The Fed injected another $2.3 trillion into buying bonds, including junk. They have bypassed the Federal Reserve act, which means they can buy whatever they want. Equity ETFs may be next. The idea is to aid small and mid-sized business as well as state and local governments, according to Chairman Powell.
The US investment grade bond ETF is flooded with money right now. Total assets have surged nearly 50% in less than 3 weeks to a record 41.6 billion. Plus, the junk bonds, or the lowest investment grade bonds, were bought in a fire-sale to try to prevent what JP Morgan predicts could be $200 billion of debt from the fallen angel companies like Ford, which was downgraded to junk.
Only some of those downgraded companies will qualify for the Fed's bond-buying program, however. But it does explain the huge surge in junk bonds on Thursday.
We wonder, what will happen to those businesses that take loans and then go out of business?
With the Fed injecting trillions into high grade and junk bonds, the market appears to be ignoring the potential economic damage from the virus. Can that last?
I cover what to watch for in both equities and commodities In my recent video presentation for StockCharts TV, I cover what to watch for in both equities and commodities. Watch the latest episode of Mish's Market Minute below (or click here to watch in fullscreen):
- S&P 500 (SPY): 264.50 pivotal, 270 support and a move near 290.45, if it gets there, is a short (retrace to the MA breakdown)
- Russell 2000 (IWM): 118-120 now pivotal support. 125.80 2018 November low now resistance
- Dow (DIA): 236.80 the pivotal 200-week moving average to watch
- Nasdaq (QQQ): If cannot clear 202, looking for a possible short, especially if closes below 199.90
- KRE (Regional Banks): 35.00 pivotal; 40 resistance, 32 support
- SMH (Semiconductors): Relative weakness as 129 now resistance, 123.20 pivotal support and under 122 some trouble
- IYT (Transportation): 150 resistance, 138.50 support
- IBB (Biotechnology): 110-115 range to break
- XRT (Retail): 30 now support to hold 36-38 big resistance
Mish Schneider
MarketGauge.com
Director of Trading Research and Education
