The indices are indicated to open sharply higher on Wednesday morning, as overseas markets were more celebratory of the Fed's surprise interest rate cut than U.S. markets and the resurgence of Joe Biden diminishes some concerns about an unfriendly stock market candidate earning the Democratic nomination.
The combination of these two factors has the indices jumping sharply on Wednesday morning, but there remains tremendous uncertainty about the spread of the coronavirus outside of China. Many market players are puzzled by the very aggressive action by the Fed, when less than 1000 people have even be tested in the U.S. and there are few reports of the virus spreading quickly.
One of the reasons that the market sold off on Tuesday, after the interest rate cut announcement, is that market players are worried that there must be a flood of bad economic news coming if the Fed is acting so aggressively. The Fed must be anticipating something quite dire if it is moving so fast at this point. While there is obviously some fallout in China, the market has tried to shrug off the impact in the U.S. as relatively mild, but the Fed moves seem to contradict that thinking.
The pattern of extreme volatility is another reason the market is jumping Wednesday morning. Short-term trading helps to exacerbate the action as traders increase their speculative efforts.
Once again, the big question is where does the market go from here. Was the sharp reversal yesterday enough of a retest to put a bottom in this market? Although the recent lows were not close to being tested, a sharp drop does serve the purpose of washing out more of the weak bulls. The issue now is that the lows hit on Tuesday not be breached.
One issue that is most likely to determine short-term direction is the coronavirus news flow. Will the U.S. start to see the negative consequences of the virus that the Fed and so many businesses and government officials are preparing for? It is aggressive preparations that are scaring the market more than any actual news about the coronavirus. The way that issue develops is going to determine where the market is heading.
On Wednesday morning, the Presidential election is providing an excuse for some bounce, the Fed rate cut is being embraced as helpful and there still is no news about the coronavirus having any meaningful impact in the U.S. Watch the news flow carefully. Good or bad news about the coronavirus can shift this market very quickly so stay vigilant.