With the uncertainty and economic impact of the COVID-19 pandemic, equity investors are constantly on their toes with the plunges in the stock market. This year, the S&P 500 fell down at 22.6%.
Although, there has been a significant improvement from when it dove down from a peak on February 19. The market may have upheld for a moment, but negative health and economic news could continue the market drop.
But, is there a silver lining waiting for us amid the spread of the virus and rising death toll? Forbes senior contributor Larry Light roped in market experts Nicholas Atkeson and Andrew Houghton, who are founders of San Francisco-based Delta Investment Management, to shed some light on the market outlook amid the outbreak.
Take on the Outbreak and the Market
COVID-19 can cause people to require intensive care and ventilation—even healthy young people. We won’t know for sure who will be requiring intensive care in the future. Most of those who tested positive only have minor symptoms and are able to recover from home.
Amid the public health crisis, Atkeson believes that the stock market may also experience significant setbacks. Congress and the Federal Reserve have come up with ways to keep the market stable for now.
The CARES Act was passed by Congress. The Fed, on the other hand, slashed the fed funds rate down to zero, reduced reserve requirements for banks, reestablished and expanded unlimited asset purchase programs, restarted the securities loans that were backed by term asset, and started new corporate credit facilities
Houghton says that it’s still not clear how events will play out and the market reaction in the next weeks or months.
On the upside, the U.S. is now seeing a slowing growth rate of infections and deaths. It may be possible to do in-home tests. On the flip side, the rate of unemployment has been skyrocketing and industries of the economy are in a depression.
Atkeson reveals that the stock market is still running hot, with the CBOE Volatility Index, or VIX still being above 50. It could be a positive technical indicator if it plunges to below 55.
From the intra-day low on March 23, the S&P 500 is now down. Forced selling has now been reduced, and insider stock buying has been running at its highest since March 2009.
This sector has been hit by a decreased demand and a price war on oils. According to the Energy Sector ETF, it was down 62 from the start of the year to its low on March 18. Since that time, the sector has bounced by roughly 30%.
There is also a looming possibility of major oil-producing countries cutting down on their near-term output and stabilizing oil prices, according to Houghton.