Many might suggest that given the collective rise of the U.S. stock market over the last few weeks, and the astronomical jumps in the markets from their late-March lows, a decent pullback was in the cards. The reason for the pullback, on the other hand, is hotly debated.
Taking a look at those astronomical jumps: Investors saw the S&P 500 up by over 40% since March 23, NASDAQ up by almost 50% since then, and the smaller-cap Russell 2000 up even more than NASDAQ.
While the reason for the pullback is anyone’s guests, it’s likely the combination of a bunch of worry bricks that make up a wall of worries, including:
- Worries about another wave of COVID-19 cases as states open up more.
- Worries about continued social unrest in cities across the country.
- Worries about future economic growth, especially with the Fed suggesting that rates might remain close to zero through 2022.
- Worries that the markets jumped too far and too fast.
While many only focus on the ending weekly declines, at the beginning of the week the market did hit a few key milestones. The S&P 500 was briefly positive for the year, and NASDAQ was past that 10,000 point threshold. But then the worry bricks began piling up.
On Wednesday, the Federal Reserve met and unanimously voted to leave short-term rates unchanged, but will increase it’s holding of treasury securities and agency residential and commercial backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transition and monetary policy to broader financial conditions.
Here’s what the Fed said about the economy and it’s outlook:
“The Coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The virus and the measure taken to protect public health have induced sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Financial conditions have improved, in part, reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. The ongoing public health crisis will weigh heavily on economic activity, employment and inflation in the near-term and poses considerable risk to the economic outlook over the medium term. In the light of these developments, the committee decided to maintain the target rate for the federal funds rate at 0-.25%. The committee expects to maintain this target range until it’s confident that the economy has whethered recent events and is on track to achieve it’s maximum employment and price stability goals.”
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