(25 March 2020)DAILY MARKET BRIEF 1:Equities doped with unprecedented fiscal, monetary stimuli.

US Congress passed the much-expected $2-trillion fiscal stimulus package, the largest in the US history, to fight the coronavirus-induced economic slowdown and to halt the heavy bleeding across the financial markets. We don’t have details about how this colossal amount will be spent, but the package certainly involves an expansive aid for a large pallet of the population, ranging from small to big businesses, from direct checks to households, unemployment insurance to tax deferrals to help Americans navigate the shaky waters with minimum financial damage.

Is this package an economic vaccine to the virus? It is too early to tell, but the kneejerk market reaction is rather cheery. The Dow closed Tuesday’s session 11.36% higher, the S&P500 and Nasdaq rallied 9.38% and 8.12% respectively to welcome the stimulus package, along with the limitless asset purchases program announced by the Federal Reserve (Fed) a day earlier.

combination of historical fiscal and monetary stimuli from the US also fueled the European and Asian indices. FTSE closed 9.05% and the DAX soared 10.98%.

The Nikkei (+6.87%) followed up on the New York gains, as stocks in Hong Kong added 3.35% and those in Sydney bounced 5% as WTI crude consolidated near $25 a barrel.

Activity in European futures hint at consolidation at the open, rather than a correction. US stock futures on the other hand trade nearly flat relative to fluctuations we have seen over the past couple of weeks.

The million-dollar question is, will this optimism last, and how long?

One major issue with these stimuli packages is that they are addictive. The bigger the stimuli, the more investors demand.
But at this point, investors know that the US government and Congress have probably hit the higher limit of whatever support they could possibly mobilize to reverse the investor sentiment. There is probably not more in Trump’s, or Powell’s magic hats, therefore we may be gently approaching the most-expected dip in equity prices. The stress in corporate and mortgage bonds should also start easing from here, as the US government and the Fed has got everybody’s back. Yet who’s got their back?

By Ipek Ozkardeskaya