The Fed To The Rescue
The stock market went for a ride, first falling in the early hours of the day and then crawling its way back up, especially after the Fed came to the rescue. – more on that in the “Overall Market” section.
Beyond the overall market, in the real estate sector, one company’s blessings became another stock’s misery. — more on that in the “What’s Up?” and “What’s Down?” sections.
Oh, by the way, we found you a quite helpful checklist to see whether the market has hit the bottom or not. — more on that in the “Water Cooler” section.
But, first, here is a recap of what happened in the market yesterday:
- U.S. markets: All three indices finished in the red, but the drop was nowhere near last week’s multiple falls of the cliff. Scroll down to the “Overall Market” section to read more.
- Cryptocurrency: Bitcoin’s price also had a rather good day on Monday and landed above the $6,000 mark.
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The Fed To The Rescue.
The U.S. Congress failed to align on the coronavirus stimulus package for the second time, and the market wasn’t happy to hear about it in the early hours of Monday. However, the Fed came to the rescue with a few extraordinary measures to stabilize the situation:
- Unlimited purchase of Treasury bills and mortgage-backed securities, which means banks will have the money to stay functional and provide credits and loans to the consumers and businesses,
- New credit to employers, which means companies continue paying their employees without disruption,
- Additional lending programs to small and medium-sized businesses in addition to the existing SBA loans.
In the meantime, Goldman Sachs predicted the U.S. GDP to go down by 6% in Q1 and more than 20% in Q2, effectively forecasting an economic recession for the U.S. in the first half of 2020. That’s why the Fed is taking it seriously with all the above-mentioned initiatives and programs to bring back stability. As always, there is no guarantee that the market will rebound and the volatility is over, but the Fed’s effort to stabilize the situation is applaudable.
Stop The Madness.
So, what happened?
Shares of Zillow Group (Ticker: Z) were up more than 14% on Monday. The company announced it stops its new home-buying program due to coronavirus, and investors cheered that the madness is over. Before coronavirus, Zillow had started a program to buy houses for cash, fix them up and sell them at a better price. Investors hated that program because it needed a lot of capital to start with. Moreover, investors believed a technology company doesn’t have what it takes to be a real estate company. The announcement of the halt to the program should have been perceived as a slowdown in the company’s progress, but, it seems investors were happy to hear the home-buying madness is over.
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One Company’s Happiness Meant Someone Else’s Misery.
So, what happened?
Shares of Lennar Group (Ticker: LEN) were down more than 13% on Monday. As we discussed in the “What’s Up?” section, Zillow Group (Ticker: Z) announced a slowdown in the housing market. Lennar also confirmed such a slowdown in its latest earnings call when it announced a cutback in its land acquisition efforts. Zillow investors’ happiness turned to be misery for homebuilders.
A Checklist For Finding The Bottom Of Crash.
So what happened?
Folks, Brinker Capital, a $25-Billion fund, came up with a checklist that helps investors figure out whether the stock market has hit the bottom. Of course, Brinker Capital folks are not fortune tellers and neither do they have a crystal ball. However, the checklist is quite comprehensive and reflects the fund’s observations and learnings from historical crashes.
The original list is on the website. The summary is here:
- Have we reached the extreme bearish point of investor sentiment? YES
- Has market volatility reached an extreme level, with the VIX? YES
- Have high-yield spreads widened meaningfully? NO
- Has the US Yield Curve steepened dramatically? YES
- Has the S & P 500 Index fallen off the cliff? YES
- Has there been an outflow of money from big funds? YES
- Has there been a slowdown in the number of stocks hitting new lows? MAYBE
- Has there been a dramatic policy response from the government? YES
With this checklist, the bottom is not too far. Of course, if there is more bad news such as a higher mortality rate or any mutation in the COVID-19 strand, no checklist can predict the market movement.
Regardless, we are cautiously optimistic…