| Thursday's Headlines 1. US markets rally as Fed pledges unprecedented support 2. Oil prices spike, then fall as OPEC+ meets on production cuts 3. The Fed backs up fallen angels in debt market 4. The riskiest sectors are leading the rally Markets Closed
 photo: Brooks Kraft/Getty Images
(Programming note: As U.S. markets are closed tomorrow, we will also be taking the day off. We'll be back with you on Monday.)
Markets Today The U.S. Federal Reserve showed just how much ammunition it has left in its arsenal today by launching another multi-trillion dollar monetary policy bazooka aimed at back-stopping small businesses, medium-sized companies, municipalities, and the corporate debt market (more below). That put the wind in the sails of the U.S. equity and corporate bond markets today, as stocks and bonds closed higher. Gold prices continued to rise, hitting a 17-year high, as some investors continue to seek its safety amid the volatility.
With the markets closed tomorrow for Good Friday, the DJIA is up 13% this week. The S&P 500 posted its best week since 1974. U.S. markets have clawed their way out of the depths of the bear market lows set on March 23rd. We may retest those lows in the coming weeks, but the trip up has been as fast as the trip down. Unfortunately, it takes a lot more gains to make up for losses when markets fall as they have.
Risk is still the name of the game as the riskiest assets and stocks have been leading the recent rally. But with the Fed pledging even more support to all kinds of markets, the raging waters have quelled a bit and it seems a little safer to swim.
Have a great holiday weekend and stay safe.
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 Image courtesy SchwabResearch
Fed Launches Another Stimulus Barrage The Federal Reserve announced a set of new programs Thursday that will provide $2.3 trillion in loans to reach small and midsize businesses as well as U.S. cities and states. The loans would be geared towards businesses with up to 10,000 employees and less than $2.5 billion in revenues for 2019. Principal and interest payments will be deferred for a year.
The Fed said the programs would include a backing of the Payroll Protection Program and other measures geared towards getting money to small businesses, in addition to bolstering municipal finances with a $500 billion lending program.
"The Fed's role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible," said Fed Chair Jay Powell in a statement.
The Fed also provided details on its plans to buy corporate bonds both at an investment-grade level as well as high-yield, or junk bonds. While the Fed has already announced that it would buy highly rated corporate bonds, its deeper push into lower rated and riskier corporate bonds put a big safety net under that part of the market.
The backing of these so-called fallen angels—newly downgraded corporations that had carried investment-grade ratings until March 22nd—caused corporate bond prices up and down the ratings ladder to spike. Those fallen angels include companies like Ford and Continental Resources that are fundamentally sound but have had their businesses crippled by the sudden stop in the global economy.
When you take a look at who actually owns corporate debt, either directly or indirectly, you start to understand why the Fed extended this safety net today.  chart courtesy BofAResearch
Risky Movements The intense volatility and news flow has whipped the market around for the past month in ways we could never have imagined. Many individual stocks have plunged, taking many of them to unreasonable lows, while several have spiked, catapulting them to unfathomable highs.
That shows how equity markets are being driven by emotion and jet-fueled by high-frequency traders who can jolt prices up or down in nanoseconds. Individual investors have participated, to be sure, but the extreme volatility is being exacerbated by algorithmic trading.
While markets have recovered some of their losses—especially in the past week—it's the riskiest parts of the market that have been driving the gains since the S&P 500 bottomed on March 23rd. It has clawed back half of those losses in just 13 days, which is remarkable. But if you look at the types of stocks leading the gains through ETFs as a proxy, it shows that risk is in the drivers seat. SPHB, the Invesco High-Beta ETF, which consists of the 100 stocks from the S&P 500 Index with the highest sensitivity to market movements, is leading the gains with a 28% rise.
chart courtesy YCharts  This week has been a good example of how some of the most beaten-down stocks in the market have experienced historical gains, while the fundamentals of their businesses continue to deteriorate. Oil services company Apache Corp. (APA) rose 68% in the past five sessions. Capri Holdings (CPRI), the fashion conglomerate that includes brands like Versace and Michael Kors, is up 67% since last Friday.
High-end fashion and oil services are two sectors that are facing extreme challenges this year. The fact that they have led the rally in the past week shows us just how disconnected the stock market is from reality right now. 
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(chart courtesy YCHARTS)  Shares of Apache are up by more than 16% following Russia and Saudi Arabia striking a deal to reduce oil production amid the currently volatile market; another hydrocarbon exploration company, Diamondback Energy, is up by over 13% on the news. Information technology company DXC's stock price rose by over 13% today; Luxoft, of which DXC is a parent company, recently announced its acquisition of CMORE Automotive.  Shares of Kroger are down by almost 3% today following an incident where a woman who tested positive for the coronavirus attempted to expose Kroger employees and shoppers in a Dayton, Ohio, location, while also stealing $1,280 worth of groceries. Coincidentally, one of the retailer's employees at a different store in Ohio also tested positive for the virus. Word of the Day A fallen angel, in the investing world, is a bond that was initially given an investment-grade rating but has since been reduced to junk bond status. The downgrade is caused by a deterioration in the financial condition of the issuer. The term is also sometimes used to describe a stock that has fallen precipitously from its all-time highs.
Fallen angel bonds have been downgraded by one of the major rating services, which include Standard & Poor's, Fitch, and Moody's Investors Service. They may be corporate, municipal, or sovereign debt.  image courtesy: treasury.gov
Today in History April 9th, 1868: The U.S. Senate ratifies the Alaska Purchase, negotiated the month before by Secretary of State William H. Seward with the government of Russia. For $7.2 million (roughly $90 million in today's dollars), the U.S. becomes the new owner of 586,412 sq. mi. of what the public cynically calls "Seward's Icebox."
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Thursday, April 9, 2020
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