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Selloffs end when the problem that caused the selloff is under control

A key issue is the uncertainty surrounding what it will take to halt the fast-moving health crisis, and the economic fallout of such measures, investors say. Governments are using a range of strategies, from stringent lockdowns in Italy, France and Spain to looser recommendations of social distancing in the U.K. and much of the U.S. As the measures vary, so does the level of economic disruption.

Investors need “clarity on the ultimate scale of the problem and evidence that the infection’s curves are bending globally,” said Jean Boivin, head of BlackRock Investment Institute. Credible news on development of a vaccine and treatments would also help restore confidence, he said.

Central banks in some of the world’s biggest economies have taken steps to cut interest rates to bolster economic growth and are acting together to boost the dollar’s availability. Investors are looking for governments to also coordinate actions.

“One thing we’ve learned in the crisis in 2008 is that policy is a lot more than the sum of its parts if it’s done as a global response,” said Mr. Boivin.

So far, governments don’t seem to have deployed enough fiscal stimulus—especially in Europe, said Didier Borowski, head of macroeconomic research at Amundi. The relief and stimulus measures should probably be equivalent to 2% to 3% of the eurozone’s economic output, he said.

But others believe fiscal stimulus won’t do much to arrest the market selloff.

Cornerstone Macro analyzed the stock market’s response to bursts of fiscal stimulus during the 2001 and 2008 downturns and found the S&P 500 actually continued falling over a one-year period.

“Selloffs end when the problem that caused the selloff is under control,” said Michael Kantrowitz, chief investment strategist at the firm.

Another area of concern for investors: the fact that credit markets, encompassing both the safest sovereign bonds as well as more speculative corporate debt, have been in turmoil due to liquidity constraints, the pressure to unwind the riskiest trades and investors’ demand for cash.

Investors would like to see “more aggressive steps by policy makers to provide some stability in fixed-income markets,’’ said Evan Brown, head of multiasset strategy at UBS Asset Management. “This includes a Fed/Treasury partnership to provide lending against corporate bonds as collateral and the ECB aggressively stepping up purchases of Italian debt.”

“Market participants need to feel they are backstopped without question,’’ said State Street’s Mr. Lacaille. “Arguably this is what the Fed and Treasury Department have tried to signal and achieve, turning from messaging into action, but it seems there is a leap of faith needed by the market too.’’



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