Let’s get right to the biggest short-term Reality Gap facing the market. The News Media and Big Government, especially Federal officials, are happy to reassure us that the Covid-19 coronavirus epidemic will not become a major problem here in the States.
But after several missteps from the Centers for Disease Control and Prevention (CDC) and rapidly expanding outbreaks all over the world, traders are concerned. The global economy looks in danger of slowing down on a massive level if the containment efforts for this epidemic get much larger.
One key indicator for me is the minimal effect that the Fed’s emergency interest-rate cut this past Tuesday had. The short market pop after the 0.5% rate was erased in an hour. In fact, it may have made things worse, by giving the impression that the Fed was more concerned about U.S. economic health than traders had thought.
But the official number of coronavirus cases is far from Reality. With the restriction on testing and lack of working test protocols here in the U.S., we have almost certainly only seen a relatively small percentage of number of cases that actually exist here.
I believe we have yet to see the worst of the COVID-19 news – or the lowest stock market prices, either…
The Still Unanswered Questions About COVID-19
The market is still living in fear. Here’s a chart that shows the S&P 500 and the Volatility Index (or VIX) that shows how much extra premium is being charged for stock options. The VIX is also called the “fear index” and we’ve only seen readings as high as they are today twice in the last 5 years:
Great trading and God bless you,
D.R. Barton, Jr.