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Weekly Memorandum 3/2/2020

In just one week, stocks erased all of their gains since October. Although the severity of the selloff was a bit worse than anticipated, we were able to alert subscribers in early and mid-February that stocks were set to pull back. This short-term bearish position was even shared in our free weekly memorandums leading up to the decline. But the question now is how equities recover following this decimation.

Last week's memorandum stated, "Naturally, the news headlines will say that stocks are down because of the coronavirus. While we are not totally discounting the severity of the illness, those same articles will fail to mention that stocks have gone up for nearly 6 months straight--we were, and are due, for a pullback." The coronavirus continued its spread over the weekend. In terms of sentiment, panic seems to be the prevailing emotion with respect to the illness and market overall. As a result, we lean with the idea that the worst has already passed. A new Mercator Letter is set to be published this upcoming weekend on March 8. It may be of interest to new readers as we will provide our updated market forecast.

In other markets, the U.S. Dollar is coming off a tough week. It still closed up on the month, and appears poised to continue higher. Major reversals were also suffered in Gold and Silver, as we again saw multiple weeks' worth of gains erased in just a few days. Treasuries continued their rally and are basically at, or very close to, all-time highs, depending on their maturity. Crude Oil also closed at its lowest level since mid-2017. This is good news for consumers at the gas pump.

Given the market's recent dramatic moves, don't be surprised to see technical bounces in the opposite direction sometime this week or maybe even next. If we haven't bottomed yet, we may very soon, but there's a fair chance we already have. Short-term, Treasuries appear as if they may consolidate some of their gains, or even decline for a bit, which could help in a recovery for stocks. One thing for sure is that there is much more fear now than greed, which is the typical sentiment for a bottom to occur. In order for stocks to recover and not commence a bear market, we will want to see a strong rebound from these lows occur sooner rather than later.

Lastly, don't expect the central banks to stand by and do nothing during this whole fiasco. Monetary easing is on the horizon, and the market is saying interest rates on the short-end of the curve are set to be cut by 50 bps at the Fed's March 18 meeting.

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