Big swings in the stock market are jarring, but normal in abnormal times. And these are abnormal times.
More often than not in the past two weeks, the S&P 500 stock index has risen or fallen by at least 2 percent a day. The battle between fear and greed is playing out with these big point swings as traders and investors speculate on the depth and duration of economic impact from COVID-19.
The short answer is we just don’t know. But what is certain is the perception of risk has returned. Look no further than the Federal Reserve’s unscheduled interest rate cut this week. The cut itself wasn’t unexpected. After all, the central bank put investors on notice days before its action. However, the size of the reduction — a half of a percentage — was larger than most expectations. And the market predicts another deep cut — another half of a percentage — when the agency meets for its regularly scheduled decision next week.
In the week ahead, the investment markets will be focused on the infection count, where the cases are, and the scale of preventative measures in the effort to reduce the spread of the virus. Prudent public health measures such as social distancing will have short-term impacts on the economy. So will curtailing business and vacation travel plans.
Investors already are confident the Fed will cut borrowing costs again. What the volatility in the markets indicates is the skepticism about is how it helps.
