Body Blows: Bears v. Bulls

With COVID continuing its relentless attack on peoples’ health and the market, now is an excellent time to heed the advice of the CDC and sequester yourself away. Maybe catch up on your streaming queue?

One movie that I watched recently was Creed, a sort of modern re-imagining of Rocky. Like its spiritual predecessor, Creed involves two boxers who spend the movie training for the final bout between the two of them. The bout itself ends as a slugfest where only the most determined fighter outlasts the other. Sort of sounds like the last couple of weeks of market activity.

Market bears and bulls are going punch-for-punch with one another. Big drops and big rallies have show a downward trend over the last several days with the ref (in this case, the DOW) finally calling it for the Bears.

Today appears to be the part of the fight where the two fighters go to their respective corners and get a drink and some words of encouragement. In the bull’s corner, is the central bank. Pledges of a fiscal stimulus package, intended to act as smelling salts to the beaten fighter, are going around Capitol Hill with negative interest rates, payroll tax cuts, immense amounts of QE, and roughly a trillion dollars of fiscal stimulus partially taking the form of direct payments to Americans all featuring.

With bi-partisan support, such a package is likely to take quick effect leaving economists to wonder: will it work?

The closest parallel to these actions was the Economic Stimulus Act of 2008, meant to prevent recession in the wake of the subprime mortgage crisis. There, the US markets did slip into recession but the subsequent recovery was robust and long-lived – something to which the Stimulus Act and its rebate checks likely contributed. This time, however, COVID is making an impact on both the demand and supply side of the equation, prompting another challenge.

My take on it: While we likely won’t return to pre-virus market levels for another few years, the sheer monstrous size of the proposed stimulus package shows willingness on the part of policymakers to take drastic action to buffet Americans from the economic shut-off and provide as much comfort as possible for a soft landing.

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