Home About Archives RSS Feed

@theMarket: Central Banks Stem Coronavirus Fallout

By Bill Schmick
iBerkshires columnist
Financial markets rebounded this week, despite the escalation of the number of coronavirus cases worldwide. The upturn may have surprised some, but their mistake was underestimating the power of central banks to support the markets.
 
The bear case last Sunday evening was that the Chinese stock market would crater upon opening after being closed for Golden Week, the traditional Chinese New Year. While Shanghai did open down 9 percent, it quickly reversed and spent the rest of the week climbing out of that hole.
 
The main reason for this rebound was the announcement by Chinese authorities that they were prepared to support their financial markets. Publicly, they announced a $22 billion injection into the banking system to provide additional liquidity and support the Chinese currency, the yuan. Here at home, our Federal Reserve Bank continues its "Not QE" repo market operations. Who knows what other actions other central banks have also implemented to calm markets this week?
 
The end result of all this additional money hitting the system was that financial markets once again climbed higher and higher until U.S. markets not only recovered all they had lost (less than 3 percent), but went on to make new historical highs.
 
Last week, I advised investors to look beyond this coronavirus scare. I was expecting no more than a 5 percent correction at worse, so the quick dip and recovery seems to have confirmed my views. That said, we do need a pause of sorts after five days of gains and that was what happened on Friday.
 
The labor market seems to be hanging in there, according to the latest non-farm payroll data announced on Friday. U.S. employers hired more workers than economists had expected. Forecasts were for gains of 165,000 jobs, but the number came in at 225,000. Wage gains were modest, bringing the total to 3.1 percent year-over-year. While a good report, I wouldn’t get too excited about it.
 
The good weather we have had over the last month had more to do with the surprise wage gains than the economy. That’s not to say it wasn’t a good number; just a little inflated in my opinion. I expect that there will be some ups and downs in the macroeconomic numbers both here at home and around the world over the next few months. The vast majority of economists are convinced that the Chinese-born epidemic will have an impact on economic growth. Exactly how much is impossible to predict.
 
China appears to be doing all they can to alleviate the worst effects on the economy. They have already lifted tariffs on a number of American goods this week and are promising a great deal of fiscal and additional monetary stimulus to combat the expected slowdown in the economy due to the coronavirus. However, there will be an impact and when China sneezes, the rest of the world catches a cold, including our own country.
 
One positive by-product of the unfortunate virus and subsequent sell-off is the US Advisors Sentiment survey. Regular readers know I watch bullish sentiment as a contrarian indicator of where the markets might be heading. This week, the number of bulls tumbled from 52.8 percent (a sure-fire indicator that a correction was in the offing) to below 48 percent, which is a much more reasonable number.
 
I know that the higher the markets climb, the more nervous investors may get. That’s a good thing. There is very little exuberance among my clients and given the continuous stream of negative events (geopolitical or otherwise) that we face on almost a daily basis, it is understandable. Yet, remember my "Walls of Worry" principle — markets climb walls of worry. I see further gains ahead, so stay the course. The upside may surprise you.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
 

 

0 Comments
     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
In Cautious Song, Early Birds Proclaim Vernal Awakening
Cheshire Cleaned Up In May
Williams College Lays Out Construction Safety Plan
iBerkshiresTV: How Adams, North Adams Enter Phase 1
Berkshires Beat: Berkshire Museum Starting Series of Renovations
County's Colleges Train Workers for Post-Pandemic Economy
'I Remember Mama': Motherhood: All Love Begins and Ends There
Mayor Tyer Asks Residents to Maintain Cautions Over Holiday Weekend
iBerkshiresTV: Talking COVID-19 With Cheshire Officials
Pittsfield School Committee Accepts Fiscal 2021 Budget
 


Categories:
@theMarket (331)
Independent Investor (446)
Archives:
May 2020 (7)
May 2019 (3)
April 2020 (9)
March 2020 (5)
February 2020 (7)
January 2020 (10)
December 2019 (7)
November 2019 (8)
October 2019 (9)
September 2019 (7)
August 2019 (5)
July 2019 (5)
June 2019 (8)
Tags:
Japan Congress Oil Energy Election Stock Market Metals Selloff Europe Banks Wall Street Stimulus Debt Recession Stocks Crisis Taxes Debt Ceiling Bailout Retirement Jobs Economy Pullback Currency Housing Europe Rally Euro Fiscal Cliff Interest Rates Greece Federal Reserve Markets Commodities Deficit
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
@theMarket: Markets Are Going Higher
The Independent Investor: Does Cash Mean Currencies?
The Independent Investor: General Motors — Back to the Future
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
@theMarket: Memorial Day Markets
The Independent Investor: Chinese Checkers
@theMarket: Something Off in Bond Versus Stock Market Outlooks
The Independent Investor: Gold, the Bug, and You
@theMarket: The Stock Market Is Not the Economy
The Independent Investor: Workers face a serious dilemma
@theMarket: Earnings Fail to Support Stock Market
The Independent Investor: If You Are Laid Off, Read This
@theMarket: Economy Craters as America Attempts to Reopen
The Independent Investor: When Times Get Tough, Call a Woman