CNBC's Michael Santoli surveys the market wreckage.
Brendan McDermid | ReutersBut can the recent near-30% crash in three weeks through Thursday have properly discounted an economic path now being set by an intentionally extreme reaction to a global health threat? What we can do is survey the wreckage, compare the action to prior severe stock-market collapses and stay alert to collateral issues that will almost certainly surface.
Bespoke Investment Group's chart of net advancing stocks over 20 days shows the utter washout conditions that helped set up Friday's wild 9% rebound. Ned Davis Research strategist Ed Clissold notes that Friday's upside reversal came with some 95% volume in advancing stocks. In order to have conviction that Thursday's low was consequential, he says several more such days would be needed, without an intervening 10:1 downside day.
But the equity-Treasury interplay was also thrown off by the retreat of large systematic funds that own stocks against leveraged Treasury portfolios, on the idea that losses in stocks will be made up by Treasuries rallying. Yet with Treasury yields so close to zero, there is so little room for Treasury prices to rise further to offset equity losses, that they simply reduced their holdings of everything.
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