- Historic Federal Reserve stimulus hasn’t stopped the stock market rout.
- A rescue package from Congress will only slow the bleeding.
- Only when America gets back to work can we say the bottom is in for this reversal.
The US stock market is in free-fall, spiralling into a bear market at the fastest rate in history. We’re on track for the worst month in (years) and investors are desperately searching for the light at the end of the tunnel.
Where is the bottom of this rout? When will the selling end? Well, the stock market just gave us a few clues.
Federal Reserve can’t save the stock market
We’ve learnt one thing in the last two weeks. The Federal Reserve is out of ammo.
They’ve fired every weapon in its arsenal and it hasn’t worked.
The Fed did an emergency rate cut to zero . The stock market instantly sold off and hit limit down.
Then Chairman Powell announced QE-forever; a commitment to buy assets indefinitely.
The stock market initially rallied but faded within the hour .
from the government.
Unlike the Fed’s actions, this money will go directly into the hands of people and businesses.
The package is expected to include direct payments to US citizens, support for small companies, bailouts for the airline industry, and tax breaks across the board.
We’ve seen the market pop higher in anticipation of this stimulus
. So the stock market is obviously thirsty for fiscal relief rather than the Fed’s monetary policy.
This is another clue. A short-term respite will likely come whenever Congress can get this passed.
But this bear market won’t reverse until something else happens …
The stock markets needs everyone back to work
The stock market gave us the final clue last night.
Donald Trump came out and said he expects America to be ‘open for business’ within (days. ) Stocks jumped hard and sustained the climb into Tuesday .
This is the news traders want. Not Federal Reserve liquidity. Not a bailout. They want America back to normal.
The president strongly hinted that he would (re-open businesses within
America will again – and soon – be open for business. Very soon, a lot sooner than three or four months that somebody was suggesting. A lot sooner. We cannot let the cure be worse than the problem itself.
He added that this is a ‘ the day challenge ‘and returned to downplaying the coronavirus.
You look at automobile accidents, which are far greater than any numbers we’re talking about. That doesn’t mean we’re going to tell everybody no more driving of cars. So we have to do things to get our country open.
Investors are scared about a new Great Depression
This selloff is more vicious than your average recession. Traders have already priced in the inevitable global slowdown.
They are now terrified of a new Great Depression
. Millions unemployed. Bankrupt businesses. These are the headlines that will send the market lower.
The stock market is sending us a clear signal. This will only bottom out when the threat of ‘depression’ goes away. For example, if American coronavirus cases flatten, if employment figures come out better than expected, or if businesses go back to work.
Until then, no amount of helicopter money, bailouts or Federal Reserve money printing will stop this decline.
This article was edited by Samburaj Das
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