rare! US stocks plummeted after the Federal Reserve cut interest rates abnormally. why?

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Source: Xiang Yu, editor of Qi Yue, author of wall street cn (id: wall street cn). The opinions of this article do not constitute investment advice. Everything happened too suddenly. An outbreak has occurred overseas. The number of confirmed cases is close to 12,600, which is nine times the number of confirmed cases in one day in China. The "center mother" finally couldn't sit still. On March 3, after Australia and Malaysia took the lead in pulling interest rate cuts, the Federal Reserve announced an emergency rate cut of 50 basis points before the regular interest rate meeting this month. Stimulated by this, the US stock market rose sharply in the morning, and the S & P stock market rose 1.5% in the morning. As we said earlier on WeChat, I'm afraid that relying on "central mothers" this time is not enough. Since 2008, the "U.S. Central Bank" has cut interest rates for the first time, with interest rate cuts of up to 50 basis points, making investors embarrassed. A rare emergency rate cut lasted just 15 minutes to stimulate US stocks. The US stock market fell sharply. The S & P intraday fell by more than 3.6%, and finally closed down 2.85%. Some strategists even shouted that they were "overwhelmed" by the Fed's sharp interest rate cuts, saying that urgent action had exacerbated market panic. Why is that? What happened? The Fed can't wait to cut interest rates. They can't wait patiently for the interest rate meeting on March 17 to be held as scheduled, but directly announce a rate cut, exactly two weeks in advance. Interest rate cuts have also been as high as 50 basis points, compared to only 25 basis points in previous actions. At first, the sentiment of the US stock market was obviously high, and the three major stock indexes opened higher across the board. However, five minutes after the market opened, the group fell, both by more than 1%. Half an hour after the opening, the Fed unexpectedly issued a rate cut statement. After the decision was announced, the market was actually quite strong at first, with all three indices changing from falling to rising. The Dow Jones Industrial Average has surged more than 381 points in the short term, breaking the historical high of 27,000 points. The S & P index rose 1.5% to more than 3100 points, and the Nasdaq index rose 1.3% to 118 points to 9,000 points. However, after 15 minutes, the market changed its face! US stocks first narrowed gains, and then the Dow led the decline. By the end of the day, all three major stock indexes had fallen by almost 3%. It can be said that under normal circumstances, the market will welcome interest rate cuts, and investors have been hoping so. Now that the dream has come true, why is the stock market falling? Perhaps Kenny commented that Peter Kenny, the founder of the LLC and the Strategy Committee Solutions LLC, could roughly represent the idea of ​​the market: interest rates have been cut. The question is, what is the next step? Goldman Sachs: 50 pounds is not enough, another 50 pounds will fall next month! Goldman Sachs chief economist Jan Hatzius believes that when it comes to future policy directions, Fed Chairman Powell's wording is ambiguous and there are conflicting views. However, in all respects, the Fed is expected to cut interest rates by 25 basis points later this month and next. On the one hand, he said, "We do think the current policy position is appropriate. We believe it is appropriate to continue to pursue these two stated goals." On the other hand, he also stated that the Fed "is ready to use the relevant tools and take appropriate action "This is consistent with the interest rate cut statement. In response to a question about "whether interest rate cuts can effectively respond to supply shocks", Powell said that the Fed's actions will "substantially boost the economy" and will help avoid tighter financial market conditions. Powell also mentioned that the Fed will do a good job in "responding to current challenges and maintaining strong economic growth in the United States", and that decision-making departments will take more coordinated actions in the future. Conflicting signals from the Fed statement and press conference obscured the timing of future rate cuts. Historically, when economic growth is facing shocks, the Fed's "take appropriate action" statement is a strong signal that interest rates are about to be cut, especially when inflation is low. But Powell also mentioned this time that the current policy position is appropriate, saying that future policy changes depend on "evolution of the situation" and "a series of other things." The uncertainty is very high in multiple dimensions: the Fed's response, n We consider it appropriate to continue to pursue these two stated goals. On the other hand, he also pointed out that the Fed is "ready to use relevant tools and take appropriate action", which is consistent with the statement of interest rate cuts. In answering the question about "whether interest rate cuts can effectively respond to supply shocks," Powell said that The action will "bring a substantial boost to the economy" and will help to avoid tightening financial market conditions. Powell also mentioned that the Fed will do a good job of "responding to current challenges and maintaining strong US economic growth", and in the future Decision-making departments will take more concerted action. Contradictory signals from the Fed statement and press conference obscure the timing of future rate cuts. Historically, when economic growth is facing a shock, the Fed's "take appropriate action" statement is about to cut interest rates A strong signal, especially when inflation is low. But Powell also mentioned this time that the current policy stance is appropriate, saying that future policy changes depend on "evolution of the situation" and "a series of other things" . Uncertainty is very high in multiple dimensions: the Fed's response, n We consider it appropriate to continue to pursue these two stated goals. On the other hand, he also pointed out that the Fed is "ready to use relevant tools and take appropriate action", which is consistent with the statement of interest rate cuts. In answering the question about "whether interest rate cuts can effectively respond to supply shocks," Powell said that the Fed's The action will "bring a substantial boost to the economy" and will help to avoid tightening financial market conditions. Powell also mentioned that the Fed will do a good job of "responding to current challenges and maintaining strong US economic growth", and in the future Decision-making departments will take more concerted action. Contradictory signals from the Fed statement and press conference obscure the timing of future rate cuts. Historically, when economic growth is facing a shock, the Fed's "take appropriate action" statement is about to cut interest rates A strong signal, especially when inflation is low. But Powell also mentioned this time that the current policy stance is appropriate, saying that future policy changes depend on "evolution of the situation" and "a series of other things" . Uncertainty is very high in multiple dimensions: the Fed's response, n

Vincent Reinhart, chief economist and macrostrategist at Mellon University, can answer some questions. He said he didn't know how to respond to an emergency rate cut because it would only scare more investors. Ok? what is the problem? Vincent Reinhart said the Fed has been reluctant to take urgent action when markets panic for many years, because doing so would make the outside world think that the top U.S. political and economic officials are worried about the economy and would make people Think the Fed is publicly rescuing financial markets, and some will question whether the Fed may lose its independence and be affected by politicians. But this time, the Fed did not abandon any of the above four items, "four to four." In his view, the Fed did not give enough reasons to lower interest rates. "Powell did talk about the link between epidemics and business. I think this makes some people wonder if policymakers know something we don't know." Said Li Qilin, chief economist at Yuekai Securities and director of the institute. The interest rate cut is a rather helpless move by the Fed. Taking into account the published economic data, such as US inflation, manufacturing purchasing managers' index, non-agricultural employment and other indicators are still in a relatively good condition, this emergency rate cut is obviously not a "data-dependent" decision. There are both political pressures and “financial market pressures” behind it, as well as considerations to prevent the new crown epidemic from having a greater impact on the economy. The Fed ’s interest rate cut is to save the market and to respond in advance to possible bad conditions in the future so that the United States can remain relatively strong in a possible crisis and maintain the strength of the US stock market. Just, is this answer useful? Obviously, decision-making power is not in the hands of the Fed. When the global spread of the epidemic will be controlled is the key to whether the economy will sink into recession and whether the US stock market will continue to strengthen. The epidemic is out of control, economic activities are blocked, and demand in the areas of tourism, consumption, entertainment, and transportation has fallen. Industrial production and the global industry chain may even have problems. Faced with such huge uncertainty, the willingness of enterprises to expand capital expenditures and residents to expand consumption will be very limited. Choosing interest rate cuts and water releases will not only reduce repayment pressure and prevent credit risks, but also have a very weak effect on stimulating the overall demand of the entity. Not many bullets. After analysing what Wall Street saw, the Fed also struggled. Over the past few years, the Fed has carefully normalized interest rates. So far, there is only 1. 5 percentage points, or 6 interest rate cuts. This is the biggest card in the Fed. The market is now forcing it to be used twice. The pressure on Powell is conceivable. For the Federal Reserve and even global central banks, the biggest risk is to pull out prematurely in exchange for a brief rebound in financial markets. When the real economic downturn comes, the central mother has nothing to do. Center mothers around the world have headaches because their opponents are really unusual this time. Central mothers often face inflation and economic recession, while cutting interest rates and releasing liquidity can effectively increase aggregate demand, thereby preventing the economy from sliding further into the abyss. But this outbreak was completely different. Even Powell acknowledged that the Fed was powerless. He pointed out that the central bank cannot repair the disrupted global supply chain, nor can it convince people to fly, attend meetings or even go to school, especially if local governments or companies ban these activities. "We realize that lowering interest rates will not reduce infection rates or repair broken supply chains. We understand this, but we think we haven't found all the answers." Finally, central mothers around the world have one Terrible enemy: deflation. Japan has left too many shadows on the World Bank's scholars. Once the economy enters deflation, the Bank of Japan will not go all out. Now, the European Central Bank has gradually entered the field of negative interest rates, and the Bank of Japan has acquired a major shareholder in the Japanese stock market. Whenever possible, the mothers of the center of the world cannot do their best to step into the same river in Japan. So there is not much color Deflation. Japan has left too many shadows on the World Bank's scholars. Once the economy enters deflation, the Bank of Japan will not go all out. Now, the European Central Bank has gradually entered the field of negative interest rates, and the Bank of Japan has acquired a major shareholder in the Japanese stock market. Whenever possible, the mothers of the center of the world cannot do their best to step into the same river in Japan. So there is not much color Deflation. Japan has left too many shadows on the World Bank's scholars. Once the economy enters deflation, the Bank of Japan will not go all out. Now, the European Central Bank has gradually entered the field of negative interest rates, and the Bank of Japan has acquired a major shareholder in the Japanese stock market. Whenever possible, the mothers of the center of the world cannot do their best to step into the same river in Japan. So there is not much color

Over the past few years, U.S. companies have been heavily indebted, especially when a large number of companies issued bonds to buy back stock, which has pushed up stock prices and pleased shareholders. Management also received incentives, which can be said to be a win-win situation. Today, many companies have been hit by the epidemic, and their debt-servicing pressure could trigger a series of chain crises. If not handled properly, the pressure on the credit crisis will not be small. After reading the full text, click "Watch"