Safety Net

U.S. markets revere from steep losses as the Fed pledges to buy corporate bonds.

Read in Browser   The Market Sum | Insight after the bell By Caleb Silver, Editor in Chief Monday's Headlines 1. US markets stage broad recovery as Fed pledges to buy bonds 2. China's recovery appears weaker than expected 3. The US Supreme Court makes watershed decision on LGBTQ worker rights 4. Why the Fed is backing the bond market 5. Investopedia's pledge on diversity and inclusion Markets Closed Dow 25,763.16 +157.62 (+0.62%) S&P 3,066.59 +25.28 (+0.83%) Nasdaq 9,726.02 +137.21 (+1.43%) VIX 34.4 −1.69 (-4.68%) Bitcoin $9,446.02 +$61.64 (+0.66%) US 10-Yr Yield 0.702 +0.03 (+0.43%)     Image courtesy David Madison/Getty   Markets Today U.S. markets staged a 900 point swing today, climbing from steep losses to modest gains, as the Federal Reserve came to the rescue, yet again. The Fed reiterated its pledge to underpin the corporate bond market by buying individual corporate bonds in addition to ETFs. We knew it was coming, we just didn't know when.   Stocks turned higher immediately on the news, as the big tech stocks stepped back into the lead, driving the S&P 500 and the Nasdaq higher. Financial and industrial stocks stemmed their losses, as both sectors are tied to the economic health of the country.    How many more times can the Fed extend its safety net before investors stop believing in its efficacy? The Fed says it has no limits, but investors might have their own. [NEW READER SURVEY: As promised, we are running another two-week survey of our U.S.-based readers to gauge your sentiment and see what moves, if any, you have been making with your money given the market recovery. We'll share the results, as always, and we thank you for your time and participation.]   Headlines: The U.S. Supreme Court ruled that federal law protects gay and transgender workers from job discrimination in a watershed decision that gives millions of LGBT people in dozens of states civil rights they had sought for decades. The decision will have a broad impact. More than half the U.S. states don't cover sexual orientation and gender identity through their own anti-discrimination laws, and more than half the nation's 8 million LGBT workers live in those states. The Supreme Court removed a legal barrier to the construction of an $8 billion pipeline that would deliver natural gas from West Virginia, ruling the project could run under a major East Coast hiking trail. The Court overturned a lower-court ruling that found the U.S. Forest Service didn't have the authority to grant a special-use permit that allowed developers of the Atlantic Coast Pipeline to construct an underground segment beneath a section of the Appalachian National Scenic Trail in Virginia. Duke Energy and Dominion Resources are major partners in the project. DocuSign (DOCU) climbed 8% on Monday after Nasdaq announced Friday that the electronic signature software company would replace United Airlines on the Nasdaq 100 index. The stock was headed for a new all-time high and its biggest increase since May 29. 3M says total sales for May was $2.2 billion, down 20% year-over-year, and it was negatively impacted by two fewer business days. Sales declined 11% in Health Care, 12% in Consumer, 17% in Safety and Industrial, and 30% in Transportation and Electronics.  AstraZeneca will supply up to 400 million doses of the University of Oxford's COVID-19 vaccine to European countries, with deliveries starting by the end of 2020. It has also signed deals with the U.S., the U.K, the Coalition for Epidemic Preparedness Innovations, and Gavi the Vaccine Alliance for 700 million doses. Oil-production limits adopted by OPEC and OPEC+ will soon bring prices back to "normal," according to the oil minister from the United Arab Emirates. An oil minister from the UAE said prices could be back to "normal" within a year or two as cuts approaching 10 million barrels a day drain excess barrels from the market. Industrial output in China grew 4.4% year-over-year in May, after expansion of 3.9% in April. This was lower than the 5% growth analysts predicted. Equipment manufacturing and high-tech manufacturing (construction machinery, micro computers, cables, automobiles) drove the rise. As of May 27, about 67.4% of the surveyed enterprises were back to 80% of their normal production levels. Chinese retail sales of consumer goods fell 2.8% from last year, worse than the 2% decline expected. Fixed asset investment fell 6.3%, more than expected.     chart courtesy Hedgeye Risk Management   Fed Expands Scope of Bond Buying Program In terms of safety nets, this is almost as big as they come. As promised, the Federal Reserve has committed to buying individual corporate bonds, on top of the exchange-traded funds it already is purchasing.   In a press release today, the Fed said, "The Secondary Market Corporate Credit Facility (SMCCF) will purchase corporate bonds to create a corporate bond portfolio that is based on a broad, diversified market index of U.S. corporate bonds. This index is made up of all the bonds in the secondary market that have been issued by U.S. companies that satisfy the facility's minimum rating, maximum maturity, and other criteria."   The program has the ability to buy up to $750 billion worth of corporate credit. The Fed made the initial announcement that it would be interceding in the bond market back on March 23. As we know, that was also the most recent market bottom before one of the strongest rallies in the history of financial markets.   chart courtesy YCharts     Why Now? The Fed has been threatening this move since March 23, and it, among several of the other measures it has promised, has underpinned the strong investor sentiment behind equities. The theory is that if the Fed is willing to guarantee corporate liabilities in the debt market, it won't let these companies default and spiral into bankruptcy, which would wipe out debt holders, stock holders, and millions of employees.   Since many companies have seen their balance sheets wrecked by the economic shutdown, the number of companies with ballooning debt that is less than investment grade has skyrocketed. Many investors won't touch corporate debt that is less than investment grade, but the Fed apparently is.   chart courtesy Hedgeye Risk Management     Is it Sustainable? That's the $11 trillion question, but there are a growing number of skeptics who don't think it is. In their view, it's an enormous band-aid, but it's covering a wound that has an unknown recovery rate.   I spoke about this dynamic with Keith McCullough, CEO of Hedgeye Risk Management, today in a webinar. There is a recording of it here, and we covered a lot of ground as we spoke about Where in the World to Invest Today.   Investors responded positively to the news today, but given recent volatility, don't expect this sentiment to linger. Our pal, Doug Boneparth, put a cap on today's action with this timely tweet:     The Investopedia Diversity and Inclusion Pledge In our recent statement in support of Black Lives Matter, we said we would actively work to make our team and our content more inclusive and elevate Black and diverse voices. We publish the work of so many writers, photographers, and illustrators, but few are Black, Indigenous, or People of Color (BIPOC). We will change that. BIPOC communities continue to face challenges unique to them as they interact with the financial system, and we will do more to help address those challenges. This will be an ongoing process that we will continue to communicate and update here. Read this to learn more about what we are doing and what we are promising.     More News: Rogoff: Why This Time is Really Different Top Strategists on Where to Invest Now How To Invest In Insurance Companies SPONSORED BY DIREXION How Long Will Bears Stay in Charge? While the current market may be a factor in the small- and mid-cap bear market, it's far from the only one. Direxion's experts explain why it's happening and what lies ahead. Learn More  > (chart courtesy YCHARTS)     Shares of Dexcom are up by almost 8% today. The glucose monitoring systems manufacturer may stand to gain a new market as continuous glucose monitors become increasingly common in hospitals treating COVID-19 patients. Shares of homebuilder Lennar jumped by 7% as several analysts reiterate their Buy rating on the stock.     Shares of Nordstrom fell by 3.5% after five hedge funds dropped the luxury department store chain from their portfolios at the end of the first-quarter. Cabot Oil & Gas' stock price fell by nearly 3% after the energy company was charged with environmental crimes for contaminating the local water supply of Dimock, Pennsylvania, back in 2007. Word of the Day Secondary Market Corporate Credit Facility The Secondary Market Corporate Credit Facility (SMCCF) is a special purpose vehicle (SPV) launched by the Federal Reserve on March 23, 2020, to support the corporate bond market in the face of the COVID-19 crisis. The SMCCF will purchase U.S. investment grade corporate bonds and bond ETFs in the secondary market. The idea is that banks will be more likely to lend to corporations if they know there is a strong secondary market to sell that debt to.     Image courtesy Getty Images   Today in History June 15, 1933: Pres. Franklin D. Roosevelt takes almost single-handed control over the U.S. economy in a single day, signing a series of new Federal laws. The Glass-Steagall Act strictly limits the brokerage and underwriting activities of commercial banks. The National Industrial Recovery Act establishes a $3.3 billion public works program and gives the government unprecedented powers over railroads and other industries. The New York Times, June 17, 1933, p. 1; reprinted in Floyd Norris and Christine Bockelmann. How can we improve the Market Sum? Tell us at marketsum@investopedia.com CONNECT WITH INVESTOPEDIA Email sent to:  mondemand.forex@blogger.com To update your newsletter preferences or unsubscribe, click here.   114 West 41st St, floor 8 New York NY 10036 © 2020, Investopedia, LLC. All Rights Reserved | Privacy Policy