Wednesday 4th March 2020
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We can expect the NXZ listed shares to fall and remain volatile for a while, following the 923 points drop (3.5%) in the Dow Industrials, the 3.3% drop in the S&P as well as the NASDAQ 3.5% decline, after the Federal Reserve reduced rates by 50 basis points to shield the US economy from the impact of the coronavirus. The markets are clearly not convinced that the cut in rates will not shield companies’ earnings from a sharp decline on the back of the economic fallout from this epidemic.
Investors fled riskier assets, they turned to the relative safety of Treasuries, with the yield on the 10-year U.S. Treasury note, a benchmark for everything from mortgage rates to student loans, slid below 1% to a record low! This is extremely telling as to what the market thinks about the economic outlook and companies’ earnings in the immediate short term say 6 to 7 months. The markets are showing the extent to which smart money has become concerned that Federal Reserve action only will not prevent the slowdown.
The Wall street Journal reported this morning that “markets were volatile after the Fed’s announcement. Stocks initially shot higher, propelling the Dow Jones Industrial Average up more than 300 points. But within 15 minutes, stocks’ initial gains gave way to jerky up-and-down trading action—with the blue-chip average and Treasury yields tumbling after Fed Chair Jerome Powell acknowledged the limits of the central bank’s actions in a press conference”. The Fed is now grappling with the corona threat whose ultimate impact is still unknown. The markets are bracing for a likely rise in covid-19 cases which is likely to increase market volatility.
The Wall street Journal reports that UBS Global Wealth Management are telling their clients to expect volatility, as there are too many unknowns.
The take - away from the above is that clients should take defensive action, if they have not as yet. Stocks with weak outlooks and poor balance sheets will in the main struggle to cope and many will not survive. The market will offer clients who are liquid great opportunities to buy great stocks at prices that one could not otherwise buy. It is time for investors who have not sold junk or poorly managed companies and to build cash and position themselves to capitalise on opportunities that will present with respect to quality companies.
Should you wish to discuss this further you are welcome to call Equity Investment Advisers Limited – 09 304 0229.
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