Good Morning on this fantastic Wednesday (and best day of the week).
Stocks are screaming higher (Dow +553) as reports that the Remdisivir drug is showing promising results curing Covid. That would be fantastic, saving hundreds of thousands of lives until a vaccine can be developed. Bonds are also up on some really weak data (GDP -4.8). Typically when the stock market rallies to this extent bonds will be pressured. The fact that bonds are up is evidence that far deeper economic troubles are coming. The FOMC announcement out in about 15 minutes. Don’t expect any rate change, but a lot more buying of all kinds of bonds. Markets are expecting the Fed to increase its balance sheet by the time this is over to $12 Trillion. I don’t know that I can fathom that number, but for perspective, during the recession, the Fed Balance sheet was $4 Trillion, with last year down to about $2 Trillion. At $12 Trillion it will represent 50% of GDP. The only bright spots here are 1) interest rates are so low, the Treasury’s debt payments will not be much different than they are currently and of course 2) which is we are borrowing from ourselves so this is the government putting more money into circulation but in the end, its going from the right pocket to the left pocket.
Depending on the FOMC statement, rates have an opportunity to improve. I would be careful about equities, this is likely a head fake.
Remain safe and stay healthy,
Make today great!