Our eyes these days are on the Fed’s balance sheet, and they’ll continue to be, as we march forward through this repo and coronavirus crisis. What we’re seeing is a slight easing back and now flattening on repos, but the Fed’s still buying Treasury bills. That all combines to a mild positive for stocks, but it hasn’t been enough to show the likely next big surge quite yet. Keep an eye on this space, however, and on next week’s Boom & Bust. We’ll be tracking the balance sheet every Friday after the updates come late on Thursdays.
Short-term, everything’s politics, politics, politics. The Democratic primary continues on, with Bernie Sanders now looking like the clear frontrunner and the most likely nominee to face down Trump. That’s … not good for the banks or stocks, and the latter could be in for a serious correction if it starts to look like Bernie could take the election in November. I’m not exactly sold on that – Trump remains awfully formidable – but there are swing states beyond Wisconsin, Pennsylvania, Ohio, and Michigan, and a few of those states that usually go to Republicans (like Florida!) might be up for grabs in ways they haven’t been in recent elections.
But as I said, Trump remains formidable, and my understanding is that he’s planning a round of tax cuts for the middle class sometime around September. I’d do it earlier if I was him, but either way, more cuts would be good news for the markets and the economy: incentives for everyday households to invest. Of course, they’re investing in a bubble, but not everybody understands that like we do.
My advice: Keep with the markets but be skeptical. There’s simply too much going on right now that can change the course of where things are going. This is the final straight-up phase. For traders and short-term investors, there’s good potential to buy on a likely near-term correction.
We’ll have more next week.