Stocks Seek Direction Monday — What Wall Street Is Weighing

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U.S. stocks were seesawing Monday, after having looked to start way down on Sunday night. Investors certainly had their share of positives and negatives to weigh. 

All three major indexes rose in the premarket trading, before falling after the open, with the S&P 500 down more than 1%. This comes after a day of reasonable gains Thursday and a normal magnitude of losses Friday. Wall Street said signs of stabilization were emerging. For weeks, up and down days were both to the tune of more than 5%, causing trading stoppages. 

Over the weekend, news broke that Congress could not come to a multi-trillion dollar fiscal spending agreement, which is expected to focus heavily on spend to fight the coronavirus, which is likely putting the economy into recession. 

But then the Federal Reserve posted an update saying it will buy as much in treasury securities as it needs to to keep interest rates as close to 0% as possible and to keep cash flowing through the banking system. The 3 month treasury yield slipped to 0.01% Monday. 

The Fed also said it would extend financing, indirectly, to small businesses and households, while large corporations like airline companies and Boeing  (BA) - Get Report potentially receive hundreds of billions in government loans essentially to stave off bankruptcy. Some market observers and participants said that small businesses, which comprise a solid portion of economic output, need capital as much as large corporations do. 

But the Fed’s promise to keep buying assets has sparked a small debate, one that could become a more significant conversation soon. 

"The balance sheet and the Fed and treasury's ability to print treasuries or to print cash is effectively unlimited,” Lauren Goodwin, economist and multi-asset portfolio strategist at New York Life Investments recently told TheStreet. "They could do it forever."

Not only could this cause high inflation — an economic effect the globe hasn’t seen much of since before the 2008 financial crisis — but it could cause a longer-term issue. 

“To have the federal government inject billions or trillions into private businesses and ordinary Americans' bank accounts will alter the natural balance and create moral hazard on an epic scale,” wrote Randy Swan, Founder of Swan Global Investments below in emailed comments to reporters. He also mentioned the federal government is running a deficit, which the coronavirus doesn’t do any favors for. 

The Fed's hadn’t helped the market until recently. As the coronavirus has spread, investors have been both satisfied in the Fed’s actions, but aware that they won’t work until people and businesses are up and running again. Now, the market simply wants to see that households and businesses can remain liquid and ready for that potential recovery. 

If the virus lasts long enough, the strain on government spending will only become stronger and companies and households will have trouble remaining liquid. The market will trade on that front. “Equities continue falling into a bottomless pit as the coronavirus death toll rises, bringing along more travel restrictions and lockdowns across the globe,” wrote pek Ozkardeskaya, senior analyst at Swissquote Bank in emailed remarks to reporters. 

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