In testimony to the Senate Banking Committee today, Janet Yellen responded to questions about a possible economic recession by conceding that there was a "chance" of a downturn ahead. She also said that the Fed was taking a look at the use of negative interest rates to stabilize the economy, though she admitted that she wasn't sure if this was feasible or not. If the Fed does decide to implement negative interest rates it will be following in the footsteps of several countries (the Eurozone, Denmark, Sweden, Switzerland) that have already done so, including most recently, Japan.
It is a bit too early to tell if Yellen's recognition of a possible recession and her willingness to consider NIRP (negative interest rate policy) will help lift the broad stock market, but equity markets did recover nearly half of their losses from earlier in the day at today's market close. This bounce was especially important for the S&P 500 as this index plunged to a low of 1810 in early afternoon which was alarmingly close to an important support line at 1800. Tomorrow's trading may be a bit of a nail-biter as equity markets need to start rallying now to avoid a potential meltdown. If the S&P 500 starts closing below that 1800 support, it could mean big trouble for equities. On the positive side, both the S&P 500 and NASDAQ have now made new yearly lows while the DOW has not (but it is close). This could be a case of bullish intermarket divergence in a reversal zone (which technically ends today) as long as that Jan. 20 low in the DOW (15,450) is not breached. Needless to say, any trader or investor who is currently in the stock market should exit if the DOW closes below 15,450 and especially if the S&P 500 closes below 1800. We are still on the sidelines of the broad stock market. Please note gold trade alert below.