Hunker down as fiscal stimulus isn’t around the corner

Two notes from Cornerstone Macro focus on the implications of President Trump’s announcement of halting all travel to with Europe for 30 days. In the first, “Hunker down (March 12)”, the firm says Trump’s speech implies the US government is acting in line with what the rest of US society is doing: hunkering down as it is now clear that significant parts of the economy are likely to practically grind to a halt. Furthermore, says CorMac, it is clear there will be no US fiscal stimulus for now, and while support for such measures may grow, how large it might be, and what form it may take is difficult to judge right now.

In the second, “Fiscal stimulus isn’t around corner (March 12)”, the firm says if a US fiscal boost isn’t imminent, markets have a good deal more downside ahead. The problem for policymakers is that economic data is nowhere near close to matching the markets for speed, so it is not possible to know where to focus government assistance and by how much, says CorMac. Given this, broader fiscal stimulus is the likelier format, but only after a lot more pain will the political will get there, says the firm. CorMac says it’s impossible to model what the “fair value” of the market is given that there is ZERO clarity on how long these issues will last and when and what kind of fiscal stimulus will occur. In the meantime, warns the firm, it very much believes that stocks bottom when there is a catalyst for change (i.e., a solution to the problem is found or started), and that catalyst appears further away than investors had hoped.

An additional third note ”Quick take: The Fed pulls out the liquidity bazooka (March 12)” Roberto Perli provides his quick take on the Fed’s liquidity measures announced today where they announced sweeping measures to address the functioning of the Treasury market, which had been compromised in recent days.