A wall of money outweighs virus fears — for now

Concerns that a surge of coronavirus cases in parts of the United States and Beijing could derail the fledgling economic recovery were hanging over markets. Then the Federal Reserve stepped in.

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Julia Horowitz
, CNN Business
CNN — Concerns that a surge of coronavirus cases in parts of the United States and Beijing could derail the fledgling economic recovery were hanging over markets. Then the Federal Reserve stepped in.

What happened: The central bank kickstarted a Main Street lending program that aims to encourage banks to lend to struggling small and medium-sized businesses. It also said Monday that it would begin scooping up corporate debt, including junk bonds. The central bank already began buying corporate debt ETFs last month.

The announcement sent the iShares iBoxx $ Investment Grade Corporate Bond ETF — the most closely-watched gauge of US investment-grade corporate bonds — up 1.4%. It closed near its all-time high.

"With the Federal Reserve back in business backstopping corporate credit, and printing money to lend to companies directly, it was immediately back to business as usual for the peak-virus, buy-everything herd," Jeffrey Halley, senior market analyst at Oanda, told clients Tuesday.

Bloomberg also reports that the Trump administration is preparing a proposal for $1 trillion in infrastructure spending to help revive the US economy. A preliminary version of the plan would send money to build roads and bridges, as well as 5G wireless networks and rural broadband.

The stimulus news is sending stocks higher after a bout of volatility. The S&P 500 finished 0.8% higher on Monday and is up 1.3% in premarket trading.

But that doesn't mean Wall Street is entirely bullish. Per Bank of America's June survey of fund managers published Tuesday, investors are past "peak pessimism," but their optimism is "fragile" and "neurotic."

The largest number of fund managers since 1998 think the stock market is "overvalued." Just 37% of those polled are prepared to say we're in a new bull market, while 53% still call recent stock gains a "bear market rally" and are bracing for another fall.

The CNN Business Fear & Greed Index, which measures the emotion driving the market, is now in "neutral" territory after hitting a "greed" reading one week ago. That suggests investors are looking for the next catalyst, even if they've found some relief in stimulus commitments for now.

Oil demand won't recover for years due to aviation crisis

Oil demand is starting to bounce back from its biggest drop in history, but continued strain on the aviation industry means demand won't fully recover until at least 2022.

That's according to the latest report from the International Energy Agency. The Paris-based agency said in forecasts released Tuesday that it expects oil demand to plunge by 8.1 million barrels per day this year before recovering by 5.7 million barrels in 2021. That's a huge rebound, but would still put demand below 2019 levels. The forecasts assume that countries will continue the gradual process of reopening their economies.

"The aviation industry is facing an existential crisis," the IEA said. "Jet and kerosene demand will remain under pressure well beyond this year."

Some improvement: The IEA raised its 2020 demand forecast by nearly 500,000 barrels per day due to a stronger-than-expected pickup in China in March and April, and a sharp rise in demand in India in May. Even so, the 2020 decline will be the worst on record.

The IEA cautioned that lingering behavioral changes due to the pandemic could case longer-term changes to patterns of demand. A rise in remote working could lead to less traffic and business travel, while an improvement in air quality in many cities could spark a push for broader changes, the agency observed.

See here: The IEA noted that bike lanes have recently been created in more than 150 major cities as an alternative to public transport. But fear of public transit could also lead more people to use cars in the near term.

Investor insight: Brent crude futures, the global benchmark for oil prices, are trading back above $40 per barrel Tuesday as an uptick in demand catches up with recent supply cuts from OPEC and other producers. But oil prices have been unable to push much higher recently, and remain far below where they started the year.

Could this summer yield record job gains?

Job postings remain well below levels seen last year, but there are signs of gradual improvement.

As of last Friday, the number of job postings on the website Indeed was 31% lower than in 2019. The site said that the trend has improved over the past six weeks. On May 1, postings were down more than 39% from a year earlier.

Where jobs are coming back: Indeed said that job postings have rebounded more, after falling less to begin with, in smaller cities and more rural areas. Larger cities with more social distancing measures in place continue to struggle.

This data bolsters some of the optimism that's followed the US unemployment report for May, which found that the economy added 2.5 million jobs last month.

Goldman Sachs said in a note to clients this week that it expects "historically strong" job gains this summer, with 2 million or more positions added per month on average.

However, stimulus from Congress will remain crucial to prop up disposable income, according to the investment bank. Support will be needed well into 2021, chief economist Jan Hatzius said, or the recovery could be at risk.

Up next

US retail sales for May post at 8:30 a.m. ET.

Also today:

US industrial production data for May arrives at 9:15 a.m. ET.Federal Reserve Chair Jerome Powell testifies before the US Senate starting at 10 a.m. ET.

Coming tomorrow: Powell's testimony continues before the US House of Representatives.

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