New Ball Game

Wow!  Today, the Fed has pulled out all the stops to protect the U.S. economy.  The new stimulus measures announced today, in addition to the $2 trillion fiscal CARES program and prior Fed rate cuts and buying programs, includes some new lending facilities to municipalities and small- and mid-sized business.  Also, and perhaps most importantly, the Fed is now putting some market price support on below-investment grade bonds and other risky asset classes (and perhaps equities, if needed!)

No one can predict the length and depth of the coronavirus crisis, but these new huge Fed actions certainly have the potential to fill a critical role to keep businesses and municipal governments functioning and support the pricing of risky investment assets.  Due to this, and pending any additional unforeseen events, it is difficult to see a larger drawdown of financial assets than we have seen thus far.  With the lows of the markets potentially taken out, certain classes of U.S. risky assets are likely to exhibit normal volatility and can be now be held.  Consequently, tactical positioning that sold U.S. risky assets can now be reversed over the near term.