend lower today. As the chart at the bottom right shows, the speed at which stocks have fallen into a bear market is most analogous with 1929 and 1987. However, while past drawdowns can help provide context for how markets have historically responded in prior bear markets, circumstances today are undoubtedly unique.

On the Day

  • The Senate continues to work through approving a roughly $2 trillion stimulus package. However, a procedural vote on the bill has failed twice in the last twenty-four hours. U.S. Treasury Secretary Steven Mnuchin said the “Phase 3” stimulus package under consideration by Congress is aimed at supporting the economy through the next 10-12 weeks.

 

  • The Federal Reserve committed to unlimited purchases of U.S. Treasuries and mortgage-backed securities this morning. The Fed also took the unprecedented step in saying it would begin buying corporate debt, a move it stopped short of implementing during the financial crisis.
  • Michigan and West Virginia announced stay at home orders, joining other states seeking to slow the transmission of COVID-19 and help bend the health curve.

Committee View

There is no road map for what the world is navigating today. As more businesses shutter, states enact further restrictions on movement, and the country increases its focus /resources towards addressing the health crisis, the economy is grinding to a stop. Attempting to precisely predict the degree to which the economy will contract, or corporate profits will fall, is simply
guesswork at the moment.

The market will get a near “real-time” check on the fallout from the virus and its impact on labor trends this Thursday when weekly unemployment insurance claims are released. Unemployment claims are expected to skyrocket and could counter some positive market effects from a fiscal package, if/when one is passed. While the market has priced in a lot of
negativity on the fundamental front, the jarring change in employment trends over the coming weeks may keep stock prices on the defensive near term, in our view.

The market will get a near “real-time” check on the fallout from the virus and its impact on labor trends this Thursday when weekly unemployment insurance claims are released. Unemployment claims are expected to skyrocket and could counter some positive market effects from a fiscal package, if/when one is passed...

Financial markets are struggling for direction. Periodic rallies followed by steep declines, hold little predictive power in determining where stocks are headed next. Volatility is high and could remain high over the near-term until we have a firmer handle on when COVID-19 infections could eventually start to peak. So much regarding our current market situation is fluid and changing rapidly. Unfortunately, clarity on the virus, economy, fiscal responses, and profits could remain clouded for the next few weeks.

In times of high uncertainty, it is best to practice extreme caution, limit your portfolio moves to small increments, and avoid making critical errors that could derail your longer-term goals.

 

 

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