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The Fed's Got Stock Traders' Backs

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A big reversal from Monday’s regular trading session saw the major indexes rush back up into the green, with the Dow gaining another 2.1%, or 556 points, the S&P 500 +1.34% and the Nasdaq +0.94%. Aside from a couple better-than-expected Q2 earnings results from JPMorgan (JPM - Free Report) and Citigroup (C - Free Report) this morning, the big boost came from Fed Governor Lael Brainard, who spoke at a webcast hosted by the National Association for Business Economics.

In her address, Brainard said that the Fed should utilize large-scale asset buys to keep the economy liquid amid a “thick fog of uncertainty” relating to the coronavirus pandemic, and should be practiced for a “sustained” period. She also said the ongoing economic recovery “will face headwinds for some time,” as we see this week with a re-shutdown of businesses in California amid a spike in new COVID cases.

While this doesn’t necessarily sound like good news, exactly, the Fed is once again saying it sees what the economy will potentially be going through, and is willing to do what it takes to make sure it will not seize up as a result of a turbulent re-entry to a “normal” domestic business existence. This was enough to keep indexes bidding up; the Down is now a mere 10% off its all-time highs, while the S&P 500 is only 6% off the pace. The Nasdaq, which hit new all-time highs mid-day yesterday before the big selloff on the California shutdown news, remains about 3% off new highs.

One stock up big Tuesday was Align Technologies (ALGN - Free Report) , which rose nearly 11% — nearly the entire gains for the stock in the month of June — though the reason was not due to any earnings surprise (Align reports Q2 a week from tomorrow), but from a strike call option expiring Friday, at $300. Tesla (TSLA - Free Report) , however, rose again on a fresh price target from Piper Sandler, which now expects Tesla to climb to $2322 per share, more than 50% higher than the current stock price. Tesla is having an unbelievably strong trading year, and saw Robinhood app traders add Tesla positions at a rate of 10K per hour for a portion of the past day.

Brainard’s comments today — as well as those similarly remedy-minded remarks from St. Louis Fed President James Bullard — now put the ball squarely into Congress’ court. Many relief programs passed earlier for COVID-related struggles in terms of businesses shuttering and millions of layoffs are due to expire within the next month; without more stimulus — especially with a renewed shutdown currently in the works in the U.S.’s most populous states — the economy may be in for more hurt than most investors are pricing in at the moment.

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