The S&P 500 (SPX) Futures are up nearly 5% this morning as we wait for the Senate to offer an agreement on their Fiscal Package.  We are hoping the fiscal stimulus that is coming could be as historic as yesterday’s announcement from the Federal Reserve that included unlimited Quantitative Easing (QE) purchases of U.S. Treasury, Agency, and Mortgage debt as well as providing liquidity to the corporate debt market.  It is important to remember that while the Covid-19 global economic shutdown is unprecedented, and in our opinion so too is the global monetary response, where the goal is to keep the credit markets functioning by providing sufficient liquidity.

 

As we noted Friday in our post showing the selling had become too extreme and some signs of market stabilization, there was a historic level of correlation between the individual stock components of the S&P 500 (SPX) that only happened surrounding the panic low of the 1987 and 2011 market crashes.  In English, this means all the stocks in the SPX tanked at the same time.  In both the 1987 and 2011 instances there was a relief rally that recouped 30% and 40% of the decline from peak, respectively.  Then unfortunately, that low was tested over a month later.  We expect similar movement following last week’s market drop, where we get a relief rally followed by a test of the low at some point later this Spring.

 

Let’s see if the folks in Washington can get their act together and we can see more than a one-day bounce.

 

Past performance is not a guarantee of future results. Index returns are unmanaged and do not reflect the deduction of any fees or expenses.




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