Big bounce on tap for stocks. After a nearly 3% drop Tuesday, stocks opened sharply higher in the United States after the number of COVID-19 cases in China dropped once again to the lowest level since January 20, and market participants updated their assessments of the Democratic presidential primary results from Super Tuesday. Additionally, positive Eurozone and United Kingdom services Purchasing Managers Index (PMI) data along with better-than-expected Eurozone and German retail sales helped calm fears of a global slowdown.
The Fed emergency cut added to fears. The Federal Reserve (Fed) cut rates 50 basis points (.50%) yesterday in a rare intra-meeting action. This first non-meeting cut since 2008 failed to buoy market sentiment. Market participants questioned why the Fed couldn’t wait two more weeks until its next meeting, wondering if conditions were bad enough to justify the move. It is expected that the Fed may cut again at its next meeting March 17-18, based on fed funds futures prices. For more of our reaction to the Fed move yesterday, please read our March 3 blog.
Biden outperforms in Super Tuesday. One week ago it looked like Bernie Sanders was going to run away with the Democratic nomination, but Super Tuesday’s better-than-expected results for Joe Biden indicate it is still a two-person race. So far, results show that Biden has won 9 states to take the delegate lead, and Bernie Sanders has won 4. (Maine results were not final as of 9:30 a.m. ET.)
Bad start to 2020 has bulls worried. The S&P 500 Index closed lower in both January and February 2020. Historically, when that has occurred, the returns over the rest of the year have been substantially weaker, up only 2.2% on average compared to a 12.2% gain when the first two months have been higher. We will discuss this potential worry on the LPL Research blog later today.
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