Fed’s Big Rate Cut Won’t Save the U.S. Stock Market from Coronavirus

  • Both the S&P 500 and Dow Jones are attempting to rebound after a brutal selloff last week.
  • The Fed is very likely to aggressively cut rates to support the stock markets.
  • The rate cuts may inspire an immediate bounce but the long-term impact of the virus on the economy may eventually cripple the stock market.

The coronavirus (COVID-19) is showing no signs of slowing down. The stock market has been reacting like the virus is a legitimate black swan event. Last week, coronavirus fears ignited a vicious selloff that wiped out over $5 trillion in global market capitalization.

$5 trillion gone in one week. | Source: Twitter

The fresh week, however, appears to be offering investors some relief. Both the Dow Jones Industrial Average and the S&P 500 are attempting to rebound from last week’s brutal selloff. The good news is that the Federal Reserve may be coming out with guns blazing to support the stock market.

The Stock Market Is Now Pricing In a Federal Reserve Rate Cut

Federal Reserve Jerome Powell hinted at the possibility of a rate reduction at the upcoming Mar. 17-18 policy meeting. The stock market is already reacting as if a drastic rate cut is guaranteed.

The CME FedWatch Tool is giving off a 100% reading in terms of rate cut probabilities come Mar. 18. The markets are not reflecting a 0.25% cut but a 0.50% reduction. It should be noted that historically, the Federal Reserve has always succumbed to the will of the market when the probability is higher than 80%.

The market definitely expects a rate cut. | Source: CME Group

A big rate cut would serve as rocket fuel for a market that’s desperately looking for signs of hope. I talked to economist Alex Kruger and he said that an aggressive rate cut would be a welcome development. He told CCN.com,

The Fed could cut rates aggressively in an emergency meeting. This would be huge.

The economist believes that a bounce may be on the horizon as,

charts points towards continuation higher.

Kruger also said,

But bad data…

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