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Dow Ends 150 Higher on Fed's Plans to Buy Corporate Bonds

Stocks finish higher after the Federal Reserve says it will begin buying individual corporate bonds.

Stocks ended higher Monday, recovering from losses, after the Federal Reserve said it would begin buying individual corporate bonds.

The Dow Jones Industrial Average finished up 157 points, or 0.62%, to 25,763, the S&P 500 gained 0.83% and the Nasdaq rose 1.43%.

At one point during Monday's trading, the Dow industrials were down almost 3%.

The U.S. central bank will purchase the bonds under its Secondary Market Corporate Credit Facility, an emergency lending program, using an indexed approach.

“This index is made up of all the bonds in the secondary market that have been issued by U.S. companies that satisfy the facility’s minimum rating, maximum maturity and other criteria,” the Fed said in a statement Monday. 

“This indexing approach will complement the facility’s current purchases of exchange-traded funds.”

Federal Reserve Chairman Jerome Powell has stated on more than one occasion that the Fed would use all its tools to support the U.S. economy.

“This is yet another sign the Fed is going to do everything under their power to help liquidity. Worries over a second wave? No worries, the Fed is here,” said Ryan Detrick, senior market strategist for LPL Financial.

Earlier Monday, the Dow had declined as much as 762 points amid concerns a second wave of coronavirus infections could hold back recoveries in the U.S. and world economies.

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States like Arizona, Florida, North Carolina and Texas have reported a sharp rise in new coronavirus infections and an increase in hospitalizations.

“States like Texas, Florida, Georgia, North Carolina, South Carolina, where you see those outbreaks right now, never really reduced the number of cases substantially,” Scott Gottlieb, former chief of the Food and Drug Administration, said on CBS’s “Face the Nation.” 

“They had spread. It was persistent. And now it’s flaring up.”

China reported an outbreak of new infections in Beijing, pushing the city to reintroduce strict lockdown measures and ramp up coronavirus testing. Stocks in Shanghai declined more than 1% on Monday.

Robert Kaplan, Dallas Federal Reserve president, said in an interview Sunday that measures to control the virus, like wearing masks and increased testing, were “uneven.”

“The extent we do that well will determine how quickly we recover. We’ll grow faster if we do those things well,” Kaplan said. “And right now, it’s relatively uneven.”

Mike Loewengart, managing director of investment strategy at E-Trade, said excitement about the reopening of the U.S. economy "has been replaced with fears of a second wave."

He added that the "pop we’ve seen in the VIX" - the CBOE Volatility Index - "since Friday may cause some concern for investors."

However, he said: "This too shall pass. If we’ve learned anything over the past few months, it’s that cool heads prevail during times of market volatility. The cornerstone of a strong portfolio is a long-term strategy, not a strategy based on short-term market moves."

Stocks on Friday closed higher but the S&P 500 fell 4.8% in its worst week in nearly three months on worries the economy could take longer to recover if the U.S. sees a resurgence in coronavirus infections. The Dow closed the week with a 5.6% loss, and the Nasdaq declined 2.3%.