Worst is coming? Reality check!

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Stock markets are experiencing volatile days with prices swinging on either side drastically.

Dow jones saw highest ever single day price gain in his history in point term (+5.10% or +1,296.81 points) . More than 5% gain have occurred only seven times since 2000 in Dow jones. Investors are getting some sense of relief after thrilling last week ,were Dow jones had lost by whooping 12 percent. It’s only on hope of world major central bank will cut rate to boost growth including Federal reserve. Fed can’t just cut fund rate in emergency every time when stock market blinks.Today after emergency fund rate cut ,fund rate stand at 1% . This level we had seen around March 2017, when economy was growing and Fed was increasing rates.

Only miracle for sustained rally in current scenario is : If something promising happens on the development of Vaccine for Corona virus.

Situation seems going to be worse in coming days if world fails to contain corona virus. World’s major economies are already facing decline in growth rate including USA, China, India etc in last few quarters; inspite of lowering of rates by major central banks.

When credit crisis erupts in August 2007 , US economy was growing at 1.876% in 2007. Fed reserve rates were 4.75 % in Sep 2007. US economy went into Recession in Dec 2007. Fed cut rates over the time to spurt growth rate, reduce unemployments and increase spending. Fed fund rate was just at 0.25 % in Dec 2008. Serial rate cuts, bail out (Bear stearns, AIG and bak bailout) and tax rebate helped US economy to come out of recession in June 2009. Between long time of 2008 to 2015 Fed fund rate were kept at zero.

2020 situation looks glimpse. There is not much room for the Fed reserve to cut rate from 1 % (after Todays rate cut of 0.5%) .GDP growth rate is already lower compared to previous two years.

201720182019
GDP growth rate2.4%2.9%2.1%
Unemployment4.1%3.9%3.5%
Inflation 2.1%1.9%2.3%
thebalance

One more reason investors need to worry is presidential election in 2020.Second term for Trump may provide some boost to market, But we don’t know the future; surprises….. are always there in catastrophe.

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