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Don’t Fight The Fed!

By Joe PerryMarket OverviewApr 09, 2020 10:37AM ET
www.investing.com/analysis/dont-fight-the-fed-200521157/
Don’t Fight The Fed!
By Joe Perry   |  Apr 09, 2020 10:37AM ET
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How many times have you heard the saying: “Don’t fight the Fed?"

Over the course of the last month, the Fed has taken very aggressive actions to help fight off the economic effects of the coronavirus. Some of which include:

  • Cutting rates by 100bps in March to near 0%
  • Launching Quantitative Easing (QE4) worth $700 billion
  • Announcing it would provide up to $300 billion in new financing to small businesses
  • Extending lines of credit to companies
  • Extending swap lines to various countries
  • Participating in the overnight commercial paper markets to make sure there is enough liquidity

Well, today the Fed took it up a notch and is throwing even more money at the markets to make sure everyone is secure, including small businesses and municipalities, as well as, expanding Term Asset-Backed Securities Loan Facility, or TALF. The initiative is aimed at spuring consumer credit lending. Today, the Fed is doing the following:

  • Taking steps to provide up to $2.3 trillion in loans
  • Providing liquidity facilities for main street and municipalities (up to $500 billion)
  • Expanding primary and secondary corporate debt facilities and TALF

On this announcement, stocks continued their relentless bid higher and the U.S. dollar sold off. Markets are blowing off the additional 6.6 million initial jobless claims released today (and the previous two weeks total of nearly 10 million initial jobless claims), ignoring the various expectations we have been seeing for Q1 and Q2 GDP of down 5% to down 40%, and laughing at companies who are removing their 2020 outlooks because of the effects of the coronavirus, such as GE this morning. Why? Because the Fed has the markets' backs! 

On the announcement, S&P 500 Futures had moved from 2716.50 to a high of 2785, a move of 68.5 handles!

In addition, the high from the move is near the same level as the 50% retracement from the Feb. 20 highs to the March 23 lows. So, although things have not gotten better surrounding the economic impact of the coronavirus, the markets are aware that it doesn’t matter. If things get worse, the Fed will be there to make sure everything is OK. 

The US Dollar Index had sold off from above 100 down to 99.50, a move to 50+ pips. As the Fed floods the markets with U.S. dollars, the increase in supply lowers the price. 

If there is a pickup in demand, as we saw in March (the Flight to Safety trade), price may bounce. Until then, DXY has room to trade back down to the 200-Day Moving Average and lows from March 27 near 98.25.

One thing is for sure – no matter how many times traders hear “Don’t fight the Fed,” there will always be those that go against them. Although stocks could go lower and the U.S. Dollar Index may move higher from here, the Fed has made its point. It will not let the U.S. economy fall off the cliff.

Don’t Fight The Fed!
 

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Don’t Fight The Fed!

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Comments (19)
The Force
The Force Apr 12, 2020 8:53PM ET
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Qe announced November 2008. Marker bottomed march 2019. Its still about the economy. Double bottom inevitable..
Gino11able .
Gino11able . Apr 12, 2020 9:36AM ET
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The Fed's dead Zed.
Jujy Incorporated
Jujy Apr 11, 2020 8:10PM ET
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After the planned economic stimulus by the major central banks, the currencies will worth as much as the Rich Mark was worth at the end of second world war. German were using the Rich Mark to keep warm. Stock markets represent the human achievements since the industrial revolution.
Vladimir Putin
Vladimir Putin Apr 11, 2020 2:15AM ET
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Nice article. However the virus does not accept US dollars. No matter how much cash is thrown at the economy, if society cannot get back to normal by end of April, which today confirmed it wont, matkets have another 30-40% drop left. Fed would have been better off giving the people the cash to spend instead of propping up junk bonds
fufanuu bee
fufanuu bee Apr 11, 2020 2:15AM ET
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my state already extended to May 15th and we are just getting more and more cases because rich new yorkers are flooding our tiny little New England state going to their 2nd homes..
Nasdaq PIMP
Nasdaq PIMP Apr 10, 2020 9:48PM ET
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Great. So all the sheep will go bullish & it can drop now. Thanks
Patrick Higdon
Patrick Higdon Apr 10, 2020 12:34PM ET
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FTF
Guancong Luo
Guancong Luo Apr 10, 2020 6:50AM ET
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Fed will not let the stock market fall off the cliff, but it cannot stop the economy fall off the cliff. Stock market and the economy are two different things.
fufanuu bee
fufanuu bee Apr 10, 2020 6:50AM ET
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Since when? Stock Market has always been the metric by which the economy was judged.
George Pichurov
George Pichurov Apr 10, 2020 1:17AM ET
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My fear rises in proportion to positive analyses.
Jimmy John
Jimmy John Apr 09, 2020 4:49PM ET
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Ok, is the Fed magically cause companies to hit their 1Q earnings number and not advise down in their forward looking statements? I’ll wait.
jake pojawis
jake pojawis Apr 09, 2020 3:48PM ET
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fed could not reduce national debt during 10 years of bull market and 3.5% unemployment? forget about it now, usa is done, junk bond status very soon
Marco cuevas
Marco cuevas Apr 09, 2020 3:48PM ET
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Very true, bonds are doomed. Don't trust em. Means lots of projects down the drain.
fufanuu bee
fufanuu bee Apr 09, 2020 3:48PM ET
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they're literally buying junk bonds.....
jake pojawis
jake pojawis Apr 09, 2020 3:23PM ET
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usa bankruptcy soon, $78,000 debt per citizen: www.usdebtclock.org
Gianinn Sicoe
Gianinn Sicoe Apr 09, 2020 3:07PM ET
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Fed imagines that he will save the world
Richie Berg
Richie Berg Apr 09, 2020 3:01PM ET
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Everyone that didn't fight the FED in 2008, had a good time of a year
Marco cuevas
Marco cuevas Apr 09, 2020 1:00PM ET
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You can't fight inflation, you'll always lose.
Thomas Riverton
Thomas Riverton Apr 09, 2020 1:00PM ET
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But if you fight the FED AND the inflation, you always win
Simon Racz
Simon Racz Apr 09, 2020 12:54PM ET
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One thing is missing for me from this article. What will be the consequences of the unlimited money printing?
Jorge Morales
Jorge Morales Apr 09, 2020 12:54PM ET
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USA Will Be safe and poor countries Will suffer from printing unlimited money. Until another instrument borns .. Cryptocurrency (no way , 1st class countrys can print money and it's value it's not reduce accordingly , but poor countrys print money and becomes toilet paper .That disparity it is not going to be solve until then , it's a circle money Will circulate around maybe slow may be not and Will end un the same hands . In less than 1 percent of the population ..
Richie Berg
Richie Berg Apr 09, 2020 12:54PM ET
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Countries that try to sell USD and use something else, will be labeled a state sponsor of terrorism and the US$ military will bomb them back to the 18th century.
demis ili
demis ili Apr 09, 2020 12:41PM ET
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No need to fight the Fed, but can you offer any guarantees the money pumped in would be well spent?  What if the companies get burried under a load of debt and can no longer be profitable regardless of the interest rate they are paying?
tonald drump
tonald drump Apr 09, 2020 12:29PM ET
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The market is a gauge of how the Fed is doing?
Sevantilal Patel
Sevantilal Patel Apr 09, 2020 11:20AM ET
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One wonders how the Fed will turn the corner and when if it ever can.
ECL SALES
ECL SALES Apr 09, 2020 11:20AM ET
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Only if Dollar collapses or the Inflation makes a roaring come back. I don't see any other scenario.
ECL SALES
ECL SALES Apr 09, 2020 11:03AM ET
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