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Vladimir Zernov
U.S. Stock Market

U.S. Federal Reserve Announces Unlimited Quantitative Easing

Here’s the main news of the day: the Fed has just announced that it will expand its $700 billion quantitative easing program. From now on, the Federal Reserve will “continue to purchase Treasury securities and agency morgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions”.

This means that the Fed is ready to print as much money as necessary. The S&P 500 futures, which have been in the red zone before the announcement, are now pointing to a higher open.

Apparently, the Fed was forced to announce an unlimited QE program due to the the never-ending downside in the stock market and the worsening of the coronavirus crisis in the U.S.

It remains to be seen whether money printing can provide enough support for the economy when the main problem is presented by the expanding virus containment measures.

I’d also note that the Fed has fired most of its bullets in a very short period of time. The rate has been cut to zero, while the quantitative easing program is now unlimited. In case this does not help, the Fed will have limited options.

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Coronavirus Numbers Get Worse

Currently, there are more than 35,000 coronavirus cases in the U.S., and the number of cases has been rising rapidly. The U.S. is now ranking third behind China and Italy, but China’s number of new infections is very limited. At this point, the U.S. is on pace to have more coronavirus cases than Italy in the near future.

Meanwhile, the virus containment measures are expanding. Many Americans have received ‘stay at home’ orders. Italy banned all movement inside the country and decided to close non-essential businesses. France and Germany are also tightening their virus-related measures.

Such moves will surely make a bigger blow to the world economy. Goldman Sachs estimates that global GDP may drop as much as 1% due to ongoing crisis, a decline which has not been seen since the financial crisis of 2008-2009.

Stocks To Watch

While the recent Fed announcement is a major positive factor for the market, investors will likely be cautious and stay with the high-quality big companies like Apple, Amazon, Alphabet, Microsoft and the like. Even in the case of the major stocks, any sustainable upside will require some stabilization on the coronavirus front.

 

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