Equities Tick Up, the Cost of Stimulus, and COVID-19 Trends

Risk-off sentiment seemed to have returned last week following both the market’s worst day of trading in months and a warning from the Fed that “the path ahead is extremely uncertain.” But returns inched up today with both the Nasdaq and the S&P 500^® Index turning positive mid-day. Still, hopes for a v-shaped recovery appear to be growing dimmer. The Fed is certainly taking the long view and have directed more asset purchases toward long-duration bonds. Those purchases aren’t coming cheap though; the U.S. year-over-year deficit has tripled thanks in large part to COVID-19 stimulus efforts. The real battle is against the virus itself though, not just its economic impact. Many U.S. states are seeing their infection rates fall, but spikes remain across the country and are preventing the national rate from continuing its established decline. Meanwhile, a surge in EM cases is contributing to climbing global rates and undercutting optimism that heat and sun could help combat the virus’s spread. Beijing just re-instituted lockdown following a spike in cases; let’s hope the same doesn’t become necessary in the U.S.