When the U.S. posted a depressing weekly job claim count of six million, The S&P 500 rose 1.52% that day. Why are markets ignoring such alarming job numbers?
The Federal Reserve stepped in again to buoy the debt market, thereby lifting stocks. It pledged yet another $2.3 trillion in lending to support an economy that is currently mostly shut down. The massive injection in liquidity prevented the market from falling a few points.
Fundamentally, this new loan program should prevent small and mid-sized businesses from closing down. Companies may apply for a four-year loan, in which the principal and interest payments are deferred for a year.
The added liquidity should enable companies to re-start the business when it is possible. For investors, the Fed’s cash injection once again nullifies the need to hedge against a falling market. In the weeks ahead, expect unemployment numbers to keep rising while the lockdown is not yet lifted.
The U.S. need not rush to open the economy again. When Japan did not close its economy, COVID-19 infection numbers started to creep higher. The government finally declared a national emergency and injected an impressive $1 trillion in stimulus funds. Even though the most indebted country in the world has no money, it is willing to add the equivalent of 20% of its Gross Domestic Product into the economy.
The monetary policy suggests that investors may buy S&P 500 on the dip and hold for the long-term.
