It was another crazy day in the markets as they did a sharp rebound. The Federal Reserve’s active involvement in buying up bonds and equities appears to be working and it closely mirrored by big asset managers.
U.S. equity markets finished the day higher, with the S&P 500 +3.05%, the Dow +2.40%, the Nasdaq +3.95%, and the Russell 2000 +2.06%.
Rick Rieder, head of the firm’s global allocation team BlackRock, which manages roughly $7 trillion in assets said in a recent blog post that it plans to keep a “significant cash cushion” for now given uncertainty about length and depth of the economic downturn. They “will follow the Fed and other DM central banks by purchasing what they’re purchasing, and assets that rhyme with those”.
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“We are thinking about the coming weeks in terms of two intervals,” Rieder who is also chief investment officer of global fixed income and manages about $2.3 trillion in fixed-income assets, wrote: an initial phase which involves having a large cash pile and then following central banks’ purchases and buying “assets that rhyme with those.”
“That means buying U.S. nominal duration where there is still scope for rates to rally further (i.e., the back end), which also provides a dependable risk hedge.”
The question is, will this actually work to prop up the markets. For the short term the answer is yes. If a the Fed and big market players keep buying, then the merry go round keeps turning. This is the reason why the markets rocketed up from the coronavirus lows.
Treasury Secretary Steven Mnuchin said that almost one-quarter of all Americans should receive coronavirus-related relief payments by Wednesday. Two groups of states are working to restart their economies. Together, the 10 states make up about 38% of the U.S. economy.