Market developments and recovery progress for March 23

A perspective from E*TRADE Capital Management, LLC 03/23/20

Below are the most recent market and economic developments:

  • Despite a couple of up days, last week was the worst week for US stocks since October 2008, as the global coronavirus lockdown continued.
  • The government’s massive economic relief package hit a snag in the Senate. Democrats raised concerns that the legislation didn’t adequately protect workers or include strict enough conditions for businesses that receive government aid.1 Congress is expected to vote again today after negotiations.
  • Germany announced strict isolation measures to slow the spread of the coronavirus, banning gatherings of more than two people (except for families).2
  • President Trump activated the National Guard in California, New York, and Washington, helping local governments in the hardest-hit states combat the spread with federally paid resources. Meanwhile, Louisiana and Ohio were among the latest states to issue stay-at-home mandates.

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

  • The Federal Reserve announced a second wave of initiatives to help markets function smoothly, including its most aggressive quantitative easing program in history. After previously announcing it would purchase $700 billion of Treasuries and mortgage-backed securities, the newest measures expand upon the commitment “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”3
  • New cases and reported deaths from the coronavirus in Italy slowed. While the numbers are still increasing, reports on March 22 were lower than those reported the day earlier, a hopeful sign the country-wide lockdown may be working.4
  • Shanghai lowered its emergency response level as new cases in China slow. China has reported new cases in the single digits, all of which involved travelers from abroad.5

Some food for thought:

The question of “Where’s the bottom?” is likely weighing on investors’ minds. And while the truth is no one knows, that doesn’t mean a framework for the question is impossible.

While prices are falling, just how much current economic conditions will affect earnings remains to be seen. Without a better grasp, putting a value on this market is nearly impossible, and as a result, prices continue to drop precipitously.

In the meantime, volatility remains the new norm as investors react swiftly to headlines of the day. The Fed’s unprecedented monetary easing measures flipped stock index futures from being down around 3% to up more than 3% in less than 30 minutes. Oil prices also surged from a 6% decline to a 4% rally immediately following the announcement. As investors await approval of stimulus plans and watch the latest virus numbers, sharp moves up or down are likely to continue to be the name of the game.

Bottom line: Keeping emotions in check is especially important in the current environment, when large price swings can trigger panic-stricken behavior. Some sound advice to bear in mind is not to let price alone guide trading decisions, which should generally be limited to rebalancing around an appropriate strategic asset allocation fitting with long-term financial goals.

  1. CNBC, “Coronavirus stimulus bill fails in key Senate procedural vote,” 3/22/20, https://www.cnbc.com/2020/03/22/coronavirus-stimulus-congress-struggles-to-reach-a-deal.html
  2. The New York Times, “Germany Bans Groups of More Than 2 to Stop Coronavirus as Merkel Self-Isolates,” 3/22/20, https://www.nytimes.com/2020/03/22/world/europe/germany-coronavirus-budget.html?te=1&nl=morning-briefing&emc=edit_NN_p_20200323&section=topNews&campaign_id=9&instance_id=16988&segment_id=22598&user_id=5907a09bfb75dbf35537993d15f86005&regi_id=76161369tion=topNews
  3. CNBC, “The Federal Reserve just pledged asset purchases with no limit to support markets,” 3/23/20, https://www.cnbc.com/2020/03/23/fed-announces-a-slew-of-new-programs-to-help-markets-including-open-ended-asset-purchases.html
  4. The New York Times, “Countries around the world increase efforts to combat further spread of the,” virus,” 3/22/20, https://www.nytimes.com/2020/03/22/world/coronavirus-updates-world-usa.html
  5. Reuters, “China sees drop in new coronavirus cases; all of them imported,” 3/22/20, https://www.reuters.com/article/us-health-coronavirus-china/china-sees-drop-in-new-coronavirus-cases-all-new-cases-imported-idUSKBN21A014

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