The U.S. stock market recovers after the Fed's $1.5 trillion in liquidity injection and the slowdown of the coronavirus outbreak in China.
The U.S. stock market rallied aggressively on Friday, just one session after the Dow Jones Industrial Average (DJIA) suffered its worst single-day crash since 1987.
The Federal Reserve’s guarantee of $1.5 trillion in liquidity injections and the slowdown of the coronavirus outbreak in China are alleviating the pressure on equities.
As of 10:03 am ET, Wall Street’s three major indices had all recovered by at least 2.5%.
Fear towards coronavirus hit its peak this week after the World Health Organization (WHO) characterized it as a global pandemic.
But, low benchmark interest rates across Europe and the U.S., and the “liquidity cavalry” from the Fed are seemingly restoring some appetite in the stock market.
Coronavirus has brought significant instability to the global financial market in recent weeks. It led to further distress in the U.S. stock market as high-profile individuals and politicians got infected by the virus.
The major concern towards the coronavirus pandemic stems from the speculation that it could freeze major economies like it has done in China and Italy, bringing millions of people out of the workforce.
Both China and Italy have quarantined millions of people by imposing a lockdown on large cities. As the coronavirus outbreak in the U.S. worsened, the fear of a large-scale lockdown has intensified.
While the stock market has faced unprecedented levels of sell-off and outflow of funds in the past week, China declared that the peak of coronavirus in the country has been reached could spark optimism for recovery in the U.S.
Xinhua News Agency, the official state-run press agency of the People’s Republic of China, said:
China on Thursday said the peak of the current outbreak of novel coronavirus disease (COVID-19) in the country is over, hours after the World Health Organization (WHO) declared the epidemic a pandemic.
So far, the U.S. has seen a substantial increase in the number of coronavirus cases in a short period of time due to the lack of efficient testing systems.
The relatively low number of coronavirus tests mainly caused heightened levels of fear and uncertainty in the stock market.
As Federation of American Scientists senior fellow Eric Feigl-Ding said, the U.S. is 160 times behind South Korea in coronavirus tests, which has run 3,692 tests per million people so far.
The U.S. has done 23 tests per million people to date, mostly due to weak precautionary measures and testing systems.
With the lead of the Centers for Disease Control (CDC), the U.S. has primarily focused on increasing the testing capacity for coronavirus, which has been the biggest catalyst for South Korea’s recovery from the virus outbreak.
Based on how South Korea and China have been able to pass the peak of coronavirus by focusing on improving testing capacity, if the U.S. allocates sufficient resources towards it, the country could see progress in containing the virus.
The optimistic data coming from major Asian countries that have passed the peak of coronavirus could lead to an increase in confidence in the stock market, especially when supplemented with strong fiscal policies and stimulus packages.
This article was edited by Samburaj Das.
Last modified: March 13, 2020 2:03 PM UTC