The Fed Invests in Corporate America

Markets are flat in early morning trading, as investors continue to weigh the risk of a second round of Covid cases with the hope of a Fed fueled economic recovery.  Since the Federal Reserve started to invest in corporate bonds a few days ago, the stock market has been celebrating.  This unprecedented move by the Fed will help improve liquidity problems that many large companies have been facing.  Although it could just prove to be a temporary patch for many, it could help some survive that otherwise would be in jeopardy.  Although this is not a move the Fed wants to make, it seems to me to be a prudent strategy to help in a time of desperate need.

The second round of Fed Chairman Jerome Powell’s session on Capital Hill will take place today when he appears before the House Financial Services Panel.  It seems that the segments of the economy and markets that are doing well are heavily tied to Fed stimulus and monetary policy.  Unfortunately, many small businesses continue to struggle, especially those who depend upon consumer foot traffic.  For others, the dependency on continued monetary policy is creating a bubble scare that we will likely face when the Fed reduces spending.  There will be a price to pay, its just a matter of when.

We will maintain a locking bias.