European stock exchanges plummet in the wake of Wall Street’s freefall opening, with the Dow Jones index dropping by more than 3% on opening. But what are the reasons for the collapse? Sales are the first to trigger fears of a second wave of coronaviruses in the United States. In Texas the cases have risen to a record level, even in California the inpatients have risen to the maximum since May and there is the fear of a second wave of virus spread in Florida and Arizona.
The role of the Fed
However, the Fed weighs heavily on the lists, which on Wednesday evening claimed that the US economy could return to pre-Covid levels only in 2022. Meanwhile, the US Central Bank forecasts speak of a 6.5% drop in GDP for 2020 against a 2% growth forecast for the US economy before the outbreak of the pandemic.
The big rebound of the lists after the fear. And now?
According to the operators, the rapid recovery of the lists which brought the main stock market indices of all the advanced countries back to the levels preceding the explosion of the pandemic has extremely fragile foundations. The market was flooded with liquidity from central banks and rates have dropped to near zero in the United States. But these measures are not enough and investors expected something more from the Federal Reserve, explains Antonio Mauceri, Azimut’s portfolio manager.
On the other hand, the excess liquidity on the market, together with a very discontinuous flow of news, alternating elements of recovery and new data of aggravation of the recession fuel a volatility that will certainly not be able to reabsorb in a few weeks. From this point Jerome Powell’s statement that the stock markets have gone too far and there is a risk of a speculative bubble favors a downward adjustment of the lists.