By Jon Dougherty
(TNS) For the tens of millions of Americans nervously eying the values of their 401(k) retirement accounts tank thanks to the outbreak of coronavirus, there may not be much immediate good news ahead.
In fact, a new analysis by CNBC is just downright depressing.
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According to the financial news site, we may not experience much in the way of gains on Wall Street until the news about coronavirus gets a lot worse, as in, much more ‘scary.’
Yeah, that’s pretty cruddy, actually, but there’s a method to that madness, the site notes:
Some investors are taking a counterintuitive approach when looking for a bottom in stocks amid this historic sell-off: They are waiting for the coronavirus headlines to get much scarier before buying.
Under normal market dynamics, investors and traders would wait for headlines around key catalysts to start improving before jumping back into riskier assets such as stocks. One example of this dynamic was seen during the “phase one” negotiations of the U.S.-China trade deal. As headlines improved and it became clear that a deal would get done, stocks started to turn around.
However, given the fast-spreading nature of the coronavirus, some market players think the more people panic, the more likely they are to adopt measures such as social distancing to curb the virus spread. The scary headlines would also push lawmakers to implement stronger policies to curtail future infections. This would then ultimately curb the long-term damage to the economy.
“Perversely, the more fear the better, because the best cure for a viral pandemic is a viral panic,” said Ed Yardeni, president and chief investment strategist at Yardeni Research, in a note Tuesday.
While many measures being taken by the Trump administration and the president himself are aimed at “flattening the curve” of the rates of infection so as not to overwhelm the U.S. healthcare system, policies of mass self-isolation and self-quarantine, along with states and cities ordering certain businesses to close, are already having a negative impact on the economy.
Hence, the dismal market performances of late.
Bill Ackman, billionaire investor and founder of Pershing Square Capital Management, thinks the administration needs to take more drastic measures, noting the U.S. should shut down the country for 30 days.
“We need to shut it down now. … This is the only answer,” Ackman told CNBC’s “Halftime Report” on Wednesday. “America will end as we know it. I’m sorry to say so, unless we take this option.”
“Hell is coming,” Ackman added. “Capitalism does not work in an 18-month shutdown, capitalism can work in a 30-day shutdown.”
That kind of hysteria is precisely what the market is looking for, according to Ricky Sandler, CEO of hedge fund Eminence Capital.
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“I think the people are totally missing what is happening here. Every new headline, every new hysteria is making people more nervous and it’s actually very, very positive,” Sandler told CNBC on Monday. “It’s all helping to contain the problem.”
So — irrational purchases of toilet paper are good for the market? Perhaps. But not so good for consumers who are looking for some and can’t find it.
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