MARCH 13, 2020
- The week has seen a deluge of headlines on emergency monetary and fiscal policy action from central banks and governments around the world.
- Another reason for Friday’s market moves could be that some investors believe they’ve bottomed.
- Some are seeing the historic sell-off as an opportunity to capitalize on low stock valuations.
Markets are set for a wild day of trading on Friday as volatility takes hold following a historic sell-off around the world.
While Thursday’s stock market was fueled by the rapid global spread of the coronavirus pandemic, and President Donald Trump’s announcement of travel restrictions from Europe, markets on Friday are painting an inconsistent and chaotic picture.
Dow futures started in the red but reversed course during the morning to point to an opening gain of more than 5%. The benchmark on Thursday dropped 10% to post its worst single-day loss since “Black Monday” in 1987.
European stocks jumped more than 4% at the open after the pan-European Stoxx 600 posted its worst day in history on Thursday, but proceeded to cut their gains in half within the first hour of trading before rebounding once again.
Asian shares continued to tumble across the board, but Australia’s stocks rebounded from an 8% decline to close 4.42% higher.
The move in Australian shares came after the government unveiled a $17.6 billion stimulus package as its stock index careened into bear market territory — but responses by other monetary policymakers have left markets underwhelmed.
The week has seen a deluge of headlines on emergency monetary and fiscal policy action from central banks and governments around the world. However, the apparent lack of a coordinated global response is seemingly leaving investors scratching their heads.
Having already announced a 50 basis point cut to interest rates on March 3, the U.S. Federal Reserve on Thursday announced a plan to pump $1.5 trillion into the financial system in a bid to combat potential freezes arising from the virus.
The European Central Bank announced a 120 billion euro ($135.28 billion) expansion to its asset purchase program, but surprised markets by opting against a widely anticipated 10 basis point cut in interest rates, which sent European markets deeper into the red Thursday.
The Bank of England earlier this week announced a 50 basis point cut to interest rates, while the British government revealed a $39 billion spending package that included funds to mitigate the economic impact of the pandemic.
Another reason for Friday’s market moves could be that some investors believe they’ve bottomed. Global investment research firm BCA Research said Friday that its equity sentiment indicators had collapsed to levels recorded before significant market rebounds, such as those that materialized in March 2009 and October 2002.
“This is not a guarantee that the market will rebound in the coming days, but it suggests that we have now seen at least three quarters of the selling pressure,” BCA Bank Credit Analyst Mathieu Savary said in a research note Friday morning, adding that the data also indicates the market could now “violently rebound on any positive news.”
Market sentiment has hit the floor because investors are so disappointed by the response of policymakers so far, he said.
“Paradoxically, this growing bear market is exactly what is needed to force action from fiscal and monetary authorities,” Savary said, adding that this increases the likelihood of large fiscal packages that provide a sharp rebound in the context of “bombed out” sentiment, though the “durability of the rebound remains tenuous.”
‘A special kind of fear’
Some are seeing the historic sell-off as an opportunity to capitalize on low stock valuations.
Jeff Henriksen, CEO of Thorpe Abbotts Capital, told CNBC on Friday that he had been buying all of this week, based on a long-term “value-oriented” approach.
Thorpe Abbotts’ base case is that while the economy will take a sharp hit, the impact will be temporary unless there is a “huge credit crunch,” though Henriksen suggested that monetary and fiscal policymakers will have to do more in the coming days and weeks.
“It is a special kind of fear that is really gripping people right now, and I think it is creating dislocations in markets that we look at,” he told CNBC’s “Squawk Box Europe.”
“I never thought that we would see generational lows like we did in 2008/9, in terms of valuations, in my lifetime again, but we are starting to see that.”
While reluctant to speculate on whether the markets have bottomed, Henriksen said there were opportunities to buy at big discounts.
“In the last week, I have seen more interesting opportunities than I have seen in a very long time,” he said.
“Investors, if they look through all this, can find some great companies at really bargain level prices.”