A Bad Week

By Ben Walsh |  Friday, February 28

A Bad Week. Just two stocks in the S&P 500 ended the week green – Regeneron Pharmaceuticals and chip-maker Qorvo – as U.S. shares fell to their worst week since the financial crisis. 

Friday saw the Dow Jones Industrial Average fell 357 points or 1.4%, the S&P 500 dropped 0.8% and the Nasdaq Composite somehow managed to eek out a gain of less than 1 point. 

At one point Friday, the Dow was down more than 1000 points, but it had trimmed those losses by 2:30 in the afternoon, when Federal Reserve Chair Jerome Powell weighed in with a statement that stated pretty much what you'd expect. "The fundamentals of the U.S. economy remain strong," he said, noting that the novel coronavirus "poses evolving risks to economic activity." As a result, the Fed "will use our tools and act as appropriate to support the economy."

Powell's comments were very similar to what Vice Chair Richard Clarida said on Tuesday when Clarida became the first Fed official to publicly comment on the outbreak. And that simple, restrained message is likely to be pretty much all investors are going to get from any Fed official in the near term, barring any surprise decision to cut rates. 

"Fed statements like this are tricky," University of Michigan economist Justin Wolfers pointed out on Twitter. "If it's read as reassurance that the Fed will be the grownup in the room, it'll be helpful. But if investors ask "Why is the Fed issuing an unusual statement? What does it know that we don't?" then it might cause more fear."

Wolfers reasons that the Fed is communicating not that it knows anything other market participants don't, but how it plans to react. And one tell in Powell's statement, Wolfers said, was its promise to "'to support the economy,' while remaining silent about countering inflation." 

On the day, whatever investors heard from the Fed didn't seem to matter all that much: stocks had already pared some of their losses before the statement, continued their recovery briefly after it, lost ground again, and then rallied into the close. 

That less bad-than-it-could-have-been close doesn't change the fact that right now, things are scary and the best market response right now is a public heath one, but you – and the Fed – already knew that.