Go-Go Stocks Prepare for Stimulus
It’s been a rollercoaster month so far, characterized by uncertainty. Pandemics and price wars are limited-duration crises, but investors still need to know what could be left in their wake.
President Trump was meant to stand out on the White House lawn yesterday and reassure investors that no matter what it takes, the government of the United States of America had everything under control. He was a no-show!
The Federal Reserve cutting interest rates could only make things worse. We’ve tried it already. It hasn’t worked. The right type of fiscal medicine is needed for a virus outbreak, and that’s likely to be quantitative easing in short-term (your painkillers), and bold infrastructure spending in the medium to long-term (your rehab plan).
Today, Britain’s new Chancellor of the Exchequer, a former Goldman Sachs employee named Rishi Sunak, will announce the country’s 2020 budget. Insiders say he’s pledged 600-billion pounds to rail, roads, and housing. A hospital wouldn’t hurt either, cases of the coronavirus now finding their stride across the UK.
President Trump and Congress have their own economic package in the offing, and there’s so far no indication that it will take after Britain’s. Trump’s floating the idea of pausing payroll tax, but is giving consumers more money to spend likely to get them out of the house during a pandemic?
Investors across Europe are likely to see an interest rate cut, like it or not. More euro notes could also be printed on Thursday when the European Central Bank (ECB) announces its next move. Governments across the Eurozone have their own virus defences going up. President Christine Lagarde of the ECB will have to find a fiscal solution that works for the entire continent. No pressure!
If markets are shown any kind of light at the end of the tunnel, be it a saturation point in new case growth or future promises to bail out big companies, stock indices will make their adjustments and return to normalcy. Then, it’s time to consider what to own for the rebound. After all, the Spanish flu killed fifty million people one hundred years ago, and stocks have gone up a lot since then! Finger on the trigger, everyone!
