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The Chedder news desk sits vacant on the floor of the New York Stock Exchange (NYSE), following traders testing positive for coronavirus disease (COVID-19) on March 19.

LUCAS JACKSON/Reuters

The rapidly deteriorating health of the financial markets is being driven by a contagion of fear and uncertainty about a global pandemic that’s infecting the economy in ways that seemed unfathomable just a month ago.

It almost seems like a distant memory now, but shortly after the President Day’s holiday weekend the benchmark S&P 500 index closed at a record high, buoyed by another round of impressive quarterly corporate profits that had convinced investors the damage caused by a fast-spreading coronavirus in China would cause relatively little damage. Anyone who glanced at their 401(k) statements then probably at least smiled and may have even flirted with the idea of retiring a little early.

Now, those thoughts seem like pipe dreams as people mostly wonder if and when life will be normal again during a week that has seen most commerce shut down in Silicon Valley — a vital cog in the economy — against the backdrop of cancelled St. Patrick’s Day traditions throughout the world.

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“People that thought they were in good shape financially are very quickly in bad shape and they’re reacting,“ said Mark Hackett, chief of investment research for Nationwide Financial. “Our biggest challenge is trying to convince our advisers and clients to keep from acting emotionally.”

Most experts now believe a U.S. recession is inevitable, with its severity the only question left to be determined. “It’s a fait accompli,” said Michael Yoshikami, CEO of Destination Wealth Management in Walnut Creek, Calif.

No wonder the S&P 500 now stands roughly 30% below its peak after a mind-boggling four weeks like no other in the financial markets. The pummeling would have been even worse if not for several robust, although short-lived, rallies that were fueled by hopes that the government might come up with a financial antidote that would prevent the fallout from the corornavirus outbreak from becoming as bad as it is now.

Thursday’s modest rally offered another ray of hope as the S&P 500 edged up slightly in early afternoon trading, but most people now realize more gloomy developments could still be lurking as the virus continues its exponential spread. “‘’The market is still kind of shooting blindfolded,” Hackett said.

The market’s wild swings have been exacerbated by the computerized trading programs that hedge funds create to wager on the financial market’s up and downs. Those algorithms, coupled with the lightning speed of today’s computer programs, can vastly accelerate the momentum of selling frenzies, as well as seemingly irrational buying binges.

Human behaviour, though, is more predictable. Just as people are hoarding non-perishable groceries, hand sanitizers and other goods they need while being forced to stay at home to stem the spread of the COVID-19 disease, investors have been fleeing the stock market as they build stockpiles of cash in conservative investments viewed as safe havens in times of financial turmoil.

“There are some parallels between having plenty of cash and plenty of toilet paper right now,” said Richard Weiss, chief investment officer at American Century Investments.

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On Wednesday, that relationship fell apart too, as investors even sold safe haven assets to raise cash.

The good news is that the stock market remains in far better shape than it was at the depths of the Great Recession — a scary crisis that was triggered by reckless home lending practices. Despite the market’s startling fall, the S&P 500 is still nearly worth four times higher than it was at its low point 11 years ago during the Great Recession.

The bad news is the same government toolbox that helped resuscitate the economy back then may not prove to be a cure for the economic ills caused by the biggest pandemic in a century. In the Great Recession, central bank’s quickly dropped short-term interest rates to record lows and drove down the cost of money in other ways, such as buying bonds in record amounts.

That helped create a virtuous cycle as consumers spent more and employers steadily expanded their payrolls as their profits rose as more people got jobs.

But that strategy might not prove as effective at a time that protecting people’s health is requiring wide swaths of the economy to go into hibernation for what could be just a few weeks or could turn into many months until an effective vaccine against COVID-19 is found. After all, consumers can’t spend when they are being ordered to say home as much as possible, and most stores, theatres, amusement parks, and other popular places that cost money are closed down anyway.

Its uncharted territory that has left even the most sophisticated investors in a state of confusion that can’t be easily deciphered with any of the usual historical data that they typically use to forecast future corporate profits or the likely direction of bond prices.

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“Those numbers that in the past would say, ‘OK, you’re definitely at a bottom,’ don’t mean that right now because there hasn’t been evidence that’s taken place,” said Willie Delwiche, an investment strategist at Baird. “It’s extreme markets becoming more extreme, so then your boundaries of what’s extreme need to change with it.”

More experts fear things could become so dire that President Donald Trump’s administration may have to follow in the footsteps of Franklin Roosevelt with a government package that mirrors elements of the New Deal that helped the U.S. recover from the Great Depression during the 1930s.

In a paper released earlier this week, University of California, Berkeley, economics professors Emmanuel Saez and Gabriel Zucman predicted the gross domestic product in the U,S. could contract by more than 7% this year if more parts of the country impose near-lockdowns similar to what happened in the San Francisco Bay area, where about 7 million people are being required to “shelter in place” until at least April 7.

Saez and Zucman believe the U.S. government must step up to become a “payer of last resort” for businesses and consumers who may not be able to pay their bills during the restrictions being imposed to fight COVID-19.

“The government can prevent a very sharp but short recession from becoming a long-lasting depression,” the professors asserted.

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