The stock market gave up massive gains on Tuesday, and stocks have gone from dramatically oversold to no longer oversold, at least on a short-term level.
Why this giddy rally — 20% off the lows in two weeks — in the face of what will likely be a recession far more serious than 2008-2009? The market has gone from despair and helplessness, to the realization that social distancing is working, but it has also come to the realization that the Federal Reserve — and the arrayed forces of global central banks — cannot be defeated, at least not in the long run, and they are smarter and even more aggressive than they were in 2008.
It helps that no less a figure than Larry Kudlow has gone a long way to bolster this mythology around the Fed, claiming today that the Fed had the "ultimate bazooka.""We have a potpourri of forces here, and we know who is going to win — the Fed is going to win," Joe Zicherman, a veteran Morgan Stanley trader who now runs his own money, told me. "Kudlow says the Fed is sitting with the ultimate bazooka. Do you want to fight that? I don't think so.
While many can bemoan the death of capital markets, at least it has helped strategists start to get a grip around the extent of the decline in earnings we may be facing in 2020. Don't get me wrong: They have gone from clueless to only mildly clueless, but most are now coalescing around declines of roughly 20% to 30% for S&P earnings in 2020:
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