{"id":221833,"date":"2025-04-09T13:05:02","date_gmt":"2025-04-09T17:05:02","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=221833"},"modified":"2025-04-23T13:11:27","modified_gmt":"2025-04-23T17:11:27","slug":"the-cavalry-is-not-riding-to-the-rescue","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/the-cavalry-is-not-riding-to-the-rescue\/","title":{"rendered":"The Cavalry is Not Riding to the Rescue"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">One of the most frequent questions I\u2019ve been asked recently is whether there is a precedent for what we\u2019re seeing in the market right now.\u00a0 The short answer is \u201c<a href=\"https:\/\/quoteinvestigator.com\/2014\/01\/12\/history-rhymes\/\">history doesn\u2019t repeat itself, but it often rhymes<\/a>.\u201d\u00a0 Unfortunately, that leads us to the most dangerous phrase in investing, \u201cthis time it\u2019s different.\u201d\u00a0 There are elements of the current market environment that are reminiscent of 2020\u2019s Covid crisis, but the likely policy responses differ substantially.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The similarities are fairly straightforward.&nbsp; <a href=\"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/beware-the-ides-of-march\/\">In springtime<\/a>, an exogenous event hit a market that had been trading near all-time highs.&nbsp; The ensuing reaction had wide-ranging consequences beyond just a significant, rapid selloff in stocks.&nbsp; It was clear that the Covid-related shutdowns were going to have an immediate, unpredictable negative effect on the economy, and markets certainly fear that something similar could result from last week\u2019s tariff announcement (yes \u2013 it\u2019s only been a week!).&nbsp; I went back to see what we might have said at that time, and found a video from February 27<sup>th<\/sup>, 2020, entitled \u201c<a href=\"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/could-the-coronavirus-be-a-black-swan\/\">Could the Coronavirus be a Black Swan<\/a>?\u201d&nbsp; While I acknowledged that it while it seemed \u201cblack swan-like\u201d, I stopped short of a full declaration.&nbsp; Two weeks later, it was clearly that type of event.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Yet that is where the most obvious similarities end.&nbsp; For starters, the tariff reaction is self-inflicted.&nbsp; The Covid virus came from abroad; the tariff policies arose from a duly elected domestic administration.&nbsp; Defending against an unfamiliar virus brought a set of challenges that defied an immediate solution, but the actions that created the current angst could be unwound with the stroke of a pen &#8212; even though there is currently a clear unwillingness to do so.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The clearest difference, and the one with the most immediate consequence for investor decision-making, rests in the likely policy responses.&nbsp; The world\u2019s central banks, most notably the Federal Reserve, unleashed a series of unprecedented monetary accommodation.&nbsp; The Fed Funds target was quickly slashed from 1.75% to 0% alongside a wave of quantitative easing.&nbsp; The chart below shows that the Fed nearly doubled the size of its balance sheet almost immediately, and continued to add assets for roughly a full year:&nbsp; At<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"1100\" height=\"682\" data-src=\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/04\/Picture1-9-1100x682.png\" alt=\"Federal Reserve Balance Sheet\" class=\"wp-image-221835 lazyload\" data-srcset=\"https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/04\/Picture1-9-1100x682.png 1100w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/04\/Picture1-9-700x434.png 700w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/04\/Picture1-9-300x186.png 300w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/04\/Picture1-9-768x476.png 768w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/04\/Picture1-9.png 1130w\" data-sizes=\"(max-width: 1100px) 100vw, 1100px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 1100px; aspect-ratio: 1100\/682;\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\"><em>Sources: <\/em><a href=\"https:\/\/www.federalreserve.gov\/releases\/h41\/\"><em>Federal Reserve H.4.1 reports<\/em><\/a><em>, Interactive Brokers<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">At the same time, many governments around the world unleashed waves of fiscal stimulus.&nbsp; Many in the US remember receiving stimulus checks.&nbsp; We can certainly debate whether those measures led to unintended consequences down the road, but one positive side-effect was that a new horde of investors was created.&nbsp; Millions of people who had previously shown little interest in markets found themselves with time on their hands and excess liquidity, much of which found its way into investment accounts.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It is nearly impossible to expect either of those types of responses.&nbsp; For starters, fiscal stimulus is all but out of the question.&nbsp; The Trump administration has prioritized shrinking the size of the Federal government.&nbsp; It is essentially impossible to expect them to reverse course on that front.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">On the monetary front, remember that the immediate effect of the Covid shutdown was deflationary.&nbsp; Demand for services and many goods evaporated overnight.&nbsp; That gave central banks the ability to add liquidity with impunity \u2013 especially because inflation was already well-contained (the CPI was averaging 2% gains pre-Covid).&nbsp; Now we have policies that are almost certain to raise prices for end consumers at a time when inflation is already above the Fed\u2019s target.&nbsp; It is difficult to expect that the Fed will have any impetus to cut rates or markedly increase the size of its balance sheet unless circumstances become truly dire.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The \u201cFed Put\u201d might still exist, but it won\u2019t be exercised unless the broad economy or the banking system requires it.&nbsp; What <a href=\"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/the-fed-put-lives-but-its-never-been-about-stocks\/\">we wrote in May 2022<\/a>, when some investors were hoping that the Fed would rescue a falling stock market, still holds:<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>Here\u2019s the real thing \u2013 the Fed has never stated that they will intervene in equity markets just because they are down.&nbsp; But they will almost certainly intervene if there is a crisis in&nbsp;<strong>credit markets<\/strong>&nbsp;that threatens the banking system or the flow of money.&nbsp; That is a huge difference \u2013 a crucial facet that equity investors need to understand.<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">None of this means that stocks are condemned to further declines or that the effects of the current volatility will metastasize in nasty ways.&nbsp; The situation remains fluid, and volatility can work in either direction.&nbsp; But if you\u2019re expecting the cavalry to ride in to save the markets from themselves, don\u2019t.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>One of the most frequent questions I\u2019ve been asked recently is whether there is a precedent for what we\u2019re seeing in the market right now.\u00a0 The short answer is \u201chistory doesn\u2019t repeat itself, but it often rhymes.\u201d\u00a0 Unfortunately, that leads us to the most dangerous phrase in investing, \u201cthis time it\u2019s different.\u201d\u00a0 There are elements of the current market environment that are reminiscent of 2020\u2019s Covid crisis, but the likely policy responses differ substantially.<\/p>\n","protected":false},"author":4,"featured_media":221836,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[14700,18,6,8,9,26,3],"tags":[446,682,10995,1504,18684],"contributors-categories":[13576],"class_list":["post-221833","post","type-post","status-publish","format-standard","has-post-thumbnail","category-ibkr-market-insights","category-macro","category-north-america","category-region","category-securities","category-text-articles","category-traders-insight","tag-federal-reserve","tag-fiscal-stimulus","tag-market-volatility","tag-monetary-policy","tag-tariff-policy","contributors-categories-interactive-brokers"],"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v27.8) - 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answer is \u201chistory doesn\u2019t repeat itself, but it often rhymes.\u201d\u00a0 Unfortunately, that leads us to the most dangerous phrase in investing, \u201cthis time it\u2019s different.\u201d\u00a0 There are elements of the current market environment that are reminiscent of 2020\u2019s Covid crisis, but the likely policy responses differ substantially.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/the-cavalry-is-not-riding-to-the-rescue\/\" \/>\n<meta property=\"og:site_name\" content=\"IBKR Campus US\" \/>\n<meta property=\"article:published_time\" content=\"2025-04-09T17:05:02+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-04-23T17:11:27+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/04\/cavalry-featured-img.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1000\" \/>\n\t<meta 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US","isPartOf":{"@id":"https:\/\/ibkrcampus.com\/campus\/#website"},"primaryImageOfPage":{"@id":"https:\/\/ibkrcampus.com\/campus\/traders-insight\/securities\/macro\/the-cavalry-is-not-riding-to-the-rescue\/#primaryimage"},"image":{"@id":"https:\/\/ibkrcampus.com\/campus\/traders-insight\/securities\/macro\/the-cavalry-is-not-riding-to-the-rescue\/#primaryimage"},"thumbnailUrl":"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/04\/cavalry-featured-img.jpg","datePublished":"2025-04-09T17:05:02+00:00","dateModified":"2025-04-23T17:11:27+00:00","description":"One of the most frequent questions I\u2019ve been asked recently is whether there is a precedent for what we\u2019re seeing in the market right now.\u00a0 The short answer is \u201chistory doesn\u2019t repeat itself, but it often rhymes.\u201d\u00a0 Unfortunately, that leads us to the most dangerous phrase in investing, \u201cthis time it\u2019s different.\u201d\u00a0 There are elements of the current market environment that are reminiscent of 2020\u2019s Covid crisis, but the likely policy responses differ substantially.","inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/ibkrcampus.com\/campus\/traders-insight\/securities\/macro\/the-cavalry-is-not-riding-to-the-rescue\/"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/ibkrcampus.com\/campus\/traders-insight\/securities\/macro\/the-cavalry-is-not-riding-to-the-rescue\/#primaryimage","url":"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/04\/cavalry-featured-img.jpg","contentUrl":"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/04\/cavalry-featured-img.jpg","width":1000,"height":563,"caption":"The Cavalry is Not Riding to the Rescue"},{"@type":"WebSite","@id":"https:\/\/ibkrcampus.com\/campus\/#website","url":"https:\/\/ibkrcampus.com\/campus\/","name":"IBKR Campus US","description":"Financial Education 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He has held numerous roles in the organization since joining Timber Hill, IBKR\u2019s predecessor, in 1995 as Equity Risk Manager and an options market maker. He developed and implemented automated trading strategies for stocks and options before moving into his current role. Steve has guest authored several columns in Barron\u2019s and made numerous live on Bloomberg TV and Radio, CNBC, Yahoo Finance, Fox Business, and several other media outlets in North America, Asia, Australia, and the Middle East in addition to being quoted frequently in print and electronic media. Prior to joining Interactive Brokers, Sosnick held senior trading roles at Morgan Stanley, Lehman Brothers, and Salomon Brothers, where he completed the firm\u2019s famed training program.","sameAs":["https:\/\/ibkr.com"],"url":"https:\/\/www.interactivebrokers.com\/campus\/author\/steve-sosnick\/"}]}},"jetpack_featured_media_url":"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2025\/04\/cavalry-featured-img.jpg","_links":{"self":[{"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/posts\/221833","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/comments?post=221833"}],"version-history":[{"count":0,"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/posts\/221833\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/media\/221836"}],"wp:attachment":[{"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/media?parent=221833"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/categories?post=221833"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/tags?post=221833"},{"taxonomy":"contributors-categories","embeddable":true,"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/contributors-categories?post=221833"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}