Fed To The Rescue

With the Federal Reserve parachuting in this morning (we will discuss further below), the tenure of the market changed. Now, all those brilliant folks and talking heads are saying maybe major indices won’t test the bottom.  I honestly don’t know, but I have said from the very start of the rebound, the lows do not have to be re-tested.

That said, this move has been monumental with the Dow looking at its best week since June 1938, and it is up approximately 30% from March 23 low.  So, we took profits on a few Hotline ideas much sooner than normal, because we aren’t sure how much downside there will be.  But I’m sure the bears and other dark forces that want a worst-case outcome will seize momentum soon.

The most important thing I have been saying:

1. Don’t lose money
2. Make money during horrific oversold downturns

I’m more excited about the next six months and next year than I was before the coronavirus.  Certain things will change, but overall, we will come back.

Meanwhile, the S&P 500 is on track for its best performance since 1974, rising almost 13% this week. The S&P 500 has remained above the key 2,750 number. Fourteen names in the S&P 500 are up over 50% this week.  Of course, they are some of the hardest hit.

Today’s standout sectors are Financial (Fed buying everything), Utilities and Real Estate (cautious money that must be in equities but still not sure plus bond yields are still problematic).

Money continues to come out of Technology as even go-go investors are looking for value. However, the Nasdaq is on pace for its best week since March 2009

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Fed to the Rescue

This morning, the Fed took measures to provide an additional $2.3 trillion in loans to help the economy. Fed Chairman Jerome Powell stated the fed will “provide as much relief and stability as we can,” as Americans shelter in place to help stop the spread of Covid-19.

A $600 billion “Main Street Lending Fund” loan program for small and mid-sized companies with rates between 2.5-4%, with principal and interest deferred for a year, is being setup. The funding will also include $500 billion in short term notes for counties, cities and states.  

Fed Chairman Powell also gave a webcast to the Brookings Institutions from his home.  Despite the Fed’s mid-March policy meeting minutes of a meaning recovery not happening till 2021, Powell was more optimistic. He stated, “There is every reason to believe that the economic rebound, when it comes, can be robust. " He added, “We entered this turbulent period on a strong economic footing and that should help support the recovery.”

Interest rates have been reduced to close to zero, and the Fed implemented several programs to help the financial market, which Powell said are working and “market conditions have generally improved.”  He reiterated the Fed’s commitment and stated, “Many of the programs we are undertaking to support the flow of credit rely on emergency lending powers ... We will continue to use these powers forcefully, proactively, and aggressively until we are confident that we are solidly on the road to recovery.”

Meanwhile, OPEC+ members met, and Saudi Arabia and Russia reached an agreement in principle to cut oil production. Saudi Arabia will reduce output by 4 million barrels a day from its April production levels, while non-OPEC member Russia will cut 2 million barrels a day. Iraq and other major oil exporting nations have not agreed on specific oil production cuts.

The markets are closed for Good Friday tomorrow.  Happy Passover and Easter.  Stay safe.