On Sunday, the Federal Reserve revealed its plan to purchase limitless assets as a new measure to stimulate the economy and keep the markets functional through its open-ended asset purchase program.
The purpose of the limitless asset purchase program is to help markets function more effectively amid the coronavirus crisis. The asset purchasing program would be spearheaded by the central bank and would purchase assets to “support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”
In the early hours of Monday, following the Fed’s announcement, the Dow Jones futures were up more than 300 points, or 1.9%, the S&P 500 futures were up nearly 2.1%, while Nasdaq futures traded higher at 2.6%.
Many economic experts and investors like Paul Hickey of Bespoke Investment Group are of the opinion that regardless every effort made to sustain and stimulate the economy the markets would only make sustainable progress “when the economy is allowed to come back to life, or at least there is a real path in place for how that is going to happen.”
“Also, as we have seen repeatedly over the last month, where the market is one minute can be wildly different from where it was a few minutes ago,” he further added.
Unlike previous financial crises, the economy would only “come back to life” when a permanent vaccine or cure for the pandemic has been developed.
As regards the fiscal stimulus bill that was proposed last week by the government as a means of protecting the economy against further impacts of the coronavirus, Democrats were of the opinion that the proposed measure was less effective as there was only little it could do to help impacted workers and the proposed offer for company bailouts was too much.
Steven Mnuchin, the Treasury Secretary said on Monday that a government stimulus package was expedient and the deal needed to be “done today.”
“We announced overnight with the Fed some very important actions supporting the asset-backed market – primary and secondary… we’re using some of the funds we have, but we need Congress to approve additional funds today so that we can move forward and support American workers and the American economy,” he said.
Mnuchin said on Sunday that all proposed economic stimulation programs could amount to $4 trillion as the Fed is determined to liquidate many businesses. Although initially, the airline industry was the major focus considering that the government “had shot down most of airline travel.”
In premarket trading on Monday, Boeing shares jumped 2.5% following Goldman Sachs’ upgrade of the company to buy from neutral putting into consideration the company’s cash reserve and ability to recover quickly once the coronavirus ends. Noah Poponak, Goldman Sachs’ analyst in a note on Sunday stated that: “We think travel by flight will be as popular as ever once the Covid-19 is resolved. We, therefore, think shares of BA should be procured at the current price…”
Other stocks that soared in premarket trading are Amazon (AMZN), Netflix (NFLX), Apple (AAPL), Deere (DE), Coca- Cola (KO), Danaher (DHR), Newmont (NEM), MGM Resorts (MGM), Gilead Sciences (GILD), Occidental Petroleum (OXY), Best Buy (BBY), Marriot (MAR), Bed Bath & Beyond (BBBY), Starbucks (SBUX), and Tiffany (TIF).