Financial news
Written by: Jingjing He
2020-03-10 06:30
Last updated: 2020-03-10 06:30Affected by the spread of the new crown pneumonia (also known as Wuhan pneumonia) epidemic worldwide, and crude oil price wars, global stock markets fell sharply on Monday, and US stocks triggered the fuse mechanism shortly after the market opened. The Dow fell more than 2000 points throughout the day, the largest ever A single-day point decline, the three major US stock indexes all fell more than 7%.
Although U.S. stocks have fallen sharply in recent days, the valuation is still higher than the historical average. Some investment experts have warned that if the epidemic further affects U.S. consumption and production, it may cause U.S. stocks to "crash" again. The recent plunge or just the beginning of a major stock disaster.
Nobel laureate Le warned that U.S. stock prices have been seriously overvalued. (Reuters)
Siren 1: Nobel prize winners warned
The US stock market has set the longest bull market record. The three major indexes have recorded significant increases in the past years, making the value of US stocks more expensive. The current price-earnings ratios of the Nasdaq, S & P 500, and Dow Jones Industrial Average are 30, 18, and 17, respectively, which are much higher than historical averages. In the past, the US economy and corporate earnings grew faster, but with the spread of the new crown pneumonia (also known as Wuhan pneumonia) epidemic in the United States, it may damage the US economy, and the high P / E ratio of US stocks will inevitably face adjustment.
Nobel laureate and US economist Robert J. Shiller warned in a recent interview with the German Business Daily that the new crown pneumonia epidemic could have serious consequences, and the virus suddenly made people aware of the greater risks Will put pressure on global financial markets. According to his own cyclically adjusted price-earnings ratio (CAPE) indicator (that is, the ratio of stocks to the company's income in the past ten years), US stock prices have now been seriously overvalued. He has warned in the past that the U.S. stock bubble bursts at any time, and investors need to know that the stock market crash does not need any reason, because the stock market bubble will eventually end.
US President Trump is one of the strong supporters of loose monetary policy. (Reuters)
Siren 2: U.S. interest rates may return to "zero" years
One of the main reasons for the continued rise of U.S. stocks over the past years is that major global economies have implemented quantitative easing (QE) monetary policies since the financial tsunami in 2008, which has flooded the world with hot money, and the stock market asset prices have naturally risen. However, the QE policy is not a panacea. Just as antibiotics are eaten too much, bacteria will be resistant. The implementation of QE to the extreme will make the interest rate irreducible.
The United States is not far away from the zero interest rate. The Fed suddenly held an emergency interest rate meeting earlier this month to reduce interest rates by half a percent. However, the US stock market continued to fall, making calls for further interest rate cuts even greater. Goldman Sachs Chief Economist Jan Hatzius estimates that the Fed ’s March and April meetings will cut interest rates by another 0.5%, bringing the federal funds rate range to 0 to 0.25%, another record low.
Before the 2008 financial crisis, the federal funds rate was as high as 5.25%, giving the Fed sufficient room to continue to stimulate the economy through interest rate cuts. However, the U.S. is not far from the zero interest rate. When the price of assets is still high, but the "black swan" such as the epidemic, the US election, and crude oil price wars have appeared, the Fed ’s interest rate reduction and "rescue" operation space is extremely Limitations may lead to more severe economic and financial crises.
VIX panic index is high at 62, investors hit a new high after the tsunami, VIX rose to 100
[US stock meltdown] Dow hits the biggest point drop in history
[U.S. Stock Fuse] How did the first daily limit in 23 years trigger the "fuse three-level system"?
After the financial tsunami, central banks of various countries pushed for QE to save the economy, flooding global hot money and pushing up global asset prices. (Reuters)
Siren 3: VIX panic index or height is not considered high
Stock disasters are often closely related to investor confidence. When investors are too confident in the market, it is easy to ignore risks and overestimate asset values, resulting in asset bubbles. When the market panics, the bubble bursts, investors scramble to leave the market, and it is easy to amplify the decline, causing irrational overadjustment in the stock market.
In previous years, the Chicago Options Exchange Volatility Index (VIX), known as the "panic index", had been at a low level for a long time, and even reached a record low of 8.56 at the end of 2017. At the time, there were criticisms that the market was too optimistic and it was easy to ignore risks. Excessive push on the stock market.
Recently, US stocks have become very volatile, and the S & P 500 Index has risen or fallen 2.5% or more for 4 consecutive trading days. The panic index rose to 62.12, the highest since the financial tsunami in 2008. However, the panic may not have peaked because the real impact of the epidemic and crude oil price war on the economy has not yet surfaced. Bloomberg reported that some investors have bought VIX call options. The "bet" panic index will rise to three figures on Tuesday. If the market panic really heats up sharply, the US stock market disaster may only be one step away.
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