The unprecedented $2trn emergency stimulus package agreed by the US Congress last night to fight the fallout of the coronavirus pandemic may be the first of a number of such packages, industry experts have suggested, while the length of ongoing quarantine measures in the world’s largest economy is set to be the key factor in recovery.
Confirmation of the deal, which largely consists of money to bail out affected industries as well as helicopter money for US households, saw US equity markets rally by more than 9% last night, while Asian and European markets have also opened higher.
It follows the Federal Reserve's package of monetary policy support, announced earlier this week, which effectively infinitely extended quantitative easing measures, and established facilities for the purchase of corporate bonds and support for municipal lenders.
Reacting to market movements on Twitter this morning (25 March) deputy CIO at Brooks Macdonald Edward Park said the package is "what the market sorely wanted" and the rally in early trading should be maintained when US markets open later today.
Manager of the Legg Mason Brandywine Global Income Optimiser fund Brian Kloss described the bipartisan deal as "a real step forward", which should provide investors with "comfort in the short term".
However, he said the length of the ongoing shutdown is paramount for the outlook for US assets.
Kloss explained: "If the shutdown is extended, for example for three months, then it will be nowhere near enough.
"After all, this pandemic has already caused a huge shock to demand, and if you combine that with what will undoubtedly be some horrific data over the next few months, then the spending bill probably still won't be enough.
"Therefore should the shutdown continue, then this stimulus package will be the first of many."
In contrast to most major world leaders, US President Donald Trump has been vocal in his desire to restrict and reduce quarantine measures in efforts to limit damage to the economy. Most recently, he has suggested Easter could be a date to end the shutdown.
Chief market strategist, EMEA at J.P. Morgan Asset Management Karen Ward said the "key question" is whether the combination of the $2trn stimulus package and the Fed's support "will be enough to facilitate a rebound once the virus is contained and shutdowns are removed".
She added: "To answer this question we are following the employment data closely. If government policies prevent people from losing their jobs then a bounce back looks feasible.
"We are more confident that the stimulus policies put in place in Europe will adequately support employment [whereas] we suspect - and believe the jobless claims data out tomorrow will testify - that US unemployment is already on the rise, which will prolong the period of weakness."
Multi-asset portfolio manager at Janus Henderson Investors Oliver Blackbourn warned that while equity markets reacted positively overnight, this could be short-lived.
He explained: "Equities tend to act more on hope for the future than credit markets, which focus on the need to survive the intervening period.
"Credit markets also moved higher yesterday, although it was noticeable that US dollar high yield debt is still close to its lows given that these companies are more likely to fall through the cracks in both Fed and government policies."
Blackbourn added that the market will now be watching closely for a peak in US virus, meaning that investors "need to remain vigilant about how the growth rate of new cases develops and how governments respond going forward".
He said: "While policy looks to have lessened the economic pain, only better health data can make it go away".