The S&P 500 Index on Monday recovered from its worst week since the 2008 financial crisis, lifted by hopes that the central bank would introduce stimulus programs to offset the economical slowdown caused by the growing Coronavirus pandemic. But the intraday recovery alone cannot guarantee a full-fledged bull run, according to a top market analyst.
Anonymous Twitterati DonAlt on Tuesday warned traders/investors about not buying dips in the S&P 500, believing the index could suffer more losses as Coronavirus continues to infect people and economies all across the world. More so, the full-time trader recommended people to take out their S&P 500 profits at local tops.
“I think this bounce is a bounce to take profit on, not a dip to buy,” said DonAlt. “The impact the coronavirus on the world economy is, in my non-expert opinion, going to be larger than most think. I think the biggest panic is yet to come, once the American media runs hot.”
I think this bounce is a bounce to take profit on, not a dip to buy.
The impact the coronavirus on the world economy is, in my non-expert opinion, going to be larger than most think.
I think the biggest panic is yet to come, once the American media runs hot. pic.twitter.com/p9dzOZ9WXZ
— DonAlt (@CryptoDonAlt) March 3, 2020
S&P 500 Remains Under Downside Risks
The Coronavirus epidemic is spreading rapidly outside China, affecting supply chains, manufacturing, travel and the sectors that could remotely be connected to the virus’s potential growth. Top companies, including Apple, United Airlines, and MasterCard, have warned that the epidemic could hurt profits in the near-term.
The promise of lesser-than-expected corporate earnings has pushed investors looking for bullish signs in the central bank’s policies. The market expects the Federal Reserve to announce further rate cuts to boost lending “by a full percentage point.” Even the US President Donald Trump is demanding an easing measure.
Australia’s Central Bank cut interest rates and stated it will most likely further ease in order to make up for China’s Coronavirus situation and slowdown. They reduced to 0.5%, a record low. Other countries are doing the same thing, if not more so. Our Federal Reserve has us….
— Donald J. Trump (@realDonaldTrump) March 3, 2020
But the Fed differs. The central bank earlier stated that it couldn’t make a policy without understanding the longer-term impact of Coronavirus-induced slowdown, reports CNBC. The US economic data remains positive outside the scope of a few virus-hit sectors: because people haven’t lost their jobs, consumers are consuming, and supermarkets, shops, and restaurants are still open.
[Update: Fed has cut interest rate by 50 basis points.]
That overall has left the S&P 500 under downside risks, as feared by DonAlt. Rate cuts could boost it only artificially. With that said, only a Coronavirus vaccine could unanimously cure people out of their sickness and investors out of their bearish bias towards the US benchmark index.
Troubles Ahead for Havens, As Well
The pessimistic global sentiment could also hurt Bitcoin, an offbeat cryptocurrency that enjoyed the status of safe-haven until the Coronavirus epidemic happened.
Bitcoin fell in February almost in tandem with global risk-on indices, which include the S&P 500, on forced-selling. The cryptocurrency was sitting atop attractive profits when the selling began. Rumors are that investors, slapped with margin calls, decided to sell their profitable bitcoin units to cover the losses.
The same happened to Gold, another globally perceived hedging asset against a potential macroeconomic crisis.
As the virus fears spread further, investors are going to want to dump their havens for hard cash – perhaps, the US dollar. The analogy serves as a reminiscent of what DonAlt said about the S&P 500: “I think this bounce is a bounce to take profit on, not a dip to buy.”
BREAKING NEWS: Reserve Bank of Australia cuts interest rates to record low 0.5% amid coronavirus concerns!
What do you think, are we headed towards global negative interest rates? Will #Bitcoin be the safe haven?
— The Moon (@TheMoonCarl) March 3, 2020
Bitcoin bounced yesterday by more than 4 percent alongside the US index. But could it remain on shaky ground similar to the global indices? There is always an extreme possibility unless people start dumping cash because it spreads Coronavirus.