The Major Markets surged last week with all five indices closing significantly higher. In fact, only emerging markets fell short of recording double digit gains. The gains were fueled by optimism by the central banks that more intervention would be done to stabilize the markets in the midst of the coronavirus pandemic.
Since 2008, the Federal reserve has taken extraordinary steps in their attempt to stabilize the lending markets and ultimately the domestic stock market.
The Federal Reserve first began injecting capital into the markets in a significant manner through Quantitative Easing which began in 2008 in response to the Financial Crisis. After QE1 ended in March 2010, the Federal reserve hinted at another phase of lending in Summer of 2010.
QE 2 went into effect Fall of 2010 through June 2011. It was then followed by Operation Twist which involved exchanging equal amounts of securities with the U.S. Treasury to put pressure on the longer end of the yield curve.
The third easing program, QE3, began in September of 2012 and lasted the longest, finally completing in October of 2014. The balance sheet had remained largely unchanged until 2018 when the Federal Reserve began a program to reduce the balance sheet by 10B a month. This program was eventual cut short in 2019 due to market volatility and growth concerns.
This led to the Fed reopening is Permanent Open Market Operations and began to re-inflate its balance sheets through overnight repos. But the Fed began to take more drastic steps at the bottom of this current drawdown on March 23rd.
As of Thursday’s report, the Fed’s balance sheet has expanded by over 30% in three weeks’ time to over $6 trillion dollars. That same day, the Fed announced another $2.3 trillion in programs designed to further stimulate the economy . A noteworthy aspect of this plan is that tor the first time ever, the Fed will be looking to purchase junk-rated corporate bonds.
The Bank of America U.S. High Yield index soared 5.28% higher for the week on the news.
This announcement by the Fed was made on the heels of the weekly initial jobless claims report which reflected another 6.6 million new jobless claims. The prior week’s report was revised higher taking the three-week total for initial jobless claims to just shy of 17 million people.
This week begins earning season. Market analysts have struggled with projecting as well as deciding on how to interpret the upcoming Q1 reports. Many will be looking to forward looking guidance with the hopes that the pandemic will ease up going deeper into the second quarter.
JeffCoxCNBCcom. “Federal Reserve Unveils Details of $2.3 Trillion in Programs to Help Support the Economy.” CNBC, CNBC, 9 Apr. 2020, www.cnbc.com/2020/04/09/federal-reserve-unveils-details-of-its-much-anticipated-main-street-lending-program.html.
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