The optimism in the equities space continues to build today
It is still a bit early in the day to gather much from the current optimism in the equities space, but it could also be a sign that the market is starting to get the Fed's message.
When such a drastic move is announced, one can perhaps look at two possible ways to view it. One is that the Fed is trying its best to prop up the stock market help the economy. The second is that the Fed knows something we don't and a 50 bps cut is a scary prospect.
The latter scenario was what played out yesterday but are we starting to see investors become more rational and lean towards the first scenario?
In any case, I'm still skeptical. As long as the virus continues to cause countries and governments to take drastic action, this problem isn't going to go away any time soon.
Just remember, the longer this runs, the more of a shock this will be to the supply-side. And that is something that monetary policy cannot do much about.
Stocks can take a brief reprieve in light of some shocks to the demand-side of the equation as well but the bond market is ignoring that narrative with Treasury yields keeping lower today. 10-year yields are down by more than 5 bps to 0.94%.
That continues to say that the market is rather divided at the moment, with bond traders continuing to challenge the Fed to cut rates even more as they view the situation as going to become much worse over time.
