It was no ordinary week on Wall Street. The broader market recorded its fastest correction in history and its biggest loss since the Financial Crisis as the spread of the corona virus gathered pace.
But there are questions on how much the Federal Open Market Committee really can help equities.
Retail sales may be the helping hand to the U.S. economy and there’s evidence some market players just don’t know which ticker is the right one.
Here are three things that flew under the radar this week.
1. Little Hope Fed’s Easing Medicine a Match for Corona virus Fallout
Wall Street’s fast-paced selling strengthened calls for a Federal Reserve rescue mission. And at long last, Fed Chairman Jerome Powell appeared to answer the call — at least partly.
In what may be the strongest indication yet that rate cuts are coming soon, Powell flagged the corona virus as “evolving risk” and pledged to support the broader economy.
Powell said the “fundamentals of the U.S. economy remain strong,” but vowed that the central bank would use its tools and “act as appropriate to support the economy,” as “the corona virus poses evolving risks to economic activity”
But with the bulk of damage from the outbreak, particularly in China, expected to hit supply more than demand, some have cast doubt on the power of monetary policy to take on the virus-led crisis.
“The problem with doing monetary stimulus is that it will have limited impact on the effects of the virus,” said Jens Peter Sorensen, chief analyst at Danske Bank A/S, in Copenhagen. “The Covid-19 virus is keeping people from work, the supply chain is disrupted and tourists are not going to Italy. Monetary policy can do very little.”
While others agree that monetary policy will do little to speed up the opening factories and ease travel restrictions, they argue that not only inaction, but a lack of bold action from the Fed may prove economically detrimental.
“Although moderate Fed rate cuts are unlikely to be very powerful, the committee will probably be reluctant to disappoint market expectations for substantial rate cuts for fear of tightening financial conditions further,” Goldman Sachs said in a note.
The investment bank said it expected the Fed to cut interest rates by 75 basis points by June, with first cut coming as soon as March.
2. Shoppers Gonna Shop?
With Covid-19 threatening to become a pandemic and countries looking at various quarantine measures, service-heavy economies are looking at a sharp drop in economic activity.
But the U.S. National Retail Federation released a report this week that expresses confidence that the consumer will remain resilient, even in the face of Black Swan events.
Retail sales will rise 3.5% to 4.1% to between $3.93 trillion and $3.95 trillion in 2020, the NRF said. Online sales will be up between 12% and 15%.
“With gains in household income and wealth, lower interest rates and strong consumer confidence, we expect another healthy year ahead,” NRF President and CEO Matthew Shay said in a statement.
“There are always wild cards we cannot control like corona virus and a politically charged election year,” Shay said. “But when it comes to the fundamentals, our economy is sound and consumers continue to lead the way.”
On Friday, the University of Michigan said its February consumer sentiment index came in at 101, up from 99.8 in January.
3. Pushing the Panic Button
Is Covid-19 dealing with not just “panic selling,” but also “panic buying”?
The money pouring into any stock with Zoom in the name says so.
With companies facing possibly protracted times with employees staying at home, video conferencing will be essential to keeping businesses running. With that in mind, investors have been buying shares of Zoom Video Communications (NASDAQ:).
The company “is widely considered the leader in modern enterprise video communications, with an easy, reliable cloud platform for video and audio conferencing, online meetings, chat and webinars,” Investing.com’s Jesse Cohen wrote.
The stock is up about 40% year to date.
But less-than-fastidious buyers have also been snapping up shares of Zoom Technologies (OTC: ZOOM), an over-the-counter stock that isn’t really in business anymore and hasn’t reported earnings since 2011.
Because it has the catchier ticker of “ZOOM,” it’s up 140% in the last five trading days.
While Zoom Technologies has seen ancillary benefits, Constellation Brands (NYSE:STZ ) is dealing with reports of consumers being afraid of its Corona beer due to the similarity of the beer’s name and the corona virus.
But Constellation said reports sales are plunging are “unfounded” and that sales of Corona are climbing in the U.S.