As the carnage continues with stocks now ignoring anything the Fed throws at them ó and the Fed has pretty well thrown everything it has used in the past and is now moving into bailout mode ó where is the US stock market crash likely to stop falling? So far, itís been limit-down all the way.
Before posing ďThe Fed is DeadĒ later today, I wanted to rush this out because I can get it published quickly:
The above graph shows two reasonable targets that I would suggest.
My best case scenariofor the US Stock Market Crash
I am completely convinced it wonít end better than this, and I think it is only likely to be a resting platform unless the Fed leaps into strategies Iíve been talking about in Patron Posts that are currently illegal.
This level is based on the zone where the bull stopped running for two years and churned sideways as a place it hung out when the Fed stopped QE. That was back when I said the market would crash because of the end of QE, and it didnít quite do exactly but, but the bull was broken. The market stalled for two years, so not really a bull in my books ó at best a bull in a coma).
With the Dow ignoring the Fedís kitchen-sink solutions again today and ending down more than an unlucky 1300 (at 1,3338, having touched again on 2,000 down intraday), it looks like weíll enter the marketís old hang out in the rectangular safety zone sometime this week.
When the US stock market crashes down into the safety zone, the entire Trump Rally going back to its first inkling since the day after he was elected will have been destroyed ó so fundamentally ďstrongĒ was the economy that supported it all. (Be careful what you believe from the lips of politicians. I donít care who they are or even if I voted for them, as I have been known to loudly criticize ones I voted, for, too ó like George Bush II. Iíll own my foolishness, but I wonít repeat it.)
A likelyworse-case scenario for the US Stock Market Crash
Maybe stocks will take a rest there and bounce around inside that two-year safety zone for awhile. Maybe. Until the continuously growing downdraft of the general economy sucks the market all the way into the belly of the Great Recession again.
The next level down from the rest stop is based on where the marketís long-term trend would be if you project the line to the present day (the trend it dove down to in the belly of the Great Recession).
That deeper trend, as you can see, is exactly where the market would be if you wiped out all the Fedís excess fiat fuel that inflated the dot-com bubble before it burst and then filled up the housing bubble before it burst and now has formed the Everything Balloon ó far beyond a mere bubble. Itís where I see the stock market as settling out with the one caveat that the Fed will continue doing everyone it can dream of to bubble us back up somehow.
My easily possibleworst-case scenario for a market crash
First, let me say there is no trueworst-case scenario short of the US stock market crashing into the pits of hell because no one knows where everything that is happening right now will end. But Iím dealing with where this could easily gobased on what we already know about the coronacrisis.
All major indices are now down more than 30% from their last high, so we are already deep into bear territory. The Russell 2000 is down 40%! Forget any thought that this is not an all-out market crash!(If you are foolish enough to still be holding such a thought.) I mean, 40% declines inone month? Thatís looking more like 1929 than the Great Recession! And those are just thefacts.
That lower trend line is actually the ideal optimistic line we should hope to stabilize at ó IF the Fed got out of the bubble-blowing business but it wonít. Downward momentum could easily carry the US Stock market crash down to a straight line across the bottoms of the last two recessions, which would put the Dow down at about 6,000 until it recovered back to the baseline trend.
I donít care how you slice it and dice it, we ARE going back into the belly of the Great Recession as Iíve said for years we will when the next recession hits, and the next recession is now.
It wonít be just the US. Itís an everyone crash of the Everything Balloon.
A global recession is nowthebase case,say Morgan Stanley economists led by Chetan Ahya; they see growth falling to 0.9% this year. The Goldman Sachs team, led by Jan Hatzius, sees growth weakening to 1.25%.
And those guys are the optimistic ones, just like they weíre going into the Great Recession. In my next article (to be published later today), ďThe Fed is DeadĒ and the one to come out after tomorrow ďThe Bailout Bonanza is BackĒyouíll read some mainstream economists with far more pessimistic views.
So, the levels outlined above are the highly optimistic ones. Hate to be so cheery; but, seriously, things can go lower if the virus goes longer and takes out enough of the tinder-dry dead wood we have built into our economy all along.
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