The central banks already got a big yawn after the Fed pledged up to $5 trillion repo funding and $700 billion of broad-spectrum QE… and that was after going back to zero Fed funds rates for the first time since the long stretch from 2008-15. The Dow saw its highest point drop of 3,000 the next day.
The new all-out announcement did get a response out of the markets finally. Now with the ultimate pledge early this morning (in response to the futures crash limit down again overnight) of unlimited QE to support the markets, the markets reversed and were pointing up between 200-700 points this morning. The open came in down 2% instead already bringing into question how strong the response will be.
This is important as 2,300-2,350 on Friday was very important support for the S&P 500. The next is 2,000 – 2,100 (down 40%), and the ultimate for this first crash is the 2016 low of 1,800 (down 44%). If the markets cannot turn around today, those targets will approach very quickly.
The Fed and central banks are so scared this time that they shot the full “cannon” right off the bat… what are they going to do next? It’s already presumed that the fiscal response will be around $2 trillion+ and maybe $4 trillion in direct consumer and business support, today or very soon.
So, here’s the $10 trillion question: Do we just get a more minor 4th wave bounce off this recent very sharp and deep 3rd wave crash with a final 5th wave just ahead – and did that already happen early on Friday? Or is this the beginning of the multi-month rebound that ranged from three to five months in the 2000 tech wreck and the 1929 crash with 50%+ retracements of that first crash to provide the last exit strategies?
If the S&P doesn’t bounce quickly back above 2,300 and rally harder, then selling may be best for many. If the bounce continues for a day or two but is weak, then it will be best to sell into it early this week around 2,400-2,450 on the S&P 500 and 7,800 – 7,900 on the Nasdaq. If we get a very strong 10% rise with 90% of stocks up in one day, then a longer rebound should be in play.
I’ll give more analysis of that on Friday (or earlier if need be) in my monthly “Conquer the Crash” video with some key charts.
Here’s the chart of the day as the forecasts for a second quarter deep recession go as high as -24% GDP from Goldman Sachs. I have from the beginning and even more now, see this as a two-phase economic downturn – most like the 1980–82 scenario. The difference being that this one starts with a wildly overvalued bubble vs. undervalued towards the end of the long recession from 1970 – 1983 after the last generation spending peaked – and this one will be much deeper in unemployment and GDP decline.
There was a first sharp stock crash and recession to follow in the first half of 1980. Then there was stimulus and a second deeper two-year stock crash and downturn followed from late 1980 into late 1982/early 1983. So, see that rough scenario almost exactly 40 years later (another important long-term cycle).
I would say you could roughly double these numbers, maybe more. If unemployment went up to near 8% in the first sharp recession, it will likely be more like 15% to 20% in the second quarter and maybe bleeding into the third quarter. Then some reprieve into the fourth quarter before that deep two-year slide and depression into late 2022 for stocks and early- to mid-2023 for the economy – say 20% to 30% unemployment. The higher range would come if the virus comes back with a vengeance next fall/winter which is very possible and similar to the Spanish Flu scenario in 1918-19.
This virus is the trigger for the greatest bubble in history to deleverage – the best part is that money printing can’t stop the virus, only cushion the economic impacts. But it’s not all about the virus as its impact is very short term.
This IS the 90-year cycle kicking in that I and my co-author Andy Pancholi (markettimingreport.com) have been warning about.
The virus is just a part of that inevitable and worst cycle for the stock markets, with a clear track record since the late 1700s when stock exchanges first appeared without such outside shocks. The much worse 1918 Spanish Flu hardly impacted stocks that were already at much lower valuations due to World War I. It’s the magnitude of this unprecedented bubble that makes this crash even sharper than first bubbles crashes of the past.
Unless other issues are more paramount, on Wednesday I will give an update on Italy. It is the epicenter of the virus explosion outside of China. I think it is very likely to start to slow noticeably (as China did in mid-February) by early April. It may have shown the first sign of that on Sunday. I use my proven S-Curve analysis to look at things differently here as usual.
That would be a better reason for this first crash to finally bottom and enter that 3 to 5-month rebound that will give investors a better chance to get out and get into the safe-haven long-term Treasury bonds that did so well in this crash. That would support a more normal two-month first crash bottom into early to mid-April. On Friday in Conquer the Crash, I will also give an update on which safe haven sectors did not do as well and may have to be questioned next time.
If the markets do continue to break back down today to substantial new lows below 2,200 on the S&P 500, then those lower targets of 2,000-2,100 and a crash bottom is coming even sooner, may be the end of this week.