After their worst day in decades Monday, stock markets and the price of oil saw a brief rebound Tuesday morning, but the direction soon reversed after the U.S. president announced a suite of new measures he hoped would calm jittery investors.
Nearing midday, the Toronto Stock Exchange, the S&P 500 and the Dow Jones Industrial Average were all in negative territory for the day, after having earlier been up between two and four per cent as bargain hunters bought in after Monday’s record plunge.
Monday was the worst day for the TSX since 1987. U.S. markets saw their deepest declines since the financial crisis in 2008, as investors digested the double whammy of a coronavirus threatening to bring the global economy to its knees, and Saudi Arabia kicking off a race with Russia to the bottom in oil prices.
The oil price fell to its lowest level in years on Monday, before a mini rally built on expectations that even Saudi Arabia must know it can’t withstands prices this low forever.
“There haven’t been any signs of movement from Saudi Arabia or Russia on their price war, so this situation could drag on and the market may remain volatile,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.
The oil rally spread into stocks as bargain hunters sifted through the wreckage, but any optimism based on anticipation of some sort of stimulus package from Washington, quickly dissipated after they heard the details of what Trump was proposing.
Intending to calm the fears of financial markets over the impact of the epidemic, Trump told reporters Monday he is seeking “very substantial relief” to the payroll tax. Trump also said he was seeking help for hourly-wage workers to ensure they’re “not going to miss a paycheque” and “don’t get penalized for something that’s not their fault.”
He then pointed the finger at his hand-picked central banker for the market’s problems, attacking the Fed governor with the president’s weapon of choice: Twitter.
Our pathetic, slow moving Federal Reserve, headed by Jay Powell, who raised rates too fast and lowered too late, should get our Fed Rate down to the levels of our competitor nations. They now have as much as a two point advantage, with even bigger currency help. Also, stimulate!
He lamented the Federal Reserve being “pathetic” and “slow moving” with regard to interest rates, arguing that even cheaper money would cause the market contagion to cure itself.
The coronavirus that causes COVID-19 has spooked stock market investors this week as they worry about the worst-case scenario for corporate profits and the economy, where factories and supply chains are shut around the world due to quarantines and people stay huddled at home instead of working or spending.
That’s why many say the market will continue to swing sharply at least until the number of new cases decelerates.
“Markets don’t trade on good or bad, they trade on better or worse,” said Alec Young, managing director of global markets research at FTSE Russell.
“I would expect the authorities to pull out all the stops to reduce uncertainty,” Young said. “This may be their one opportunity to do that.”