Yesterday, the Federal Reserve boosted its monetary response to the Covid pandemic even more.
It said that there would be no interest rate increases until at least the end of 2023!
This new guidance from the Federal Open Market Committee implements a shift. It puts in place a highly dovish long-term monetary policy.
The end result will be rock-bottom interest rates for many years to come.
It was interesting to me to see the Fed talking out of both sides of its mouth.
On the one hand, its median forecast says U.S. GDP will contract by 3.7% this year. Its earlier estimate was for a 6.5 contraction.
The Fed also forecast unemployment falling to 7.6% by the end of the year. This compares with its previous estimate of 9.3% joblessness.
Yet, it feels compelled to continue its unprecedented monetary policy.
The Fed also said it would continue its market-supporting measures.
It will “increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to sustain smooth market functioning and help foster accommodative financial conditions.”
At the moment, it is purchasing U.S. government securities at a pace of $120 billion per month. The breakdown is $80 billion in Treasury bonds and $40 billion in mortgage securities.
Yet, that wasn’t enough for Wall Street.
The market sold off Wednesday afternoon after the announcement. And futures were sharply lower this morning.
Nothing has really changed, though. Every stock market selloff will be met by more Fed intervention.
So, the stocks and sectors that have been strong will continue to be strong.
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The Big News
How COVID Can Damage Our Brain
Confusion, disorientation, agitation and even psychosis can be symptoms of COVID-19. Research is connecting the dots between the virus infection and these symptoms. Scientists point to possible physiological mechanisms (such as brain inflammation) that may cause the symptoms. Scientists want to know whether the Covid virus itself is causing the damage . . . or whether an overactive immune response is to blame. And why are only some people affected this way?
Lilly Drug May Reduce Hospitalizations
Eli Lilly’s potential antibody treatment for Covid-19 has shown positive early results. It reduced the rate of hospitalization by over two-thirds for patients taking the drug. An interim analysis of its phase 2 trial found that only 1.7% of patients on the antibody treatment had to be hospitalized. The condition of the more than 300 patients on the treatment improved more rapidly than that of the 150 patients on a placebo. But this effect was only shown for patients taking a 2800mg dose, not at lower or higher doses. No serious side effects were reported.
Big 10 Football to Resume
Big 10 football will be back soon. Games will begin in October. The universities said new medical protocols and standards put into place by the Big Ten were pivotal in the decision. And surely money played a big role. The Big Ten brought in more than $1.8 billion in revenue as recently as 2018, according to the Knight Commission on Intercollegiate Athletics.
New York City to Speed COVID Testing
New York City has a new lab dedicated to speed COVID testing. The Pandemic Response Lab will cut wait times down to 24 to 48 hours. New York City’s testing program is already one our country’s most ambitious. NYC swabs more than 200,000 people a day, or more than 2% of all city residents. The lab will be able to process an additional 40,000 tests. These will hopefully include tests from public school students and teachers.
California Is First State to Test 13 Million People
California became the first U.S. state to have conducted 13 million coronavirus tests. However, the raging wildfires there led to a drop-off in testing recently.. Over the past 14 days, California has averaged 102,000 tests a day. That is down from a peak rate of nearly 129,000 tests a day in mid-August.
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The Coronavirus Numbers
Here are the numbers from Thursday at 8 a.m. ET from Johns Hopkins University:
- 29,893,298 Infected Worldwide
- 941,345 Deaths
- 6,631,561 Infected in the U.S.
- 196,831 Deaths in the U.S.
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One definite beneficiary of the Fed’s response to coronavirus is technology IPOs.
The latest example was on Wednesday. That was when Snowflake (SNOW) debuted.
This company is in Wall Street’s favorite sector at the moment . . . cloud computing services.
The BVP Nasdaq Emerging Cloud index has soared 60% year-to-date. That is more than double the return of the Nasdaq itself.
So, it was no surprise that the stock doubled on its first day of trading! Snowflake is the largest-ever software IPO.
The stock did jump as high as 160% above the IPO price to touch $315. That valued the company at almost $90 billion. It did ease though to $253.93 at the close in New York.
Snowflake’s market value on Wednesday reached seven times the $12.4 billion valuation achieved in its most recent fundraising round in February.
Snowflake attracted investors with a fast-growing base of customers for its data warehousing product. The product allows users to analyze data across multiple remote storage providers such as Amazon Web Services.
The IPO gained a huge boost last week after Warren Buffett’s Berkshire Hathaway and Salesforce each agreed to purchase $250 million in the stock.
Snowflake’s revenue grew 121% in the second quarter from the same period last year. But, like many tech start-ups, Snowflake has burned through cash to acquire market share. It had net losses of $348.5 million on revenues of $264.7 million its most recent fiscal year.
The Snowflake IPO is the highlight of a banner year for IPOs.
The IPO-raised capital in 2020 is at the highest levels since 2014, on a year-to-date basis, according to Refinitiv.
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