The Fed has done its thing, dropping interest rates to zero and initiating more Quantitative Easing by agreeing to use Open Market Operations to buy up to $700 Billion of Treasuries. Still, this is too little, too late, and not enough.
How do I know? Because it’s Sunday night and the Stock Market Futures, which predict tomorrow morning’s action, are down their limit. This means that on the opening, the DJIA stands to drop more than 1,000 points, while the S&P 500 looks to drop close to 5%, and the Nasdaq is poised to shed more than 4.6% of it’s value. If that happens, and the market continues to trade lower, the market’s circuit breakers will be triggered and the stock market will shut down for 15 minutes to let the prices settle and the traders take some Xanax.
Trading curbs currently kick in on a three-tier basis. Level One gets triggered when the market drops 7%, Level Two kicks in when the market drops 13%, and Level Three stops the action once the market falls 20%. Interestingly, a drop of 20% (no matter how long it takes, whether years, months, weeks, days, or minutes) is the definition of a Bear Market. If the market falls 20%, the Level Three curbs put the market on hold for the rest of the trading day.
Let’s hope this doesn’t happen Monday morning.
(Aside from being a nationally-ranked Juniors Tennis Player, Neal Abrams was a licensed investment advisor for more than 35 years. With Nadal, Djokovic, Serena and Coco on COVID-19 hiatus, he's going to look at the markets instead of the rackets).