by Jim Welsh
The stock market has rallied in response to programs by the Federal Reserve to ease stresses in the financial markets. The newest program will address the municipal bond market so states will be able to issue bonds since they will experience record shortfalls from tax collections when their fiscal year ends on June 30. There is a record amount of corporate debt with hundreds of billions needing to rolled over so companies have enough credit in coming months. The Fed’s decision to buy high yield bonds will support the high yield bond market.
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The market has also rallied as the number of infections have peaked in New York, Italy, and other countries and soon the number of deaths will also decline. This success in bringing down the rate of infection has been achieved by an unprecedented directive to effectively shut the economy down to limit interaction. The harsh reality is there are no treatments to help those who become infected in coming weeks, and a vaccine is at least a year away.
Infections will increase as the economy is reopened and need to be identified quickly so contact tracing can be effective. Face masks will have to be worn by everyone. The US has increased production of face masks, test kits, and serology tests. The demand is going to exceed the need for some time to come.
The short videos below address the challenges we face and the potential the stock market may be overly optimistic in expecting the economy to rebound in the second half of 2020.
You Don’t Make the Timeline, the Virus Does
Source: YouTube
Will Rebound in GDP Meet Expectations?
Source: YouTube
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