The Federal Reserve added smaller municipalities on Monday to its $2.3 trillion debt-buying program to help shore up Main Street businesses, municipalities and credit markets during the coronavirus pandemic.
The inclusion of smaller U.S. locales to the Fed’s $500 billion municipal lending facility means that cities with at least 250,000 residents now can borrow from the program, as can counties with at least 500,000 residents.
During the worst of the March market slide, municipal money-market funds lost about $11 billion, or nearly 10% of their assets as investors sold what they could to tap liquidity, wrote MarketWatch’s Andrea Riquier.
The latest expansion of the Fed’s capability comes in addition to its “unlimited” bond purchase program unfurled last month, in an effort to unclog the U.S. Treasury and government-backed mortgage bond markets, as well as new plans to buy up corporate debt for the first time ever.
Lending facilities now are open to riskier assets, including debt backed by battered hotels, office buildings and other commercial property types, as well as weaker speculative-grade businesses, where defaults are still expected to hit 21% over the next two years.
Financial markets have gotten steadier since March, thanks to the Fed’s efforts to bolster markets and the $2 trillion CARES Act passed by Congress to help offset skyrocketing unemployment.
Jim Cramer’s Two Buckets of Stocks for This Environment
CNBC’s Jim Cramer laid out two buckets of stocks that he recommends investors to add to their portfolios.
“Stop circling the wagons around index funds here,” he said.
“If you want to invest right now, you have to own some stocks from the second bucket — the COVID winners — and whenever the market gets slammed, you can buy members of the first bucket, the big businesses with deep pockets,” he said.
The first basket of equities that Cramer suggests picking among includes firms that are “big enough and deep-pocketed enough” to weather the economic impact of the coronavirus crisis. The companies are investible through an economic downturn for their healthy balance sheets during such events.
His first bucket includes IBM and Union Pacific.
“Big businesses with good balance sheets are investible because we know eventually they’ll be just fine,” he said. “And they’re especially investible when their stocks got hit on potentially fake news, like we saw with the Chinese data suggesting Gilead’s antiviral drug, remdesivir, doesn’t work on COVID-19.”
In the second bucket are companies that have been able to adapt, maintain business and benefit from the coronavirus pandemic and made efforts to slow the spread of the deadly disease, Cramer said.
“These are companies that were made for this moment, the ones that thrive in this new stay-at-home economy,” he said.
This group is nine times as large and ranges more industries:
- Retail plays: Amazon, Walmart, Costco, and Target
- Consumer goods plays: Kimberly-Clark and Procter & Gamble
- Pantry plays: Hormel Foods, J M Smucker, General Mills, Mondelez International, and McCormick
- Stay-at-home plays: Zoom Video Communications, RingCentral, ZScaler, Okta, Crowdstrike, Domino’s Pizza, and Netflix
As for a third bucket, Cramer made note of industries that have been hit hardest by the global health crisis. Those businesses are at risk of needing a bailout, shutting down altogether or nearing bankruptcy. Those industries include banking, oil, most retailers, airlines and the travel and leisure cohort.
“The third bucket actually reflects the very real weakness in the economy,” he said adding “it’s like the 22 million jobs lost over the past five weeks.”
“But the most important thing here is that the third bucket’s a lot bigger than the first two when it comes to employees and when it comes to the fabric of our society, which is why it’s so tough to own index funds here.”
U.S. stock futures fall as oil prices continue to tumble
U.S. stock index futures sank Monday night as crude oil prices continued to fall.
Dow Jones Industrial Average futures were last down about 100 points, or 0.5%, and S&P 500 futures and Nasdaq-100 futures dipped as well.
June WTI crude, the U.S. benchmark was down more than 14%, below $11 a barrel, after tumbling nearly 25% during Monday’s trading on renewed worries about a scarcity of places to store an overflow of crude.
June Brent crude, the international benchmark, fell more than 4% Monday night after sliding nearly 7% the previous session.
On Wall Street Monday, the Dow scored its fourth straight session of gains as countries and U.S. states started to reopen – or at least plan how to reopen – their economies.