- Despite today’s recovery, the Dow Jones has fallen almost 13% since February highs as coronavirus panic grips the stock market.
- The Federal Reserve emergency rate cut wasn’t enough to stop the bleeding on Tuesday.
- Only Trump can turn things around with a wave of fiscal policies to support the economy.
We learned one thing in yesterday’s brutal stock market sell-off. This is a crisis the Federal Reserve can’t solve. Despite an emergency rate cut – the first since the 2008 financial crisis – the Dow Jones fell almost 800 points.
It’s obvious now that central bank monetary policy can’t fix the coronavirus impact. The support must come from Trump himself. Jurrien Timmer at Fidelity agrees, saying the market is now waiting for Congress and the White House to step in.
The Fed’s rate cuts are not going to solve the supply chain issue. They’re not going to be able to create a vaccine or more masks or more hand sanitizers. So, yes, the Fed had limited ability to change things. On the fiscal side, there is more room.
Central banks won’t save this stock market rout
Trump himself urged the Federal Reserve to cut rates in the wake of the coronavirus. Even after yesterday’s emergency cut, the president pushed for more.
It is finally time for the Federal Reserve to LEAD. More easing and cutting!
But as Fed chairman Jerome Powell admitted, this crisis is a health issue, not a financial stability problem. On the back of a failed emergency cut, Powell is putting the ball back in Donald Trump’s court. CNBC commentator explains:
President Trump keeps putting pressure on the Fed to do more. The Fed is going to turn around and say ‘now it’s your turn to give us some fiscal help’.
Dow Jones waits for Trump to act
Yesterday’s sell-off proved that investors want to see deeper support at the fiscal level. The demand for government action will grow if the virus spreads rapidly across the country.
The next question the market is waiting on is what will the fiscal response be? Especially if the US does end up going into more of a lockdown – Timmer.
What fiscal policies are we talking about? Over in Italy, Economy Minister Roberto Gualtieri pledged €3.6 billion ($4.01 billion) support for the effected regions. The fiscal response comes in the form of tax cuts, corporate tax credits and increased budgets for health care.
In Hong Kong, the country has triggered a wave of ‘helicopter money,’ giving citizens 10,000 HKD (about $1,300) each.
Trump won’t let the Dow crash
As the Fed’s emergency rate cut flops, Trump may be forced to step in. The question is when? As Bloomberg editor Joe Weisenthal put it:
The problem is not that Powell didn’t do enough. The problem is that nobody else is doing anything. Nothing from the White House or Congress. Nothing from the ECB, BOE etc. Nothing from Germany etc. [CCN.com emphasis added].
But there’s a good chance Trump will eventually step in. The president’s re-election hangs on a strong economy. He needs the stock market at record highs.
Joe Biden victory ignites today’s stock market bounce
The Dow Jones might need Trump to step up to the plate before the real recovery can set in, but the stock market is enjoying a nice relief rally on Wednesday in the wake of Joe Biden’s Super Tuesday victory.
Despite losing California to Bernie Sanders, the former vice president secured an overwhelming victory in ten of the 14 states up for grabs.
Investors cheered the news as the prospect of socialists Bernie Sanders and Elizabeth Warren getting near the White House virtually disappeared.
As of 10 am ET, the Dow Jones had rallied 454.35 points or 1.75% to 26,371.76.
The S&P 500 gained 1.42% to trade at 3,045.96.
The Nasdaq lagged its peers, but still managed to secure a 1.23% advance to 8,791.74.
Last modified: September 23, 2020 1:37 PM