All three major U.S. indices saw accelerating gains by midday, with the S&P 500 up more than 2%, as opposed to 1% in the morning.
Importantly, crude oil fell 5.7% to $20 a barrel, as Trump’s exclamation that social distancing guidelines will remain through April is making oil investors nervous. This is a sign of poor demand, likely holding stock investors from pouring in the amount of money the did in the past week and a half.
But the 10 year treasury yield fell to 0.63%, potentially pointing to a risk off move from investors. But this certainly points to the rush of Federal Reserve capital into the treasury market, as the Fed tries to bring credit spreads down to create a lower cost of debt for companies and households.
At first, that wasn’t full working. And while credit spreads still remain above 9% over the 10 year treasury, the price of corporate bonds are indeed moving up, signaling slightly higher confidence in corporate credit. That’s a positive for equities.
The iShares iBoxx Investment Grade Corporate Bond ETF is seeing its share price rise 1.7% Monday. The iShares iBoxx High Yield Corporate Bond ETF is up just 0.9% in price. The Fed has bought investment grade corporate bonds to support that market, but the high yield market — which some say may soon see inflows from the Fed — is more dependent on yield curve normalization, as the Fed buys safer treasuries.
Both of these assets have been seeing price gains in the past week or so, with Monday acting as confirmation that the Fed’s stimulus is working at least marginally.
Ultimately, investors must see demand tick up and the virus’ spread tick down. And while the Fed’s stimulus is marginally helpful, investors are eager to see if the $2 trillion spending plan from Congress can work quickly and effectively enough to support the economy while the Coronavirus rages.
Separately, shares of Johnson and Johnson (JNJ) - Get Report and Merck (MRK) - Get Report are helping power the Dow Jones Industrial Average to an over 2% gain. Both stocks are up 7.83% and 5.92%, respectively, as JNJ said Monday morning it will have a virus vaccine into the human testing phase as early as September.