Bellevue Perspectives

Monday Minute & Financial Market Update

  • Last week the Fed announced sweeping measures to address the functioning of the Treasury market, which had been compromised in recent days.  The $60 billion in monthly Treasury bill purchases will be converted into purchases of Treasuries across the curve, i.e., virtually indistinguishable from QE.  In addition, the Fed will offer massive amounts of temporary liquidity via repo operations.  This might not do much to address the economic effects of coronavirus but should take care of Treasury market functioning problems. (Cornerstone Macro)
  • On Friday, the markets rallied powerfully after a huge drop the day before. President Trump declared a national emergency over the spreading of the coronavirus, allowing a huge sum of funds to combat the disease – $50 billion.  He also announced a public private partnership to accelerate the production and distribution of test kits.  The market liked the fact that Government is getting aggressive and finally providing clarity on steps they are taking.  Much of the rally on Friday was aided by short covering, where bearish investors buy back stock they sold short.
  • Turns out Friday’s rally was not sustainable despite the aggressive move by the Federal Reserve this weekend as the S&P500 is giving up all of its gains from Friday’s massive gain.   In another emergency move, the FOMC cut interest rates to zero and started a new $700 billion QE program consisting of $500 billion in Treasury purchases and $200 billion in mortgages. The Fed also took action related to the discount window, intraday credit, bank capital & liquidity buffers, and reserve requirements.  Liquidity will be available, per the Fed. Unfortunately, the Fed can’t do anything about the virus or its spread, but they can keep the markets liquid and operating as they should be.  The move should also help small businesses and those hurt the most by the financial fallout.  We continue to average down into equities on days like today as good companies and the markets become cheaper.  We are not calling a bottom until we see peak cases and/or peak hysteria, but history tells us to continue our discipline of asset allocation and rebalancing.
  • For additional thoughts from our team, please see the following:

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