The fear was real. Wall Street was ready to celebrate the passing of a US$2 trillion stimulus package, but after partisan bickering on Sunday and again on Monday left the bill in limbo, investors panicked. With the Democrats and Republicans incapable of setting their differences aside while an economic depression loomed, stocks were not the place to be.
It might have been tempting — reassuring, even — to call Monday’s lows the bottom of what has been one of the steepest selloffs on record. But Friday’s market volatility, which ended with the Dow dipping more than 900 points, might explain why no economist, strategist, portfolio manager or analyst was eager to call the bottom this week.
The reason markets rallied so hard this week, Nia said, is because investors were, in short order, given two of the three things needed to overcome the current downturn. First, the U.S. Federal Reserve stepped up, injecting further liquidity into the markets through unlimited quantitative easing, and second, the U.S. Congress passed its massive stimulus package.
It’s a foregone conclusion that companies will also have one poor quarter of earnings, but if shutdowns extend into May and June as Nia expects, the markets may have to re-evaluate. An absence that prolonged would begin to bleed into third-quarter numbers as well, he said. There’s no reason to believe we can’t have these violent moves on the upside like we had on the downside
A bottoming process may already be underway, he said, but he wouldn’t call a bottom. From here out, he expects further waves of volatility.
ICYMI