Wall Street on Thursday closed out its best week in 45 years after the US Federal Reserve launched its latest titanic effort to support the US economy through the COVID-19 pandemic.
The central bank announced programs to provide up to US$2.3 trillion in loans to households, local governments and businesses as the country tips into what economists have said might be the worst recession in decades.
It was the latest unprecedented move by the Fed, which has rushed to ensure cash gets to parts of the economy that need it after markets got snarled by a rush of investors pulling cash out of the system.
The stock market is not the economy, and that distinction has become even more clear this week.
The S&P 500 rose 39.84 points, 1.5 percent, to 2,789.82 on Thursday, the same day the US government announced that 6.6 million Americans applied for unemployment benefits last week as layoffs sweep the nation. For the week, the S&P 500 jumped 12.1 percent, its best performance since late 1974.
Markets were closed for Good Friday.
Stock investors have been continuously looking ahead to where the US economy will be in a few months. From mid-February through late last month, they sent stocks down by one-third on expectations that a steep recession was imminent, before the economy really began to crunch.
However, in the past few weeks investors have sent the market back up nearly 25 percent following promises for massive aid from the Fed, other central banks and governments worldwide, even as evidence piles up that the recession fears were prescient.
This week, some investors began to look ahead to the US economy possibly reopening amid signs that the outbreak might be peaking or plateauing in several of the world’s hardest-hit areas.
“The market is solely focused on the number of cases,” Prudential Financial Inc chief market strategist Quincy Krosby said. “The question is when can the restrictions be lifted? That’s what the market is focused on, when does America open up for business again?”
The Dow Jones Industrial Average on Thursday added 285.80 points, or 1.2 percent, to 23,719.37, surging 12.7 percent from a close of 21,052.53 on April 3.
The NASDAQ Composite on Thursday climbed 62.67 points, or 0.8 percent, to 8,153.58, a 10.6 percent jump from 7,373.08 on April 3.
The Russell 2000 index of smaller company stocks on Thursday rose 55.06 points, or 4.6 percent, to 1,246.73, rocketing 18.5 percent from a close of 1,052.05 on April 3.
Many professional investors have been skeptical of the rally, saying that there is still too much uncertainty and that predictions for a relatively quick economic rebound are overly optimistic.
While hopes are building that a plateau might be arriving for infections in several hot spots, it is not assured. In the meantime, businesses continue to shut down and one in 10 US workers has lost their job in the past three weeks.
“You typically have very strong rebounds, even in a bear market,” Krosby said of markets where stocks have fallen more than 20 percent. “The question is whether or not we see selling into this rebound, or can we continue to build on it.”
The market’s big gains this week have been somewhat tentative.
On Tuesday, the S&P 500 charged to an early 3.5 percent gain before it disappeared in the final minutes of trading.
On Thursday, the index nearly gave up all of an early 2.5 percent gain, paring it down to 0.5 percent before climbing again in the last hour of trading.
Such volatility has become routine in markets at the end of each week in the past few months.
“People are a little nervous to hold risk going into the weekend, especially a 72-hour weekend,” TD Ameritrade chief strategist J.J. Kinahan said.
The Fed’s immense programs announced on Thursday touch far-reaching corners of lending markets, and if they continue for the long term, they could eventually lead to market bubbles.
However, in the short term, “what the Fed is doing is great and helping markets function, and providing liquidity so investors can do what they need [and] want to do,” Baird Advisors deputy chief investment officer Warren Pierson said.
The programs even include bonds for companies that have weak enough credit ratings to be called “junk,” or speculative grade.
Worries have been high about the ballooning amount of corporate debt concentrated at the bottom edge of high-quality “investment grade.”
The looming recession could push a lot of that into “junk” status, which would force many investors to sell it, because they are required to hold only investment-grade bonds. A run from such bonds could trigger sell-offs in other areas of the market and lead to even more pain across the economy.
Also in the Fed’s programs are municipal bonds, which allow cities and state governments to raise cash.
Additional reporting by staff writer
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