This corner of the market is proof the Fed stimulus is working, chart analyst says

Stocks were rallying for a third day in a row Thursday after a $2 trillion relief bill passed the Senate and the Federal Reserve’s own easing worked its way through the system.

Matt Maley, chief market strategist at Miller Tabak, sees proof in one corner of the market that the massive liquidity injection is already working.

“One of the things we saw last week was forced selling, liquidations, deleveraging in basically every market. Even the safety trades like Treasuries and gold were being sold, because people couldn’t find bids in other markets to meet their margin calls,” Maley said on CNBC’s “Trading Nation” on Wednesday.

Since the Fed began easing, the credit markets — including corporate bonds and municipal bonds — have shown signs of stabilizing, says Maley. The Fed’s actions include purchases of at least $500 billion in Treasury securities, $300 billion in new financing designed to ease businesses’ access to credit, and the setup of credit facilities for state and local governments.

Just this week, the LQD investment-grade corporate bond ETF has risen 14%, the MUB municipal bond ETF is up 12%, and the HYG high-yield corporate bond ETF has climbed 9%.  

“They’ve been able to come into the credit markets and stabilize that area; we see credit spreads starting to tighten up a little bit,” said Maley. “The fact that they’re starting to stabilize gives people the kind of confidence they need to be able to dip their toes back into the market at a time when we absolutely need it.”

Michael Binger, president of Gradient Investments, agrees that monetary easing should boost confidence among investors.

“This panic and negative sentiment tends to freeze up the short-term credit markets,” Binger said during the same segment. “The Fed, they did unleash all the tools they had. It was a double bazooka, and I think it’s working, and you’re starting to see it in the credit markets. … The general credit markets for investment grade and high yield is trying to creep back. And I think the Fed is responsible for that.”

The municipal bond and high-yield bond ETF were higher on Thursday, though investment-grade corporate bonds were lower.


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