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The stock market is going to open today's session on higher ground. Whether that is solid ground is another question.
The futures market on this quadruple-witching quarterly expiration day are up at this time. The Nasdaq 100 futures, for instance, are up 189 points, which leaves them 2.6% above fair value. The S&P 500 futures are trading 0.8% above fair value.
This bullish bias is nice to see, but it feels a little too eager given some of the background developments. What we're really driving at is that it has the feel of a tactical buying opportunity in an oversold market as opposed to a strong, fundamental belief that everything is now going to be okay.
We wish we didn't feel as much, but some things are bothering us about the news cycle.
The Senate GOP unveiled its $1 trillion stimulus bill. Some of the important provisions include what had already been floated for the market to digest in recent days.
There will be, among other things, direct payments of up to $1200 for individuals based on income, and loan guarantees of $50 billion for the airline industry and $150 billion for other large businesses, with a provision that allows the government to take equity stakes. In addition, there will be $300 billion in loan guarantees for small businesses.
What bothers us is that there is already political blowback, with The Wall Street Journal reporting that Democrats and even some Republicans have qualms about this stimulus plan, which threatens to delay its passage at a moment where every hour counts for the U.S. economy and its workers.
Separately, California, which is a huge economy in its own right, is now operating under the auspices of a stay-at-home order until further notice except for essential needs. Governor Newsom took the drastic step in an effort to help stop the spread of the virus, as the state is estimating that more than half of its citizens will get COVID-19 over the next eight weeks.
That's a startling estimate for a number of reasons, not the least of which is that it will put undue stress on the state's health care system if it came to fruition.
Beyond that thought, however, is the understanding that it raises the potential for other states to follow suit with similar orders, as we have seen a follow-the-leader approach for the most part so far in efforts to try to stop the spread of the virus. That would be an added and extended weight on the economy that, frankly, isn't being accounted for in the $1 trillion stimulus plan.
There are so many needs right now from an individual and business standpoint that we have a hard time believing $1 trillion is going to be enough. Granted political leaders have said there will be other stimulus measures and they will do "whatever it takes," but valuable time is ticking away and is going to make recovery efforts all the more challenging.
The Federal Reserve has made it clear that is inclined to do whatever it takes. Today, it is expected to purchase $107 billion of Treasury and agency mortgage-backed securities. That understanding has helped put a bid in the Treasury market and has driven the yield on the 10-yr note 12 basis points lower to 1.00%.
That's well intended to keep financial markets functioning, but again, that's only half the battle in this declaration of war on the coronavirus.
The stock market could bounce and it needs a bounce, but the U.S. economy needs so much more right now that isn't coming. Hence, the enthusiasm for today's expected bounce isn't as resolute as we'd like it to be and runs the risk of being sold into, if not today, then next week without more aggressive fiscal stimulus planning -- and action.
