COVID-19-Ravaged Legacy Markets Remain Extremely Fragile Despite Stimulus

According to Joyce Chang, Nikolaos Panigirtzoglou, and Marko Kolanovic, strategists for JP Morgan Chase, liquidity remains to be a struggle. The collective wrote:

Liquidity conditions have improved considerably, though not fully, and overall functioning has mostly been restored, but markets remain in an unstable equilibrium and vulnerable to shocks.

Some strong, Some Weak

While bond and credit markets have shown increased stability, other sectors remain in grave danger. These include both equities and foreign exchanges, both of which have shown signs of recovery since March. While prices appear to have recovered, underlying metrics indicate that the recovery may be hollow. For example, the report indicates that market depth for E-mini S&P 500 futures stands approximately 60% beneath the pre-March level. With apparent holes still remaining, the overall report from JPMorgan Chase appears to be somewhat negative.

COVID-19 Stimulus Debate

The liquidity crisis has softened after the substantial injection of dollars by the Federal Reserve. However, in spite of nearly $7 trillion spent in bolstering the liquidity crisis, dollars remain scarce. With banks and other institutions clamoring for increased liquidity, the potential for another injection remains high. And, while the Fed and Congress consider another COVID-19 stimulus payout, the real problem per the report is the fundamental support under the market.