The circuit breakers were already triggered basically at the open today, when the S&P dropped 7%. Trading was halted for fifteen minutes.
Trading will be halted again if we are down 13%, and we're getting uncomfortably close. The Dow's down about 10% as I write this. Futures were at one point down 11% before the open.
Think of the market as a real-time proxy of GDP growth. We've gone from, conservatively, 2% growth in the second quarter to, by Goldman's latest estimate, a 5% contraction. That's a 7 percentage-point swing. And the second quarter hasn't even started yet (it begins April 1).
If we go the way of Italy, closing bars and restaurants nationwide, the shrinkage could get even worse. I think that's one aspect of what the selloff today is telling us--the fundamentals are getting uglier, and the Fed's emergency rate cut to zero yesterday can't do much to stop that.
The other aspect is the cash squeeze for businesses. The Fed can help there to some extent, by keeping banks liquid enough to keep their customers liquid if they need to tap lines of credit and so forth, but we also need the federal government's reassurance that relief funds will be on the way to try and help make businesses whole for their losses during this period.
If there's any "good" news, it's that the closer we get to a national quarantine, the better the outcome in the long run, even if the economic hit is deeper during this period of time. So again, we need to do the Mark Cuban thing on a grand scale--assuring workers and businesses they'll be made as whole as possible, while working out the details in the background.
There's so much more to discuss--but that's what the show's for. Join me at 1 p.m. for the very latest.
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