Monday, March 16, 2020
Over the weekend, the Fed was busy issuing new monetary policy for the U.S. to better deal with economic fallout from the coronavirus crisis. Two weeks ago, the Federal Open Market Committee (FOMC) cut a half point off interest rates, which triggered a massive sell-off. Yesterday, the FOMC took interest rates all the way down to 0.00-0.25%, and the markets are getting hammered all over again.
Along with a slashed interest rate, the FOMC also announced it is buying $700 billion worth of Treasury bonds and taken bank reserve requirements to zero. In addition, the committee has eased the discount trading window. All of this is in service of ushering liquidity into a market that might otherwise seize up with economic inactivity. Schools, restaurants, theaters and business offices are currently shuttered across the country.
While indexes are in a deep dive to start the week in today’s pre-market — the Dow -1242, Nasdaq -439 and S&P 500 -142 at this hour, all around -9% — analysts will now wait and see whether these actions by the Fed are affecting market conditions: will there be a stressing or easing becoming apparent? This goes not just for stock equities but for bonds and commodities as well. Just as European markets are down at or near double-digits, we also see crude oil prices slashed this morning, with the WTI -8% and Brent -11%.
As a result, we are seeing big drops in companies where the negative impacts of the crisis are direct: Halliburton (HAL - Free Report) is down 20%, Citigroup (C - Free Report) -19% and United Airlines (UAL - Free Report) -18%, just to name a few. Because while the U.S. continues to struggle to get a handle on the breadth and depth of the coronavirus on a national level, the fact of the matter is the Fed is out of ammunition to help deal with the crisis. Again, it will take some time to see where there is an easing affect on the market as a result of the FOMC’s latest actions.
After all, this is no longer about profits and losses — we are now all about liquidity. And as long as we can be as economically fluid as possible, we stand a stronger chance of getting through this with recognizable vitality. Besides, for everyone who’d been complaining their favorite stocks had gotten far too expensive in recent months, there are sales currently going on in equities across a wide spectrum.
The Empire State Index for March was the latest in economic data points to reflect some of this underlying weakness. This manufacturing survey from New York state posted a headline of -21.5, well below the +3.5 analysts were expecting and 12.9 February had produced.
This marks the worst print for Empire State since March 2009, when the U.S. was in the throes of a gigantic collapse which amounted to what we now refer to as the Great Recession. Not that anyone here predicts a similar crater based on coronavirus issues, but near-term we see plenty of similarities.
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