Today the U.S. Federal Reserve declared:
"The Federal Reserve is committed to using its full range of tools to support households, businesses, and the U.S. economy overall in this challenging time...The coronavirus pandemic is causing tremendous hardship across the United States and around the world...Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate.”
In an historic effort to rescue the economy, the Fed announced today that it will buy unlimited amounts of Treasury bonds, and purchase corporate and municipal debt for the first time. Essentially, the Fed is ushering in unlimited QE (Quantitative Easing). This, combined with the Fed's emergency lowering of interest rates to zero just last week, shows the Fed is desperately deploying its full arsenal to thwart a major economic collapse. These measures are even more severe than those used in the 2008-2009 financial crisis (limited QE and ZIRP -Zero Interest Rate Policy). But will this Herculean effort by the Fed, along with a fiscal stimulus package from the Trump Administration, be enough to ease the current panic on Wall Street?
The broad stock market fluctuated wildly today, and despite the Fed's efforts, the DOW closed with a 582 point loss. We will have to wait a few days to see if the Fed's actions can ease coronavirus fears, but it is significant that we are in a reversal zone this week. A rebound in equities could be imminent. All three market indices made new lows today so we will not have an intermarket bullish signal this week. The S&P 500 closed a bit below our target level of 2,250, but the DOW remained above our target of 17,900. Let's stay on the sidelines for now.
In yesterday's blog on the precious metals I stated:
"There are some technical signals this week suggesting a possible sharp rally now in these prices; however, it's also possible for prices to drop lower into this week's reversal zone."
Well, it looks like those bullish technical signals were spot on today as spot gold surged and closed over $50 above Friday's price. Silver prices also jumped up. Perhaps frightened investors are starting to recognize the "safe haven" value of these metals in an equity crisis. If so, a strong rally could be starting. But if equity markets stabilize, we could see interest in the precious metals diminish. We will stay on the sidelines of gold and silver for now.