Tough Times for the Stock Market and TSP during COVID-19 sponsored by Aaron Steele

Tough Times for the Stock Market and TSP during COVID-19 sponsored by Aaron Steele

 

As per Aaron Steele Global markets have been facing tremendous losses in the last three weeks, with market volatility reaching levels that have never been seen before since the financial crises of 1929, 1987, and 2008. We have done some research and come up with the facts and figures of the stock market and TSP during this financial crisis due to the coronavirus outbreak.

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The Dow and S&P 500 are reputed markets that dropped into bear market territory that means the economy faced a downturn of nearly 20% or more from all-time highs in over a century of recorded data. Treasury bonds recorded low yields and then reached an adequate level furiously. So many corporate junk bond and investment-grade bonds were sold off as investors took more risk to their interest rate yields. On Thursday, the U.S. was hit hard and reported its biggest-ever single-day market drops in history with a nearly 10% downturn, and Europe recorded something similar to the U.S. with its biggest one-day market drop at more than an 11% downturn.

The C Fund tracked the S&P 500 and found that their market has dealt with a few strong bounces, but it remains to fight.

Smaller companies tracked by the S Fund were dropped by over 30% before they bounced back on Friday, and they are still dropping quicker than the C Fund in terms of percentage.

Companies tracked by the I Fund have encountered the fewest bounces so far, and that market reported the weakest relative strength index as compared to its counterparts (which, on the contrary, signals investors to buy more often).

 

Let’s see what the Federal Reserve says.

 During this time of stock market volatility, the foundation of the entire nation and the whole financial system has been shaken and tested at every level. Interbank lending spreads are reporting major liquidity problems not seen since 2008. The reason for this is that many corporations like Boeing and Hyatt are opting out of their revolving credit facilities to balance cash.

The Treasury market is basically the most liquid market in the world, but, unfortunately, this market stopped working last week and was declared volatile and illiquid.

Many funds received margin calls that led to immediate selling off of Paper (futures) prices of precious metals. So many physical bullion dealers across the country confirmed physical buying. Surprisingly, the U.S. Mint went out of stock of silver eagles as they received bulk orders.

A lot of stock market investors will wait for the response from the Federal Reserve next week that is expected to come during the scheduled FOMC meeting as a last hope for the liquidity provider. On Sunday, a rate cut to zero was announced, realizing that markets were initially dealing with another sell-off.

Aaron Steele said During this vast sell-off, the Federal Reserve imposed an emergency interest rate cut of 0.50% and gave access to its largest-ever collateral lending facility to provide liquidity, if needed. The Federal Reserve responded to the low liquidity of the Treasury market by expanding its monetary base and buying Treasuries across this duration. They may take advantage of this situation and pull out other tools like commercial paper operations. More information on this subject matter will be available next week.

According to reports from the White House officials, the officers worked with Congress to generate a fiscal response. Though the coronavirus is manageable, the economy of the states has two key delicate aspects to consider.

One key delicacy is that the bottom 50% or so of the consumer income spectrum has little or no savings. As restaurants, public events, and other businesses temporarily shut down operations around the country, the entire virus scare has become a personal financial crisis for many workers living their life on a lower income.

As per Aaron Steele the other key delicacy is that the United States is dealing with this issue with a total debt to GDP of 350%, and we must say that this has already been recorded as an all-time high.

Compared to the year 2007, the U.S. economy has a higher government-debt rate, corporate-debt rate, and consumer-credit rate as a percentage of GDP and a lower mortgage-debt rate.

Historical data suggests that most investors can protect themselves from this financial crisis by rebalancing their portfolio and remaining diversified in terms of financial assets when the scores go out of target range (or wait for the Lifecycle funds to do some good for them), and Aaron Steele said make sure they are financially strong enough to get through these tough times of financial hardship.

Fortunately enough, some are federal employees who get more stable income streams than workers in sectors that will have to face a harder time from this coronavirus crisis and the corresponding government response to shut down many offices and events.