Market developments and recovery progress for March 18

A perspective from E*TRADE Capital Management, LLC 03/18/20

Below are the most recent market and economic developments:

  • Stocks rebounded on Tuesday following Monday’s epic sell-off, as markets appeared relieved by stimulus plans. But volatility continued in early Wednesday trading, as stocks gave back much of the previous day’s gains. The S&P 500® has moved at least 4% in either direction for seven consecutive sessions.1
  • The Cboe Volatility Index (VIX)—which serves as the stock market’s fear gauge—set its highest-ever closing price (82.69) at the start of the week but has since moved lower.
  • Consumer staples stocks have been one of the few bright spots of the market as consumers hunker down and purchase cleaning supplies in bulk amid the coronavirus outbreak.
  • The White House is negotiating an emergency stimulus package with Congress to help counter the economic blow of the coronavirus. The plan may include as much as $1 trillion in aid in the form of direct payments or tax cuts for Americans, assistance to small businesses, and relief for airlines and other hard-hit industries.
  • After cutting the federal funds rate to near zero on March 14, the Federal Reserve unveiled a series of measures to support lending markets that provide short-term loans for companies and households. 

And here are the most recent updates on our path towards recovery:

  • China is moving towards normalcy after two months of shutdowns, resuming factory operations and increasing work levels, in a positive sign that the worst may be over for the world’s second-largest economy.2 New cases in the original coronavirus epicenter—Hubei province, China—have slowed to a trickle. Last Thursday, for example, just eight new cases were reported,3 and last week China closed the last of the 16 emergency hospitals it had built in Wuhan to treat patients.4
  • Central banks and governments across the globe lowered interest rates and announced stimulus measures to combat a coronavirus economic slowdown. The Bank of England cut its main rate by 50 basis points to 0.25% in its first emergency move since the financial crisis. Iceland and Norway also reduced rates by 50 basis points. Australia unveiled an $11.42 billion fiscal stimulus package after its central bank cut interest rates to a record-low two weeks ago.
  • While no one knows the extent of the economic damage the coronavirus will take on companies and, ultimately, stock prices, we can be reasonably confident that when the pandemic is over, business will resume and we’ll see a return to cash flows, profits, and dividends for owners. Also, low oil prices and interest rates are long-term positives for many businesses (and individuals).

Some food for thought:

It’s become a cliché to say these are unprecedented times for the markets, but it’s important for investors to consider this in the context of data. Take for example, the VIX noted above. We’re now at levels almost double what was experienced during the depths of the global financial crisis in 2009. No doubt, the recent market moves are startling, but the difference between now and then is that in 2009 our entire economic model was in question. Today, we are grappling with a global pandemic, but to our credit, we have a mostly sound and stable financial system. Couple that with a broader economy dynamic enough to adapt to changes in supply chains and how we access goods and services, and it’s clear we have some ammunition to fight back. 

After several years of pondering the questions of how much longer the economic expansion will last and if a recession is imminent, we have answers. Our main task today is to simply persevere through the pandemic. No easy feat, but the light at the end may be brighter than we think. 

As investors navigate the next few days, weeks, and months, remember that timing the market (deciding when to sell or when the market has hit its low) remains as elusive as ever. The most prudent course of action is typically to only rebalance a portfolio to realign with target allocations, and if needed, reassess tolerance for risk.

Bottom line: Investors shouldn't let everyone else’s panic and chaos become their own. Invest based not on the noise around you, but individual timelines, goals, and risk tolerance.

  1. CNBC, “Sell-off on Wall Street accelerates, Dow now down 1,400 points,” 3/18/20, https://www.cnbc.com/2020/03/17/stock-futures-fall-slightly-after-market-rebounds-on-hopes-for-1-trillion-stimulus.html
  2. CNBC, “China still faces hurdles in making sure its factories can send goods to warehouses,” 3/16/20, https://www.cnbc.com/2020/03/06/china-still-faces-hurdles-in-making-sure-factories-can-transport-goods.html
  3. Fortune.com, “China’s number of daily new coronavirus infections has fallen into the single digits,” 3/13/20, https://fortune.com/2020/03/13/china-daily-new-coronavirus-infections-single-digits/
  4. Xinhua.net, "All 16 temporary hospitals in Wuhan closed," 3/10/20, http://www.xinhuanet.com/english/2020-03/10/c_138863160.htm

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