Stocks Surge Friday - Why Markets Are Acting Strangely

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U.S. stocks surged Friday, as buyers come back into a generally spooked and devastated market.

The coronavirus seems to know no bounds, as cases continue to rise Friday. The market, along with every other institution in the world has no real guess as to when and how the virus will end. Businesses and people are almost dormant, causing valid fears of a recession. 

All three major indexes rose Friday after a historically ugly Thursday,which saw the Dow Jones Industrial Average fall 9.99%. All three big indexes are down roughly 25% from their all-time-highs. Friday, the S&P 500 rose more than 5% before that gain moderated to 3%. 

The 10 year treasury yield rose to 0.95%, as investors finally sell the bond that is yielding less than the federal funds rate of just above 1%. The Federal Reserve injected $500 billion of what seems like emergency liquidity into the banking system Thursday, which may give investors some minimal confidence.

As for the wild market swings, there are several reasons, but one reason is that the bulls and bears are still at it. 

"Markets are looking for good reason to return to being bullish – which has been their default position for an unusually long time – and actions being taken by central banks could provide just that in days to come," said Nigel Green, CEO of DeVere Group, a financial adviser overseeing $10 billion of assets. "We expect global stock markets to have recovered significantly before the year-end.”

Ipek Ozkardeskaya, senior analyst at Swissquote Bank said, "it seems like there is nothing the policymakers could do to stop bleeding. At this point, there is little alternative to letting the knife hit the ground." 

And this is a time when investors are hoarding cash, with some possibly preparing for a recession, as many people note that the bottom of the market may not have been reached yet. Thursday, the stock sell-off was accompanied by a drop in treasury prices, meaning that investors were net sellers of treasuries. 

Investors also needed the cash to meet margin calls, or a brokers' requirement that an investor put additional cash in his or her account when the value of the holdings fall to a certain level. "All assets - even safe-haven ones such as gold and Treasuries - were being shed in order to shore up cash reserves to meet margin requirements," Green said. 

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