US Stock Market Overview – Stocks Rally Following Fed Corporate Bond Annoucement

US stocks rebounded sharply intra-day on Monday. Initially, the major indices moved lower, with the Dow Industrials falling more than 700 points. By mid-day stocks started to turn and moved into positive territory after a Fed announced the expansion of its corporate credit purchases. All sectors in the S&P 500 index were higher led by communications and financials. Real estate was the worst-performing sector in an up tape. Manufacturing improved more than expected with the NY Empire Manufacturing survey surprising investors. The VIX volatility index whipsawed initially moving higher and testing 45, before changing direction and falling 5% on the day to close at 34. US yields moved higher as stocks rallied, with the 10-year rising to 72 basis points.

The Fed is Expanding its Bond Purchases

The Federal Reserve is expanding its corporate credit purchases to now buy individual corporate bonds, on top of the exchange-traded funds it already is purchasing, the central bank announced Monday. As part of a continuing effort to support market functioning and ease credit conditions, the Fed added functions to its Secondary Market Corporate Credit Facility. The program provides the Fed the ability to buy up to $750 billion worth of corporate credit. Its March 23 initial announcement is largely considered a watershed moment for the financial markets, reeling from the coronavirus threat spread.

Manufacturing in New York Rebounds

Manufacturing activity snapped back in the New York area this month. The Empire State Manufacturing Survey posted a reading of -0.2 in June after hitting record lows in the previous two months. Expectations had been for a reading of -35. The monthly improvement came across the board, especially in the index of future business conditions. That level rose to 56.5, its highest level since October 2009 as 68.6% of firms see expansion ahead against just 12.1% that see contraction. Big gains also came from new orders, which surged from -42.4 to -0.6; shipments, which rose 42.3 points to 3.3 and prices paid, up 12.8 points to 16.9.