U.S. Stock Market Set To Open 10% Lower

Major Downside Expected In Early Trading

In an emergency meeting, the U.S. Federal Reserve cut rates to 0% – 0.25% and announced a major quantitative easing program, promising to buy at least $500 billion of Treasury securities and $200 billion of mortgage-backed securities.

The stock market took this is a signal that the U.S. Economy is about to face major problems. The futures hit their downside limit, but the S&P 500 ETF is free to trade and is losing more than 10% in pre-market trading.

Currently, the market is set to erase all gains made during the Friday trading session. The energy sector is pointing to major downside move since WTI oil is losing more than 8% and has just breached the $30 level.

Lockdown everywhere

During the weekend, U.S. and many European countries have announced new restrictions on movement and public gatherings. Fresh data from China has shown dramatic decreases in industrial output, retail sales and investment. The market is trying to figure out whether the measures implemented by U.S. and Europe will have a similar effect on business activity.

The lockdown measures are especially tough for airlines, restaurants, hotels, and services in general. It remains to be seen how long the current measures will last, but the fast spread of the coronavirus indicates that citizens will have to live by new rules for the upcoming weeks.

Many Stocks Will Find Themselves Under Pressure At The Opening

Oil majors like Exxon Mobil, BP, Chevron, Total are indicating losses of about 10% -15% at the opening. Restaurants, including McDonalds, are also feeling the heat. For the airlines, the current crisis may turn into a battle for survival since air routes are cut across the globe while the airline business is a capital intensive one.

At this point, it looks like the market does not believe that the Fed or the European Central Bank have enough ammo to stop the downside. Unlike the financial crisis of 2008, the coronavirus crisis cannot be contained by printing money.

In this light, huge volatility should be expected today as panic selling could be met by opportunistic buying from investors hunting for bargains. Keep in mind that the stock trading may be halted for 15 minutes if the S&P drops by 7% and by 13%.