A wild week on Wall Street could get even wilder By John Crudele March 11, 2020 | 10:14pm
By now you probably understand why stock market bubbles are dangerous.
Bubbles are especially unstable when they are caused by the Federal Reserve keeping interest rates artificially low for a very prolonged period of time, which forced people into the stock market who shouldn’t be investing there and who will retreat at the first sign of trouble.
And President Trump probably now realizes why taking credit for the irrational surge in stock prices was the wrong political strategy.
If you take credit for the bubble — or are a Wall Street firm that urged clients to invest during a bubble — you also take the blame when prices fall off a cliff.
The stock market got its butt kicked again yesterday, which continued a series of butt-kickings that have even the most prestigious Wall Street firms warning customers that things could get worse.
Goldman Sachs, for one, warned clients on Wednesday that stocks could fall by another 15 percent on top of the nearly 20 percent decline that has already occurred. Next week could be even more crazy.
That’s because it’s an options and futures expiration week — a so-called Triple Witch — when stock prices often act erratically even when nothing else is going on.
And next week the Fed meets for its regularly scheduled meeting.
The financial markets are already expecting the Fed to reduce interest rates, maybe even by another 50 basis points to match the cut it did earlier this month. That’ll put the Fed about as low as it can go with rates.
And since the bond market has already pushed rates lower even without the Fed’s “permission,” that means the US central bank and all the other central banks around the world are essentially helpless to re-inflate the stock market.
Even blatant stock market manipulation, like what happened in the last hour of trading on Friday and again this Tuesday, isn’t working.
That’s why I’ve been warning — prematurely, I admit — about bubbles and how dangerous they are. (As an aside, since the market has collapsed I haven’t heard a single world of contrition from readers who’ve been giving me crap about warning people.)
Market manipulators are still going to try to reverse the major losses. Should you be buying? Only if you can ride the ups and downs without getting yourself sick and think you can sell stock positions fast enough to stay in front of the bigger dips.
And you won’t be able to move faster than the pros.
When will it be safe to get back into stocks? When the overwhelming, prevailing belief is that the stock market is much too dangerous for ordinary people. When all hope is lost, that’s when the market might rise again — but not necessarily quickly.
All 30 Dow stocks fall premarket, led by Boeing's 12% tumble
US STOCKS-Futures hover at down trading limit after Europe travel shock REUTERS 7:29 AM ET 3/12/2020 Symbol Last Price Change AAL 16.26down 0 (0%) DAL 42.67down 0 (0%) CCL 21.75down 0 (0%) RCL 44.37down 0 (0%) QUOTES AS OF 04:00:00 PM ET 03/11/2020 * Airlines, cruise liners tank on Europe travel ban
* Lack of public health measures in Trump's address spook market
March 12 (Reuters) - U.S. stock index futures plunged on Thursday to trade near their 5% down limits after President Donald Trump ordered a halt in all travel from Europe, but failed to convince markets he could contain the economic damage from the coronavirus pandemic.
S&P 500 e-minis fell 4.5% to 2,617 points, within striking distance of a daily down limit at 2,601 after Trump outlined steps to help small businesses, but made no mention of widely expected payroll tax cuts.
Shares of American Airlines(AAL), Delta Air Lines(DAL) and United Airlines sank between 10.4% and 13.4% in premarket trading. Cruise liners Carnival Corp(CCL) and Royal Caribbean Cruises Ltd(RCL) tumbled more than 12%.
Investors were concerned about the absence of targeted stimulus measures and the lack of details about the public health response, such as the provision of extra testing kits or subsidies for treatment.
"I am just left speechless for Trump to say this is the most comprehensive plan," said Rob Carnell, chief economist Asia-Pacific at ING in Singapore.
"We are not getting any co-ordinated action across governments but we are also, in most cases, not getting co-ordination between central banks and governments."
The longest bull run in U.S. history came to a shuddering halt for the Dow Jones Industrials on Wednesday, after the index fell more than 20% from its Feb. 12 closing high.
The S&P 500 and the Nasdaq, which closed 19% below their record close on Feb. 19, were set to join the Dow in a bear market at the open on Thursday.
At 6:50 a.m. ET, Dow e-minis were down 1,166 points, or 4.95% and Nasdaq 100 e-minis were down 380 points, or 4.75%.
Markets will now keep an eye on the jobless claims report for the week ended March 7 to gauge whether the outbreak is impacting the labor market. The data is expected at 8:30 a.m. ET. (Reporting by Medha Singh in Bengaluru; Additional reporting by Tom Westbrook in Singapore and Noah Sin in Hong Kong; Editing by Shounak Dasgupta)
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