Has Fear Peaked | The Corona Correction | Refinitiv
Welcome to the Corona Correction series in association with Refinitiv, I'm your host, Roger Hirst. Richard Peterson of Market Psych Refinitiv analyzes trends in global media, including trends in sentiment. We first heard from Richard on March the 11th when he noted that the US was still some way from peak fear and a low in sentiment, and that he expected equities to roll over after attempting a bounce at that time. I asked him what his sentiment indicators were showing today. When we look at fear around the world as related to the current situation, we do see that fear peaked in China, Hong Kong in February, actually, and has been sliding slowly since then. But of course, what happened was the epidemic turned into a pandemic. And so their markets continued to get a hit as the epidemic spread around the world and fear spread with it. So what we've seen then in other countries is fear then rising and starting to fall again in Korea and then Japan. And of course, now Europe and the United States. Both of them do seem like the fear is coming down. So on our charts, we do see the fear starting to decline, but we also find that fear's a bit of a short term emotion. So what we've seen historically is that we get peaks in fear and then maybe a balance for about a week. And we've tested that out and we see that that is quite consistent across markets and and assets. But even then, it's only about a 60 percent chance that you will get that bounce when you have 'high fear'. So when we do our testing, we do see these four to six day bounces, and then often markets will roll over if there is another condition, which is the overall sentiment about the situation remains negative, especially if it's falling. And in the current situation, it's not clear the sentiment seems to have bottomed out and might be rising a little bit. So we might actually have seen a definitely a short term bottom, which is easy to say in hindsight, but maybe a longer bottom as well. Certainly Japan and Korea had really clear bottoms on the Thursday, Friday, around the time of the price bottom. And then on the United States, we do see a bottom possibly as well, happening now. So we'll see. And that's, again, based on the fact that fear has peaked and the overall sentiment and the economic climate is no longer declining. So that said, and the reason I think that's happening is because of some other data points. So in my case, we monitor media sentiments about the stock market. But of course, media sentiment reflects what people are talking about in the news and and in social media. And so what we're seeing them talk about, though, are the treatments and the vaccines and the rate of infection and whether it's accelerating or starting to be contained to some extent. And we're already seeing people anticipating a flattening of the curve and anticipating vaccine approval within a reasonable time. And of course, the FDA is now fast tracked and it approved chloroquine for treatment of Coronavirus as well. So you're starting to see real progress and a real recognition that there is a problem and action. So I think that's what markets like to see as well. We're also seeing actually discussions of the stimulus bill and its effects. So many people are now receiving emails or communications, talking about the stimulus loans and other payments that they could get. And I think when people see that it restores confidence that something is happening, that many of these affected businesses will not go bankrupt and have to restart. So. So I think net sentiment is very low, of course. But it does appear that things might be turning a corner and we'll see, of course, in the longer term. I mean, the spread of the epidemic, of course, will continue and we will see many, many more people being affected. I think even the U.S. government is estimating up to a hundred thousand could die from this. That said, again, it's the flattening of the curve issue. What can we expect out of this? Can we get used to the new normal? And that's what the markets are struggling with now. The data has confirmed his initial thoughts a few weeks ago that China and Hong Kong had already passed peak fear. But for global markets it's the US that matters. The US short term gauge of fear does look like it may have peaked. But he would like to see a confirmation for the longer term indicator of sentiment, which is still negative and may not yet have bottomed. What is also interesting is that unlike SARS of 2003, and swine flu of 2009, this pandemic is truly global, and as it rolls around the world equity markets that had initially bounced after reaching a peak in fear and a low in sentiment, are now being hit by the lockdown in the markets that consume their goods. Additionally, whilst we may be looking for a tradable low the next few weeks on peak fear, the greatest uncertainty is on the longer term prospects for a global economy in which the virus has revealed the underlying fault-lines of a system that remains broken in the decade after the crash of 2008. We'll see you later with another update.