The Fed chairman recently acknowledged that the coronavirus crisis has no precedent in modern times. Chairman Jerome Powell said this crisis could be much worse than any kind of recession that struck after World War II.


Recovery Takes Time, but Financial Aid Could Help

Even as businesses are looking to restart, Powell warned that it would take time for the recovery to gain some momentum. He also believes that offering further government aid to businesses and also households makes sense and could prevent the economy from developing any long-term damage.


Such additional financial support would surely continue to add massive debt, but Powell believes it is worth the cost if it can help prevent “long-term economic damage” and aid “a stronger recovery”. Of course, Congress needs to consider this ultimately, and Powell was only giving his opinion which many investors were keenly following.


Fauci’s Statements add fuel to the uncertainty of opening

 

A prominent economic strategist, Kent Engelke of Capitol Securities Management, doesn’t see much into Powell’s statements though. If anything, it was just a confirmation of investor fears. The uncertainty triggered by Powell’s statements, along with remarks by Dr. Anthony Fauci,(National Institute of Allergy and Infectious Diseases director) that a hastened reopening could cause disease outbreaks to increase and bring about more cases and lives.


After these announcements, the Dow Jones Industrial Average (DJIA) sank by 516.67 points, 2.2%, while the Nasdaq Composite Index (COMP) dropped 139.38 points, 1.6%, and the S&P 500 (SPX) sank 50.12 points, 1.8%.


But by the end of the week, the market found its footing. As the week ended on Friday, May 15,, the Dow was 61 points up, and finished at 23,685.42. The Nasdaq Composite was up 0.79% and finished at 9,014.56 while the S&P 500 rose by 0.39% to finish at 2,863.70. Here’s how the S&P 500 performed throughout last week and going into Monday this week, according to this chart by MarketWatch.

(Image source: https://www.marketwatch.com/investing/index/spx)


 

Stock Market Overvalued?

It’s not that things would suddenly get back to normal after the reopening. It would take time. Celebrated hedge-fund founder(Appaloosa Management) David Tepper said that he believes the recent stock market has rallied to levels that have made it overvalued. In fact, he considers this the 2nd most overvalued situation since the tech bubble of 1999 to 2000.!


Tepper believes that the low of March 23 would be the bottom point of the sell-off if the present concerns solely involve the pandemic. But there are other geopolitical concerns too, such as the state of US-China relations and the uncertainty going forward.


According to reports by CNBCChina could place the “unreliable entity list” label on us companies in retaliation for USA actions against Chinese telecom giant huawai.. if the US goes ahead with further action for blocking supply to Chinese owned Huawei. The activation of the status termed "unreliable entity" indicates that it will place restrictions on US companies such as Cisco, Apple, and Qualcomm and even suspend purchasing Boeing aircraft. This comes after the US blocked semiconductor shipments to Chinese telecom company Huawei. Since these companies were specifically mentioned in the report, they dropped during premarket trading on Friday, May 15. Boeing dropped 3.5%, while Cisco and Qualcomm dropped 2.3% and 5.3% respectively. Apple dropped 2.4%


Monday, March 18th morning, the market traded higher with news that Moderna’s vaccine trials for COVID-19 have been positive and phase 3 trials are expected to start by July. Shares of companies that benefit from the economy reopening are seen trading higher and rebounding from last week’s losses.


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