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Wall Street Cuts Losses as Fed Expands Shopping List to Individual Corporate Debt

Published 06/15/2020, 01:05 PM
Updated 06/15/2020, 02:57 PM
© Reuters.

© Reuters.

By Yasin Ebrahim

Investing.com - Wall Street turned positive after clawing back losses on Monday as the Federal Reserve said it will buy individual corporate bonds just a month after it launched its corporate bond exchange-traded funds program.

The Dow Jones Industrial Average was up 1%, or 250 points, after falling more than 300 points at the open. the S&P 500 gained 1.18%, while the Nasdaq Composite added 1.69%.

In another effort to support the credit market, the Fed said it will buy, on the secondary market, individual bonds with remaining maturities of five years or less. The move will see the Fed's balance sheet take on more exposure to corporate debt just a month after the central bank kicked off its bond exchange-traded funds (ETFs).

On May 12, the Fed began buying corporate bond ETFs under its the Secondary Market Corporate Credit Facility (SMCCF), to steady corporate debt markets following record outflows on concerns about companies defaulting on their debt.   

The announcement comes as investors assessed an uptick in Covid-19 infections that threatened to slow the process of reopening the economy.

Reports of a jump in coronavirus cases across the U.S., China, and parts of Europe raised fears a second wave of the virus could be on the horizon that could potentially lead to fresh lockdowns.

Leaders in New York and Texas threatened to renew lockdowns.

New York Gov. Andrew Cuomo said on Sunday that he would reimpose shutdowns if businesses failed to comply with current restrictions and people didn’t socially distance, according to Bloomberg.

Still, some on Wall Street continue to downplay the prospect of lasting damage on corporate earnings.

"But, the combination of incremental data improvement and extraordinary policy support has been sufficient to assure the forward-looking market that the earnings damage resulting from the virus will ultimately be short-lived," Goldman Sachs (NYSE:GS) said in a note.

Travel and tourism, sectors sensitive to the pace of reopenings, pared some of their losses and helped the broader market bounce from session lows.

American Airlines (NASDAQ:AAL) was down about 1%, Southwest Airlines (NYSE:LUV) was up 1%, while United Airlines (NASDAQ:UAL) slipped 2% after the airline detailed plans to sell up to 28 million shares.

Shopify (NYSE:SHOP) rose 7% after the e-commerce platform announced a new partnership with Walmart (NYSE:WMT) that will open the latter's Marketplace to Shopify’s small business sellers.

Elsewhere, Moderna (NASDAQ:MRNA) jumped 7% after on reports Israel was buying the company's coronavirus vaccine.

Energy, meanwhile, also retracted losses as oil prices turned positive, shrugging off concerns about weakness in crude demand.

Latest comments

don't go to work. powell will pay to your company.
Wow Fed et al u now a monopoly thanks for obliterating market forces forever
FED is doing the right thing here. They did it back in 2009 and they are doing it now.
The 'right thing' for who? The FED never bought corporate bonds in 2009 John. And why stop at buying corporate debt? Why not just print enough money to buy every public company. That way nothing bad will ever happen and we can all live in a land of unicorns and rainbows. This is like putting lipstick on a ********
next stop buying stocks. capitalism in US defacto dead.
hello Mr Hans
The FED Experiment when fails, shall fail US miserably, It has already created unimaginable Feudal system, where by Gap between Rich & Poor, has become unbridgeable.. Threatening into a Risk to Capitalism..
Be careful of a bull trap, there are no good indicators for calls
Be careful of a bear trap IMO which this was. Everyone was talking about it and it happened. Have a look a $NYUPV 14dma. What do you see? A lot of buying resuming that paused a while back. Have a look.
you should have written the header: Fed expands shopping list to NASDAQ companies
gringos are good in following the big money...
First they started buying our real estate, now they are buying our businesses. End the Fed NOW! It's a foreign-owned, usurious, criminal enterprise and doesn't belong in the US.
fed learn this from trump..
wake up "we the people", US the master in socializing losses and capitalizing wins
USA will soon become USSA...
more socialism for the bigs? gee, I thought they were CAPITALIST...my bad. this is disgusting. what about all those small businesses they just threw to the big corporate wolves? Small businesses are the backbone of America? Don't make me laugh, not anymore. This nation is now spineless. We're gonna have a lot more social unrest and it will more than just racial injustice, bc they're shifting everyone.
wake up we the people, US the master in socializing losses and capitalizing wins
Mock the Fed, call the market ridiculous, ...hope people listen and sell so you feel better about missing the rally and can get in at lower prices...I figured out the game here on this board!
It is laughable how outdated the news becomes in the Kangaroo market.
Forget all macro and micro economics classes in any university, it has just been overridden by fedurol resurv
The FED is worse than the virus
hello
Get Ready For A Big Day Tomorrow and Then Lights Out After Powell Meeting On We'd & Jobs Report On Thur.
No matter how hard is working the biased media the seed panic and create mayhem, the Fed will save the market...
sp500 holding 3000 pretty well. next stop will be 3500. DON'T FIGHT THE FED
how bad is it that fed has to buy corp bonds...?
yep, bank stock will be saved...
Pretty bad.
get ready for deflation then massive inflation. it won't end well, but we should have a good year ahead with some violent swings as the fed forces the market into a bubble, which is underway and has been since last year
Such B  S
I saw it coming, rich got us both ways Buy And Sell 🤣
This virus is not as scary as they say. All this is nonsense. Only old people die from this virus, who would have died in the near future. Rich people will become richer, poor people poorer.
I caught it from a delivered package back in March and the worst part was the night sweats... regular flu.
All BS from the media - operation dump Trump IMO and to shake out little guy which the latter did happen but not the former to date.
your parents? ok?... good
Riot in the streets against the FED criminal LOOTERS. They’re ****the dollar. Who looked at America and thought “wealth inequality isn’t bad enough here.” Dip$hits
Regardless of trading profits from this FED move of buying corporate bonds, it's concerning... A dollar crisis and a sovereign debt crisis approaching in the coming years
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