Instant View: Powell: No U.S. growth recovery until epidemic controlled

(Reuters) - A full U.S. economic recovery will not occur until the American people are sure that the novel coronavirus epidemic has been brought under control, Federal Reserve Chair Jerome Powell said on Tuesday as he began the first of two days of hearings before U.S. lawmakers.

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MARKET REACTION:

STOCKS: The S&P 500 .SPX initially extended gains then slipped back to stand 1.42% firmer

BONDS: U.S. Treasury yields firmed then slipped; 2s US2YT=RR last at 0.1951%; 10s US10YT=RR at 0.7364%

FOREX: The U.S. dollar index .DXY extended gains as was about 0.64% higher

COMMENTS:

ANDREW RICHMAN, DIRECTOR OF FIXED INCOME STRATEGIES, TRUIST/SUNTRUST ADVISORY SERVICES, JUPITER, FLORIDA

“They’re reemphasizing that they stand ready, that they’re going to be very, very accommodative here. They’re not concerned about unwinding the balance sheet.”

“I think they’re more concerned about lack of growth and disinflation right now.”

OLIVER PURSCHE, PRESIDENT, BRONSON MEADOWS CAPITAL MANAGEMENT, FAIRFIELD, CONNECTICUT

“The most important thing (Powell) said today was a reminder that the Fed expects second-quarter GDP to come down significantly. So he’s positioning the market and investors to be ready for bad news even as the outlook for the future continues to improve. Other than that, things continue to go well. There was news today of an anti-inflammatory drug having a positive effect on the (coronavirus), and we know that masks are very, very helpful in stopping spread of the virus, so there’s legitimate reason for optimism.”

KEVIN FLANAGAN, HEAD OF FIXED INCOME STRATEGY, WISDOMTREE ASSET MANAGEMENT, NEW YORK

“I think he (Powell) was playing both sides of the fence. He talked about the uncertain economic recovery but then he was talking about bottoming out. I’m in agreement with the Fed and its economic outlook, that it seems more like it will be an elongated U-shaped recovery. By saying that challenges remain, and maybe the worst is behind us, from the Fed’s point of view they don’t expect recovery to take us back to pre-pandemic levels in just three months.”

“The bond market isn’t doing that much. So far I don’t think Powell’s comments are really all that much different than from the Fed meeting last week.”

ANDRE BAKHOS, MANAGING DIRECTOR, NEW VINES CAPITAL LLC, BERNARDSVILLE, NEW JERSEY

“We have the Fed committing to buying corporate bonds, which gives the market confidence that the Fed is going to be there on several levels and is extending their reach. We have a mindset that there’s a safety net underneath.”

“In addition, we had retail sales which is giving signals to the investing community that things will be okay, things are better than first assessed. The market is focusing on the positives, and is ignoring the negatives.”

“There’s also a fear of missing out. We have some good news coming in now so investors are scrambling to grab equities again. Rates are so low that the perception is - what is going to give you the best return, a 10 year bond, or the market getting better within 10 years.”