Why have equites rebounded from last week’s sell off?
As reported by Wall Street on Parade, Last Friday, just before 11:00 AM, the Dow Jones Industrial Average sent an ominous signal.
The Dow had been sinking all week under the weight of the spreading virus, renewed shutdowns in Europe and the U.S., the lack of new stimulus spending, and jitters over the election and its aftermath.
After seeing oil prices’ steep slide, the Dow already was down more than 500 points on Friday morning when it crossed below its 200-day moving average of 26,200.
The average is a key technical indicator that traders use to gauge the stock market’s future direction. A break through that average can trigger programmed sell orders and could send the market into a freefall.
But the U.S. Federal Reserve was ready.
Within minutes of the Dow crossing that threshold, the Fed issued a press release announcing that it was, in effect, expanding its Main Street lending program: the minimum loan size would drop from $250,000 to $100,000, allowing far more small businesses to qualify for bailout loans than previously could.
Minutes later, the market turned up and, after another rollercoaster day, ended with a loss of only 157.51 points.
The Fed’s custom is to announce market-moving policy changes when markets are closed. (The exception is the Fed’s Open Market Committee to issue a statement at 2:00 PM on the second day of its meeting, which takes place every six weeks.)
However, with the market tobogganing downhill at a rising pace after sliding all week, the Fed could easily have been ready with a policy brake to slow the loss when a crucial moment came, as it did.
But the Fed’s move raised eyebrows for other reasons, according to Wall Street on Parade.
First, President Trump has staked much of his reputation as an economic leader on the stock market’s performance. The Fed’s dramatic intervention three days before a fiercely contested presidential election seemed to some that the Fed was trying to boost Trump’s lagging re-election bid by keeping the market from crashing.
In 2019, Powell celebrated his 66th birthday with Trump and has socialized with Ivanka Trump and Jared Kushner.
Second, $25 million of Powell’s personal assets are in the hands of BlackRock, a private equity firm to which the Fed has given three lucrative, no-bid contracts to handle aspects of the bank’s economic rescue plan. BlackRock has used some of the Fed’s money to buy its own exchange-traded bond funds, buoying their prices.
The U.S. “is simultaneously facing two separate pandemics,” wrote Pam Martens and Ross Martens of Wall Street on Parade on 2 November – “the threat to our health from the COVID-19 pandemic and the threat to our democracy from the pandemic of crony capitalism.”
