The Dow rebounded dramatically after last week’s massive coronavirus sale, jumping nearly 1,300 points at the news that the world’s central banks were on the verge of providing stimulants to combat the effects of the epidemic on the economy and the markets.
These gains offset just over a third of last week’s historic losses.
Many investors also believe that the falling market may have overestimated the risks to the economy and corporate profits, according to some analysts.
“Investors decided it seemed overkill,” said Chris Zaccarelli, chief investment officer of the Independent Advisor Alliance.
Perhaps more important, he says, is that central banks, including the US Federal Reserve, are about to cut interest rates or take other measures to boost borrowing. and economic activity.
The Dow Jones Industrial Average jumped more than 1,293 points, or 5%, to 26,703, its biggest gain in a day and its largest percentage increase since March 2009. The S&P 500 rose 136 points , or 4.6%, to reach 3,090. The Nasdaq added 385 points, or 4.5%, to 8,952.
Despite the stock rally, the bond market said investors were still worried.
Bond prices fell, pushing yields higher after hitting a new record low earlier today. The yield on the 10-year Treasury bill rose to 1.15% against 1.12% on Friday evening.
The big rebound in stocks came after a particularly wild trading day on Friday, when the Dow Jones sank more than 1,000 points before a late wave of purchases let it down 350.
“Investors have convinced themselves that the world’s central banks will likely be even more accommodating in order to bypass any psychological damage,” said Sam Stovall, chief investment strategist at CFRA.
The International Monetary Fund and the World Bank announced on Monday that they are ready to help countries affected by coronavirus through their emergency loan programs and other tools.
“We will use our available instruments as much as possible,” said IMF Managing Director Kristalina Georgieva and World Bank President David Malpass in a joint statement. “International cooperation is essential.”
The statement echoed similar promises to act if necessary from the Federal Reserve on Friday and the Bank of Japan this weekend. Some analysts believe the Fed may cut rates this week before its next official meeting on March 17-18. Traders have estimated in a 100% probability that the Fed will cut rates by half a percentage point during or before its meeting this month.
There were signs that the economic impact was continuing to increase. A measure of China’s manufacturing output plunged to an all-time low last month, as the virus epidemic closed factories and disrupted supply chains.
Meanwhile, Goldman Sachs economists cut their US growth forecast to just 0.9% in the first quarter and to zero in the April to June quarter.
But the worst damage to the markets could be passed if the spread of the virus in the United States were contained, says Zaccarelli. But if it spreads further here, stocks will likely drop even more sharply, he said.
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“Not a typical economic blow”
The Organization for Economic Development, a research body composed mainly of advanced economies, cut its global growth forecasts on Monday in a report. The OECD said that even if there were few epidemics outside of China, the world economy would grow by only 2.4% this year, the weakest since the financial crisis of 2009. This forecast corresponds to several private estimates.
If other countries are hit by epidemics similar to China’s, growth could drop to 1.5%, according to the OECD.
For investors, the great uncertainty as to how consumer behavior and spending will be affected has been troubling.
“This is not a typical economic blow,” said Bill Strazzullo of Bell Curve Trading. “What if the big cities were on some kind of deadlock? What will it do for restaurants, entertainment, shopping, travel? It’s almost impossible to play this.”
Last week’s rout hit every major index in what market observers call a “correction,” or down 10% or more from a peak. Market watchers have been saying for months that stocks are too expensive and have been waiting for another decline for a long time. The last time the market fell this size was in late 2018, when the trade war with China escalated and investors were worried about rising interest rates.
The virus epidemic that began in central China has resulted in the closure of industrial centers, the emptying of stores and the severe friction of travel around the world. More and more companies are warning investors that their finances will suffer because of disruptions in supply chains and sales.
Given that the main economic impact to date of the virus epidemic is on the supply side of the economies rather than the demand side, one wonders whether a more flexible monetary policy will have a significant impact.
“For all the talk about lowering rates, the only thing a rate cut can’t do is get people back to work and restart supply chains,” said Michael Hewson, chief analyst for markets at CMC Markets.
Hopes for stimulus nevertheless helped consolidate Asian markets earlier. The Nikkei 225 index closed up 1%, while the Shanghai composite index rose 3.2%. The benchmark for the small stock market in Shenzhen jumped 3.8%, while the South Korean Kospi rose 0.8%. The Hang Seng in Hong Kong climbed 0.6%.
China has seen most of the 90,000 cases of the virus worldwide. Authorities in the United States have documented at least 80 cases of the virus, two of which have been fatal, and concerns have been raised that some of them will wipe store shelves of bottled water, hand sanitizer and others. essential products. The two deaths were from men with existing health conditions who were hospitalized in Washington State.
Oil prices also fell as a result of traders’ prices in anticipation of a drop in demand following the virus epidemic. Oil prices fell about 15% last week. On Monday, the benchmark US crude rose $ 2.07 to $ 46.83 a barrel. Brent, the international standard, rose from $ 2.28 to $ 51.95.
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Contributor: Associated Press