Monday, March 30, 2020
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The coronavirus shock is over. Now the hard part begins.
The week ahead will bring an end to March, the most challenging and traumatic month in American life since September 2001.
But as this month draws to an end so too does the beginning of this period of political and economic history.
For investors, the scale and scope of the market and economic damage seen in March has no parallel.
A record number of workers filed for unemployment insurance last week.
The Federal Reserve has made no fewer than 18 significant announcements related to policy actions to support the economy since March 3.
The president signed a $2 trillion economic relief package on Friday.
The past month has treated investors to some of the market’s worst days in history.
Through Friday’s close, the Dow is off more than 26% from its record close on February 12. The S&P 500 is down 24% form its February 19 record close. The Nasdaq has declined more than 23% from its recent high. And these declines include the rally investors saw last week when the S&P 500 recorded its largest weekly jump since 2009.
With surprising speed, investors have begun asking if the worst is over for the markets. “The positive tone in most of our conversations with clients echoed the signal in positioning measures, including a sharp rise in hedge fund net leverage and a steep decline in put/call ratios,” said Goldman Sachs strategist David Kostin in a note to clients published Friday.
“Tactically, however, we believe it is likely that the market will turn lower in coming weeks, and caution short-term investors against chasing this rally,” Kostin adds. “From a historical perspective, if the worst is indeed behind us, it would mark the fastest and most volatile bear market decline on record.”
Where the stock market and economy go in the months ahead, of course, will still revolve around how far, wide, and quickly the coronavirus continues its spread.
“In our view, markets will need some certainty that large economies finally have the spread of COVID-19 under control, before risk assets look past the near-term economic hit and mount a sustained rally,” said Barclays strategist Ajay Rajadhyaksha in a note to clients.
“And while the fiscal stimulus announcements have been impressive, it is operationally harder to support the small and medium businesses that will bear much of the economic cost, than to help out large firms that access financial markets.”
Since the market first started showing signs of coronavirus-related stress in late February, case counts in the U.S. have risen from fewer than 70 to more than 130,000 as of Sunday afternoon. Dr. Anthony Fauci said Sunday the number of coronavirus cases in the U.S. will likely reach the millions.
Some experts predict that the curve in the United States will crest in April. A peaking, and then flattening, of the curve does not, of course, mean the public health crisis ends. There are significantly harder days ahead for the health care system. There are harder days ahead for all of us.
But if these last several weeks were a mix of shock and denial about how the coronavirus would upend life as we knew it, the weeks ahead will be about acceptance and persistence.
We can no longer say the impacts of coronavirus are only beginning to be felt. The beginning of all this is over: we’re in the thick of it now.
What to watch today
10 a.m. ET: Pending Home Sales month-on-month, February (-2.0 expected, 5.2% in January)
10:30 a.m. ET: Dallas Fed Manufacturing Activity, March (-10.0 expected, 1.2 in February)