Markets Sluggish as Fed Chairman Heads to House

MANHATTAN (CN) — Posting only meager gains at the opening bell, Wall Street hopes to extend its recent win streak to four days, as indicators continue to show a healing economy. 

The Dow Jones Industrial Average gained 50 points at the morning bell, a 0.27% increase, while the S&P 500 and Nasdaq had slightly bigger gains. 

Investors also have been propped up by the Federal Reserve, which has created a floor for equity prices through myriad lending facilities. The central bank earlier this week announced it would purchase up to $750 billion in individual corporate bonds on the secondary market and finally opened up its lending facility to small- and mid-sized businesses.

During testimony on Tuesday, Federal Reserve Chairman Jerome Powell said the liquidity facilities were opened up due to an “excess of caution,” even though markets are fairly stable and the economy seems to be rebounding.

Later in the morning Powell will testify in front of the House Financial Services Committee.

Investors abroad also are expecting further measures by central banks. On Thursday, the Bank of England will meet to discuss its interest rates and further quantitative easing. Some project the central bank will increase its asset-purchasing program by 100 billion pounds. The central bank has already purchased 148 billion pounds of government bonds and 158 billion pounds worth of corporate bonds.

European markets have remained fairly positive in recent days. By 8 a.m. EST most major exchanges on the continent were in positive territory, with the pan-European Stoxx 600 gaining about 1%. In Asia, markets were somewhat mixed, with most exchanges finishing on a positive note but Japan’s Nikkei falling 0.5%.

The recent strata of positive data, from manufacturing to retail sales, indicate the economy may heal faster than hoped even in the hardest-hit areas, like New York, but that a full recovery is still a long way off.

A survey of business leaders across New York and northern New Jersey, conducted by the Federal Reserve Bank of New York, found the index of business activity climbed 36 points so far in June. However, the index is still 40 points under zero, with the vast majority of respondent firms saying they think the business climate is worse than normal.

Some experts say that, while the speed of recovery has been surprising, the proof of the pudding will be in the third and fourth quarters.

“The economy is recovering, but when you start at historic lows and you reopen, that should not surprise anyone,” wrote Joel Naroff of Naroff Economics on Tuesday night. “The issue over the next two or three months will not be how big a gain we get, but how close we get to the end of 2019 levels.”

Fears of another wave of coronavirus cases also may cast a shadow over markets, despite the vice president saying such fears are overblown. On Tuesday, at least five states — Arizona, Florida, Oklahoma, Oregon and Texas — all reported the highest one-day number of new cases. Many of those states also are reporting record hospitalizations, which indicates it is not just a ramp-up of testing that has caused cases to balloon. 

Fortunately, the rate of deaths from Covid-19 has started to drop, and promising data show the inexpensive steroid dexamethasone could be used as an effective treatment to further reduce virus-related deaths. 

“The market may be signaling that it no longer fears the existential threat from Covid even if a vaccine is not developed anytime soon, as the virus is now being viewed as a manageable infection rather than a terminal one,” wrote Boris Schlossberg of BK Asset Management in a Wednesday note.

But investors may be “far too optimistic” about the long-term effects of the virus, Schlossberg wrote, adding that surveys have shown 95% of coronavirus survivors have not fully regained their health six months after recovering.

Roughly 8.2 million people have been infected by Covid-19 worldwide, while about 444,000 have died, according to data compiled by Johns Hopkins University. In the United States, 2.1 million people have contracted Covid-19, while nearly 117,000 have died.

Follow @NickRummell

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