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Fifth US Circuit Breakout !

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Fifth US Circuit Breakout !

Issue Time:2020-03-19
Fifth US Circuit Breakout !
On March 18, U.S. stocks fell, the S & P 500 index fell more than 7%, and it broke again for 15 minutes. This is also the fourth time that US stocks have blown in two weeks. After trading again, the three major stock indexes continued to drop, and the S & P 500 index once fell close to 10%, once erasing all the gains since Trump took office. Late in the wake of the US Senate's possible adoption of a second round of economic rescue plans, the three major stock indexes rose rapidly.

There are two reasons for melting the plunge again. First, the market is increasingly worried about the economic outlook. Earlier in the market, it was reported that Treasury Secretary Mnuchin warned Republican lawmakers that if Trump does not pass the bill to fight the epidemic, U.S. unemployment may surge to 20%. Although Mnuchin and Trump both later denied the 20% figure, it is clear that this makes the market more worried about what kind of impact the development of the epidemic will have on the US economy. In addition to airlines, the industry that has been severely affected by the epidemic has also formally written letters to the White House asking for relief. "Uncertainty" makes market participants afraid to stay in the stock market, just want to stay away from the market at this time.

Second, the market still does not buy the White House's rescue policy. For example, the famous investor Bill Ackerman said that the Trump administration should block the country for 30 days, so that it is the only option to save the US economy. He said that the US approach is to gradually scare people, which has led to companies gradually consuming cash reserves. Therefore, the market is indeed looking forward to the government's introduction of more aggressive measures to combat the epidemic.

In addition, there is a concept of risk. This is also a point that has been discussed a lot on Wall Street in the past two days, which is "risk parity." This refers to equipping investment funds with different assets and putting eggs in different baskets, including commodities such as stocks, bonds, the US dollar index, natural gas, oil and gold. Many U.S. funds adopt this kind of hedging model, because in the normal market, different types of assets fade away. When the high-risk stock market falls, funds will flow into safe assets such as bonds, yen or gold to reduce the overall risk. However, the risk parity asset setting has failed in this market. We see that multiple asset classes such as the stock market, US debt, oil, and gold have been sold at the same time, and these baskets containing eggs have also been overturned. This makes the hedging function of the risk parity mechanism ineffective, and even if there is high leverage in the middle, it is more likely to cause the market to rise and fall.

The most important thing is the fundamental issue, that is, how the United States can finally control the epidemic, which is the key to calming the financial turmoil. Prior to this, the US stock market's roller coaster market may continue, everyone must continue to fasten their seat belts.