On March 23, 2020, the Federal Reserve announced that they are standing ready to provide unlimited quantitative easing. Among the actions included in Fed’s announcement:
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The Federal Open Market Committee (FOMC) will purchase Treasury securities and agency mortgage-backed securities
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the FOMC will include purchases of agency commercial mortgage-backed securities in its agency mortgage-backed security purchases.
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Supporting the flow of credit to employers, consumers, and businesses by establishing new programs that, taken together, will provide up to $300 billion in new financing.
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Establishment of two facilities to support credit to large employers
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Establishment of a third facility, the Term Asset-Backed Securities Loan Facility (TALF), to support the flow of credit to consumers and businesses.
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expanding the Money Market Mutual Fund Liquidity Facility (MMLF)
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Facilitating the flow of credit to municipalities by expanding the Commercial Paper Funding Facility (CPFF)
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establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses
This action by the Federal Reserve seems eerily familiar to us. Why? Because March 2008 was the year many of these same programs were implemented by the Federal Reserve.
Below is a chart of the Dow Jones Industrial Average covering the 2007 to 2009 period when the Fed stepped in in a similar way.
The position of where you are can change very quickly based on the type of policy action taken. The less policy action the faster the market gets closer to the “bottom.”