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Stocks Rally, Fed Makes $2.3T Available to Backstop the Economy

Weekly Update – April 10, 2020

  • Stock markets rallied around the world during a holiday-shortened week. CBOE volatility eased despite another enormous weekly surge of initial unemployment claims. Shortly after that news broke, the Federal Reserve announced it would make $2.3 trillion of credit available to backstop the economy — in an array of programs that boosted total U.S. government monetary and fiscal support to roughly $4 trillion.
  • As the “risk-on” trend gathered momentum, investors switched from bonds to stocks and yields generally rose across the U.S. Treasury curve. The widely-watched ten-year Treasury yield rose to 0.72%, up from 0.59% the prior week. The U.S. dollar fell against a basket of major currencies.
  • Oil futures rose when Saudi Arabia and Russia announced an agreement to trim crude production but fell when the details proved disappointing. Gold futures continued their upward trend, notwithstanding boosts to market sentiment from the Fed’s actions.
  • Initial claims for unemployment benefits totaled 6.6 million for the week ended April 3. Claims for the week before were revised up from 6.6 million to 6.9 million, bringing to nearly 17 million the number of applications since the coronavirus pandemic began to impact the U.S. economy.
  • The preliminary April reading of the University of Michigan’s consumer sentiment index plunged 18.1 points to 71.0, versus March’s 89.1, the largest monthly decline ever recorded. Of the two index components, by far the worst decline occurred in the current conditions index, which plunged 31.3 points, from 103.7 in March to 72.4 in April — nearly twice the prior record, a 16.6-point drop in October 2008. The expectations index fell by 9.7 points, from 79.7 in March to 70.0 in April, substantial but not as steep as the record 16.5-point drop of December 1980.
  • The Fed announced a raft of new and expanded programs to provide up to $2.3 trillion in loans to backstop the economy. The package included $600 billion for the Main Street Lending Program to offer four-year loans to small- and mid-sized businesses. The Fed also created a $500 billion Municipal Liquidity Facility for state/local governments, added support to the Paycheck Protection Program and committed to buying some “fallen angel” debt that had dropped below investment grade after March 22.

CPWM Weekly Market Monitor (2020.04.10)

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