“I believe there is the need for some additional fiscal support.”
Those were the words spoken by Fed Chairman Jerome Powell this afternoon in a press conference that addressed interest rates and the U.S. economy.
The overnight U.S. rate was previously cut to a range of 0%-0.25% in March of this year. Investors found out today that the Fed’s policymaking committee intends to keep it there until America has “weathered” the Covid-19 crisis.
“Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year,” the committee said in a statement.
“Weaker demand and significantly lower oil prices are holding down consumer price inflation. Overall financial conditions have improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.”
In other words, the “V-shaped” recovery narrative is dead. Getting back to pre-coronavirus numbers will be a hard and slow process.
“The path of the economy will depend significantly on the course of the virus,” the statement read.
In his press conference, Powell reiterated how influential the ongoing pandemic will be in determining future fiscal policy.
“It’s just such an important sentence, we decided it needed to be in our post-meeting statement,” he explained. “It’s so fundamental.”
And so, stocks surged following the Fed’s remarks. The post-crash market has been almost entirely propped up by the Fed.
Today’s decision to leave rates well enough alone means that equities could push higher even if the economy stagnates.
“They’re showing a sense of urgency to support financial markets. They’re not showing urgency to support the real economy,” said Eric Winograd, senior economist for fixed income at AllianceBernstein.
“What they can do — what I expect them to do, hopefully in September — is provide enhanced forward guidance that includes an economic variable and say they won’t raise rates until inflation is above 2%. They could also do yield-curve control; that’s something in their toolkit.”
Still, going long near the record-highs is a tough sell for most traders. Instead, looking for additional bearish opportunities on non-market-correlated companies might be a better move.
Noble Energy Corp (NASDAQ: NBL), is one such company. NBL peaked harshly in early June and just recently set a lower high above the upper Bollinger Band (BB).
Since then, it’s slowly dropped. NBL closed below its minor bullish trend (represented by the yellow trendline) on Monday.
Today, it traded below the 10-day moving average before closing above it.
Should NBL trade below the 10-day moving average again, it might make sense to take the stock short with a trade trigger of $10.54.
The Fed’s intent on keeping stocks afloat, but for a stock like NBL, that’s unlikely to have a profound bullish effect.
In fact, NBL looks ready to fall back down to its July lows, making it a great trade for short-term bears while the rest of the market wants to head inexplicably higher.