Wall Street Has Lost Its Nerve. What Will It Take to Get It Back?

Those actions kept the economy chugging, and helped stocks rebound. The dynamic repeatedly rewarded investors who used market setbacks as buying opportunities.

But this time, traders, investors and analysts expect any action from the Fed to have limited impact, at least on the economy. Unlike previous periods of stress, including the U.S. government shutdown fights in 2011 or the trade war with China that started in 2018, the current crisis of confidence is tied more to epidemiology than economics.

So whether the market turns around depends on those who make health policy and communicate information to the public, rather than officials who determine monetary policy.

The Fed can still help calm market fears to some extent. On Friday, a brief statement from the Fed that it stands ready to support the economy helped the market rally off the worst of its lows. More soothing words could come in the days ahead, potentially reversing some of last week’s decline in stocks.

But even if markets see a short-term bounce, it could take longer to restore the investor confidence — or complacency — that pushed stocks to record highs a little more than a week ago. After all, investors just endured the second-worst week for the S&P 500 stock index since 1941 and one the fastest 10 percent declines on record. Nose dives like that are psychological events for investors as much as financial ones.

“The positive economic outlook that people had for 2020 and beyond that was not realistic,” said Chris Rupkey, chief financial economist at MUFG Union Bank. “The coronavirus helped bring that down and the stock market helped bring that down. But I don’t think you can put Humpty Dumpty back on the wall again.”

What’s most needed, investors say, is time. It will take weeks before the American public and investors have enough information to know if the country is facing significant economic disruption from the outbreak or a relatively benign scenario in which the spread of the virus is relatively quickly brought under control. It will also take weeks before the impact of the outbreak appears in economic data. Analysts will watch government economic reports for indications that news coverage of the virus, and the market’s tumble, spooked shoppers and threatens consumption, the main engine of U.S. growth.

“It is not the kind of thing that the market will quickly bounce back from,” said Ajay Rajadhyaksha, an analyst with Barclays in New York. “They will need to see evidence through the passage of time.”

Kate Kelly contributed reporting.