These Five Signs Will Show When Markets Are About to Bottom Out

Tuesday’s market open is giving hope that the market might be able to find a bottom. As I write this Tuesday morning, there are hopes that Congress can finally agree on a fiscal stimulus package that will help Main Street and not just big companies and Wall Street. And the White House is pushing for a quicker return to work for many Americans should progress on containing the spread of the coronavirus warrant it.

The big question I’m hearing, and have been hearing for weeks, is this – Are we at the bottom of this historic market drop?

The markets reaction to the stimulus bill still being negotiated in congress will tell us a lot about whether we’ve hit a short-term bottom. If the market acts like it has after Fed announcements – a quick move up followed by a reversal back down, then the chance for a short-term bottom is slight.

If, however, the market can hold the gains it makes on the announcement of the passing of the stimulus bill, there’s a strong probability that Monday’s low can the first near-term bottom that we’ve had in this epically fast market crash.

But what will tell us that the market is making an investable bottom – one that will hold for more than a week or two? For that, we know that the exponential spread of the virus itself is the primary problem. But with an estimated one billion people worldwide now under some sort of advisory to stay indoors and limit social interaction, fear and anxiety is taking a huge psychological toll on people.

The economic consequences of it all are clear to see. The Dow is down 35% for the year.

But have no doubt. We will get through this.

And on that last point especially, there are five clear signs I’m looking for to identify when the markets will bottom out…

How the Fed is Setting the Market Up for a Huge Boost

At 8am this morning, the Fed unleashed another salvo to try to shore up the market and the economy.

This time, the Fed took the unprecedented steps of expanding the assets it will be buying from just Treasury bonds to corporate and municipal bonds. This will serve to shore up the balance sheets of private businesses as well as municipalities.

It’s a small step away from buying corporate debt to buying stocks. The Fed has not announced that move yet, but it now seems like it’s likely.

The Fed also removed its past limits on asset buying, making this new round of quantitative easing (QE) effectively unlimited in size.

That’s all in addition to the Fed’s March 15 announcement that it was cutting interest rates by a full percentage point, resuming QE, and cutting bank reserve requirements to zero. Two weeks before that, the Fed had cut rates by half a percentage point.

The Fed’s last two attempts did nothing much but create a short-lived jump in markets followed by an even deeper drop

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