Will the Fed Save the Economy?

After taking a serious beating the past few days, stocks are pointing higher in early morning trading.  Stock investors are hopeful that the Central Bank will step in and cut interest rates by ½% to help recover some of the damage already done to the market.  However, the Fed is using it’s available tools to help stimulate the economy before we hit a recession.  This will diminish much of its power to help the economy recover once a recession actually hits.  It seems the Fed is more committed to deferring a recession instead of focused on how to recover from one.  It will be an interesting time to see how things play out.  Many still believe that we will avoid a recession all together. I continue to see a recession on the horizon.  I personally would be more focused on the long term and less concerned about what happens in the moment.

With the 10-Year Treasury Note yield likely to fall beneath 1%, this is an important week in economic history.  Keep in mind that the 10-Year yield is lower now that it was in the Great Recession.  Given that most believe the US economy is fundamentally strong, this really doesn’t make sense.  Clearly bond holders don’t believe the media hype on the economy.  I believe the stock market rally this morning will prove to be a “dead cat bounce,” and that stock prices will fall even lower in the near term.  Regardless, the damage to the economy over the Coronavirus will be deep and take time to recover from.  Could this be the spark that ignites a recession?  That is certainly possible.  Let’s hope the deaths in the US and around the globe aren’t as great as many are predicting.  A wide spread fear would devastate restaurants, movie theaters, concerts, schools and the workforce in general.

Although there is no need to immediately lock, consider how much lower you believe rates can go.  There is much more room to the upside than downside.  Market sentiment can change quickly.  When it does, we will see great volatility.