Why did stocks rise over the past month despite grim economic news? The Federal Reserve’s massive liquidity injection is one reason.
The COVID-19 pandemic has severely affected the U.S. economy, with containment efforts leading to widespread business closings and surging unemployment—and stock market volatility. The key questions now are when can the economy reopen, and what happens when it does?
While the COVID-19 crisis is far from over, we expect central bank and government policies to be key to performance in the second quarter.
In a surprise move on Sunday night, the Federal Reserve cut its short-term interest rate to the 0% to 0.25% range and announced a series of moves to address the economic threat posed by the novel coronavirus. The central bank used a full range of its potential policies to support the economy and financial system.
Stocks have plummeted this month as investors struggled to assess what impact the COVID-19 coronavirus may have on the economy.
In a surprise move, the Federal Reserve on Tuesday lowered the target range for the federal funds rate, its key benchmark interest rate, by 50 basis points,or half a percentage point, to a new range of 1% to 1.25%. The reasoning behind the move was concern about the “evolving risks” to the economy posed by the coronavirus.
Although stocks rebounded after a sharp drop in January, the market’s reaction to the coronavirus outbreak highlighted stock vulnerabilities.
The U.S. economy split sharply in 2019—manufacturing activity lagged services, corporate profits lagged stock performance—while investor sentiment surged. How long will these divergences continue in 2020?