Market set for higher open to start the new week as the Federal Reserve uses unprecedented tools to combat the economic crisis triggered by the virus. Stocks reversed course overnight after initially hitting limit-down. This comes after the S&P fell nearly 15%, it’s worst week since the financial crisis. Treasuries rallying sharply across the curve (10s traded all the way down to 0.71%). Dollar weaker vs Yen and Euro. Gold up 2.3%. WTI crude up 2%. The clock is ticking. The Fed announced another arsenal of programs to help markets, including open-ended asset purchases that will be expanded to include CMBS. A nearly $2 Trillion stimulus bill failed to get the necessary votes to clear a procedural hurdle in the Senate on Sunday. In the words of Chuck Schumer, the $1.8T package was a “large corporate bailout with no protections for workers and virtually no oversight,” and the decision (47-47) came up short of the required 60 votes. Democrats were particularly concerned about the lack of transparency in how a $500 Billion loan program would be disbursed. However, negotiations are continuing, other key aspects of the bill have bipartisan support and another vote is scheduled this morning on Capitol Hill. The spread of the virus remains the biggest challenge. We are at war with an invisible enemy. A big area of concern continues to revolve around the stresses on the healthcare system. State governors have complained about a lack of resources and lack of leadership on the part of the federal government. More states are also considering implementing measures to promote social distancing. The economic fallout remains unprecedented with the Fed’s Bullard saying unemployment could hit 30% and GDP could contract 50%. The difference between a fast or a prolonged recovery in the stock market will come down to three factors: how quickly the virus is contained, whether businesses will have access to enough capital and liquidity to last the 90 to 180 days, and whether fiscal stimulus can stabilize growth forecasts. Time is of the essence.
Have a great morning,
Mike Frazier
