Panic Perspective, Part II

Historic price charts super imposed with event details can provide insight into the information that might have driven trading decisions.  The technique has been applied to the coronavirus health crisis that is playing out in the U.S. and indeed around the world.  The first chart at the end of this post illustrates news of the disease, including reports of first infection, first deaths and spread of the virus around the world.  The second chart includes policy responses, such as lockdown and travel bans, with particular attention to communications from U.S. policy makers.  Yet a third chart (yes, we can have three charts in one post, because this is an investment column) juxtaposes the pronouncements and decisions by key policy makers against the candlesticks of the stock market disaster.  This chart also includes tweets by Donald Trump.

What do the charts say?  Besides making us dizzy, the charts suggest everybody has been scrambling to track down the horses well after they bolted the barn.  These charts also suggest that shareholders were not so troubled by the coronavirus itself as they were by the lack of preparedness in the U.S.

The first part of this series on March 17^th presented a chart of the Shanghai Stock Exchange that illustrated the exchange had largely recovered from the 'Lunar New Year correction' during the month of February 2019.  New cases were still showing up in China and the virus had spread to other countries, but the China population had begun returning to work.  It was not until the U.S. stock market began to slide that the Shanghai exchange entered a new period of volatility.

News of the first case of community spread in the U.S. was followed by a modestly down day in the U.S. stock market, but it was not until the next day when Trump appointed Michael Pence as the new leader of the U.S. coronavirus task force.  During the next week a series of pronouncements by Donald Trump on various news outlets and on the social media platform Twitter, seemed to unnerve the market.  His continue denial of any health threat from the coronavirus seemed incongruous against the data arriving from other countries as well as increasing incidents in the U.S. 

Community fear seemed to grip the U.S. during the first week in March 2019,  that mushroomed into a panic in the U.S. financial markets.  In turn, actions by OPEC and the U.S. Federal Reserve seemed to reinforce the view that things had got out of control. Professional traders and money managers appeared to join in the sell-off frenzy in a way that has not been observed in previous market corrections.        

It will never be known how things might have transpired if U.S. citizens and investors had heard a different, more realistic line of communication from the various policy leaders.  It seems likely that there would have been some kind of market sell-off to reflect the very real adjustment for the decline in earnings that will most certainly ensue from the interruption in business around the globe.  However, we may have avoided the most acute panic and in turn some of deepest erosion in stock prices. 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.