Stock Market Carnage!
US equities are having their worst day since 2008. At worst levels, the S&P 500 had fallen by nearly 10%.
What has really hit home today, and is likely the primary culprit behind the market’s sell-off is the woeful, disjointed response to the outbreak of Covid-19 from global policymakers.
What markets wanted to see was a coordinated easing push from the world’s major central banks and fiscal authorities and effective containment virus measures.
What they have got is a disjointed, incompetent mess.
Let’s start with containment efforts in the US and Europe. Europeans have generally been incredibly slow to implement social distancing measures, as seen in Italy, where they only closed schools and started quarantining worst hit regions towards the end of last week, despite thousands having already been infected. It looks like we are going down the same path here in the UK.
Over in the US, a serious amount of people only started getting tested about two weeks ago, due to delays in getting testing kits out. Since, the number of confirmed cases in the US has spiked. Nearly everyone expects the numbers in both the US and Europe to continue to spike sharply higher.
Now let's talk about central banks. Clearly the Fed wanted all the major central banks to cut rates alongside it last week, when it opted for a 50bps emergency rate cut. Clearly they could not persuade the leaders of the other major central banks to join forces with them. Other banks have since cut rates, admittedly, like the BoC, BoE and RBA. But the ECb today massively underwhelmed; they didn’t even cut their key interest rate!!
And we haven't even got a sniff of a coordinated global fiscal response. The only countries to deliver anything notable have been the UK and Australia (hardly large enough countries to make a difference). Meanwhile, leaders in the US and Eurozone continue to bicker over what the fiscal stimulus might look like.
All points to not only a more extensive spread of the virus, and as such, more economic disruption down the line, but also to a slower, more disjointed economic recovery when all is said and done.
Now global equities taking a 10% hit in one day doesn't seem so crazy does it?!
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