Loading ...April 11 – Bloomberg (Naomi Nix): “U.S. governors are urging Congress to give states $500 billion in ‘stabilization funding’ to meet budget shortfalls resulting from their efforts to stem the spread of coronavirus. Maryland’s Larry Hogan and New York’s Andrew Cuomo said… the stay-at-home orders most states have implemented were necessary to protect the public but hurt states’ economies. Hogan, a Republican, and Cuomo, a Democrat, are chairman and vice-chair, respectively, of the National Governors Association. ‘To stabilize state budgets and to make sure states have the resources to battle the virus and provide the services the American people rely on, Congress must provide immediate fiscal assistance directly to all states,’ the pair said.”
In a rally for the history books, the S&P500 gained 15.5% in two weeks. The Nasdaq Composite rose 17.7% over this period, and the small cap Russell 2000 16.9%. The Nasdaq100’s 17.3% rise pushed this index positive for the year.
How could it be possible for stocks to mount such a rally in the face of a looming global economic depression? No Conundrum. Early in the mortgage finance Bubble period, I would write “liquidity loves inflation!” Throw “money” into an unsound system and it will instinctively gravitate to areas demonstrating robust inflationary biases. These days stocks fit the bill. Equities markets are bolstered by the deeply entrenched view that the Fed will do whatever it takes to sustain inflated prices, along with a market structure (i.e. ETFs, derivatives, 401k plans and pension contributions, hedge funds, algorithmic trading, stock buybacks, etc.) that promotes trend-following flows.
This dangerous dynamic has turned perilous. The acute stress associated with the bursting Bubble ensures the Fed will be injecting additional Trillions over the coming months, with markets confident the liquidity spigot will be wide open for as far as eyes can see. Witnessing U.S. equities divorced from underlying economic fundamentals in not that unusual – yet never to the degree of largely dismissing an unfolding global depression.