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U.S. equity markets rose sharply on Tuesday, erasing Friday’s steep losses while raising a few questions. Are investors buying stocks because of future earnings? Are they investing because Treasury yields are low and they can’t get any return anywhere else?
Is this a reaction to China’s plan to flood their markets with additional stimulus? Is this a vote of confidence for President Trump and expectations of his reelection?
There are some that say, who cares? There are some that say, the trend is your friend, just go with it. And there are other who say, can the rally to all-time highs in the NASDAQ Composite be sustained by a volatile stock like Tesla? Or have we just entered the bubble of irrational exuberance again? After all, is it buying driving Tesla higher, or is it scared shorts, willing to pay anything to get out?
On Tuesday, the benchmark S&P 500 Index settled at 3297.59, up 48.67 or +1.49%. The blue chip Dow Jones Industrial Average finished at 28807.63, up 407.82 or +1.41% and the technology-based NASDAQ Composite Index rose 9467.97, up 194.57 or +2.12%.
Reuters Exclusive: China Readies More Measures to Stabilize Economy
Chinese policymakers are readying measures to support an economy jolted by a coronavirus outbreak that is expected to have a devastating impact on first-quarter growth, policy sources said.
The sources said the government is debating whether to lower the planned 2020 economic growth target of around 6 percent, which many private sector economists see as well beyond China’s reach.
With the death toll from the virus epidemic climbing to over 420 and risks to growth mounting, China’s central bank is likely to lower its key lending rate – the loan prime rate (LPR) – on February 20, and cut banks’ reserve requirement ratios (RRRs) in the coming weeks, said the sources who are involved in internal policy discussion.
“Currently, monetary policy is being loosened, but the central bank will follow a step-by-step approach and watch the virus situation,” said a policy insider.
In order to minimize job losses, China’s stability-obsessed leaders are likely to sign-off on more spending tax relief and subsidies for virus-hit sectors, alongside further monetary easing to spur bank lending and lower borrowing costs for businesses, according to the policy insiders.
“We have policy reserves and will step up policy support for the economy. The most urgent task is to put the virus outbreak under control,” said a source who advises the government, who spoke on condition of anonymity.