When the coronavirus started spreading rapidly and breaking records set by prior epidemics such as SARS and MERS, the first markets that got affected was oil markets.
A month later, the corona epidemic had penetrated the Profit & Loss books of the US companies. This gave the traders a reason to start shorting equities.
The equities markets experienced the biggest weekly drop since 2008. On the proceeding dip, bold investors started buying the dip and the markets have recovered a considerable percentage to date.
It has been normal to buy dips in the past but this particular dip is different.
The interest rate cuts in the USA may boost the USA dollar, but may not boost manufacturing in China nor increase the Chinese purchasing power.
Other economies are largely expected to lower interest rates in a similar reaction to the coronavirus pandemic.
While rate cuts may not control the spread of the virus, when scientists finally find a way to control the virus, the cuts will support an economic rebound and restore confidence in the equities markets.
The big question is when.
Based on previous pandemics, there is a chance the coronavirus may continue spreading and stalling the equities markets for an extended period.
This could be 1 year or more.
In this light, there is a likelihood that the markets could extend the correction phase until the end of 2020. Supply chains are still broken since the Chinese aren’t producing.
In the next few weeks, there will be empty shelves in global stores.
Making money cheaper around the world economies will not solve the supply chains issue. Supply chains are also rapidly being affected in South Korea, Italy and Japan.
It seems unorthodox, but in the current global economic situation, MOMO and short squeeze traders are busy shorting the rallies.