U.S. stock indexes have lost more than 12% this week with one day left, will central banks respond, ask Ashraf Laidi
The first signs of capitulation emerged in a big way on Thursday as major U.S. stock indices plunged 4.4%, posting their biggest one-day percentage drop since 2011, bringing the week so far to -11%, the worst weekly decline since October 2008.
The combination of Microsoft (MSFT) downgrades triggering corporate worries with accelerating selling in crude oil, shedding 12% in four days, which triggered broadening losses in tech and energy.
As for what's next, we could make all sorts of profound arguments about how central bank liquidity injections or rate cuts won't address the economic and market fallout of a virus outbreak in Europe and the United States.
Alternatively, we could approach the situation by asking “what would happen to the markets if there is no central bank policy response?” Their job is to safeguard the financial system after all. Some would say GDP growth is doing OK and jobs are solid, while markets are in need of a healthy correction, but 12% in four days is the stuff that could easily turn to 30% in two weeks in a world when passive exchange-traded funds (ETFs) must find liquidity and anyone can hit the sell button from anywhere, not to mention the algorithms.
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