Nothing like a little QE chatter to trigger a buying rampage on Wall Street. Powered by freaked-out bears getting hit increasingly with margin calls as the day wore on, Monday’s short-squeeze panic drove the biggest one-day gain in stock market history. Don’t fight the Fed, as the saying goes, and today’s record-breaker reminded us why. Although a deep global recession appears inevitable, we’d be the last to get in the way of this stampede. And not until the last, foolhardy bear has been gutted and disemboweled will we suggest sallying forth to bet cautiously against the banksters. For the moment, however, the ‘easing’ chorus has grown so shrill over the last few days that the central bank is all but certain to accommodate with a quick 50-basis-point drop in administered rates.
However, never before has the idea of stimulus been stripped so bare of the pretense that it will help the broad economy. It will help inflate assets, is all, so that the resulting glut of funny money can float everyone’s boat — perhaps even the working man’s paycheck. Or so the theory goes. But it’s a stretch to think the stock market can recover to new record highs as it has done reliably for more than a decade, or even merely tread water, just because the central bank is about to shave 50 basis points from the federal funds rate. Shares would need to stay afloat in the face of a steep earnings downturn that could stretch into autumn and the holiday season. Some of the biggest companies in the world have already warned that revenues will take a big hit from the pandemic.
Will the stock market be so feisty when Americans trying to avoid contagion shun restaurants, concerts and movie theaters, as well as airplanes, cruise ships, buses, subways and trains? Will global commerce be able to even grind along in an environment where Asian businessmen are already being treated as though they were radioactive? Will shares be able to mark time for at least a few more bad quarters until the coronavirus subsides and global supply chains return to normal? These are important questions that Wall Street chose to put aside for now. However, investors should have no illusions that short-covering rallies, spectacular though they may be, will alter the course of a pandemic that has only just begun to bear down on the global economy.