Stock traders expect stimulus to save the day despite coronavirus fears
News about the coronavirus outbreak got worse on Monday, but stock traders saw a stimulus bat-signal in the sky and sent the Dow to its biggest points gain on record — 1,294 points.
Why it happened: Stock prices jumped after it was confirmed that finance ministers and central bank governors from each of the G7 countries would hold a conference call Tuesday morning, presumably to announce coordinated stimulus measures to deal with the coronavirus outbreak.
- The IMF and World Bank also released a joint statement saying both institutions "stand ready to help" and would "use our available instruments to the fullest extent possible, including emergency financing, policy advice, and technical assistance."
- However, while G7 finance ministers and central bankers confirmed that they "stand ready to cooperate further," they ultimately stopped short of committing to a specific stimulus package, per the Wall Street Journal.
The state of play: Other major indexes posted their biggest one-day percentage gains since December 2018, with the S&P 500 rising 4.6% and the Nasdaq gaining 4.5%.
- As of Monday's close, the Dow had climbed 8.2% from Friday’s intraday low, WSJ reported.
Yes, but: Expectations of the damage from the outbreak foreseen by the world's top economists are getting worse, not better.
- Other markets weren't buying the boost from the stimulus, and traders piled into safe-haven assets like gold and the Japanese yen, and sent U.S. 10-year Treasury yields to a record low of 1.03%.
What they're saying: Deutsche Bank Securities chief economist Torsten Slok says he expects global growth to turn outright negative in the first quarter of this year, falling to -2% in Q1 but bouncing back to around 5% in Q3 and Q4, quarter over quarter.
- He also sees U.S. growth turning negative in Q2, dropping to -0.5% before rebounding in Q3 and Q4.
OECD chief economist Laurence Boone released an outlook that showed global growth "possibly even being negative in the first quarter of 2020."
- Her economic assessment sees the world's growth rate falling to 2.4% — below the 2.5% level identified as the measure for global recession, and well below the 2.9% growth in 2019 that was the weakest since the global financial crisis.
- And even that forecast is a rosy one, "on the assumption that the epidemic peaks in China in the first quarter of 2020 and outbreaks in other countries prove mild and contained."
The bottom line: “If the central banks intervene, that is great and I appreciate that, but will this fix the problem?” Andrea Carzana, an equity fund manager for Columbia Threadneedle Investments, told WSJ.
- "If companies need to shut down because of the virus, it doesn’t really matter how much liquidity you put into the system."
Go deeper: Don't panic about the stock market