The coronavirus outbreak is raging, much of the U.S. economy has been shut down, and stock markets are crashing. There's some good news in that the federal government finally seems to grasp the seriousness of the situation and is following the Federal Reserve's lead in taking necessary and aggressive action with urgency. Every day of inaction just makes the eventual cost of acting higher.
However, it still doesn't seem to fully grasp the size and extent of the situation so current proposals are lacking. Most reports indicate the Trump administration is supporting a package of $850 billion in stimulus with a combination of tax cuts, increased support to states, increasing unemployment insurance, and a bailout package for airlines. Stocks won't decisively bottom till fiscal policy will actually be significant enough to make up for lost economic activity which most economists estimate to be in the $1.5-2 trillion range.
Contradiction
The coronavirus outbreak is most crucially, a public health crisis. To fight it, large parts of the economy are being shutdown which is obviously creating this economic and financial crisis which could have its own negative effects on public health and well-being. Financial markets also thrive on certainty and are shakiest during periods of uncertainty. This is the current situation for markets as it's impossible to determine the full extent of the coronavirus outbreak, how long it will last, and what the effects will be. It was sobering to see President Donald Trump acknowledge that the outbreak could last till July or August.
Liquidation
During these times, there is no real, safe asset other than bonds and cash. Even stocks with strong fundamentals are selling off as investors are desperate to raise cash. In the last week, gold prices have declined from $1,700 to under $1,500 as margins calls are forcing traders and investors to sell whatever they can to raise cash. Gold's fundamentals have also been improving due to political uncertainty and lower real interest rates. Additionally, more fiscal and monetary stimulus will be coming in bigger doses until the situation is stabilized especially given that interest rates and inflation expectations are at zero or negative.
Given these factors, a long-term bottom is unlikely anytime soon. However, a short-term inflection point of maximum fear could be near that would lead to a multi-week, bear market rally and reset bullish and bearish sentiment. Although it's near in terms of time, it may not be near in terms of price, as these types of extreme moves tend to end in selling climaxes.
