Central Banks Try To Counter Coronavirus Market Fears

Jack Welch Dead at 84

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Now that the much-anticipated spread of the coronavirus continues, there is a lot of speculation about coordinated interest cuts by central banks around the world.  This is an attempt to counter the fear element and economic damage from efforts to slow the crisis, as well as slower Main Street economic participation.  Ironically, I think some media outlets will slow up on the hysteria level reporting and offer more evenhanded updates, including information on mortality rates.

The wealth effect remains a critical component of the economy, which was moving into a higher gear through February.  Main Street vigilance is a great thing, and the faster the updated test kits get around the nation the better.  The market should also continue to look at numbers out of China and Italy, which may have hit an inflection point on the pace of daily reported new infections.

Investors will also keep an eye on Treasury yields.  Interestingly, the curve between the two and ten has widened, even as both hit historically low levels.  Perhaps, the ten-year makes a stand at 1.00%, which seems like more like a symbolic test; although, several have said this is where the yield would find support.  The washout in the stock market has seen massive down volume, especially on the New York Stock Exchange.  And 929 new lows against only 5 news highs is the very symbol of climactic plunge.

Dow Jones futures were down 800 points overnight and began to edge higher on scuttlebutt of coordinated central bank action.

Portfolio Approach

This morning we are adding two new positions in the model portfolio.  One in Technology and one in Industrials.

Today’s Session

Opening action in futures trading indicated:

• 30 year 1.59
• 10 year 1.04
• S&P 500 -60
• Dow Jones Industrial Average -500

Since then, talk of global central bank coordination rallied stocks. The market understands it must pressure central banks to act, especially the Federal Reserve.  Remember, several legs lower occurred last week when Fed members expressed doubt about the need to act at the March meeting and certainly didn’t seem to be entertaining the notion of an emergency rate cut.

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Members of the FOMC understand history, and they can wait for greater panic and lower markets. They can act to stem the part of the equation that relies on the wealth effect, Main Street and liquidity issues everywhere else. Some will talk up emergency action as a negative, and say it can’t counter coronavirus fears, but steaming stock market losses would mitigate headlines like the one in New York Times: "Coronavirus cases in the United States skyrocketed by 35% over the weekend"

I haven’t seen a single headline saying 45,155 folks with coronavirus have recovered.  I think the headline writers at the NY Times knew what they were doing with that headline, and the reaction they hoped it would create.