Unlimited QE and the Fiscal Bazooka

Policy response scaled decisively. The Fed committed to open-ended Treasury and MBS purchases and activated facilities for corporates and municipalities. The Treasury and Congress delivered the CARES Act, adding sizeable income support and loans. Liquidity improved quickly: bid-ask tightened, credit ETFs converged to NAV, and primary issuance reopened for high-grade borrowers. Equity markets stabilized, setting a floor under risk premia.

The credibility of joint monetary-fiscal action was central. By backstopping core funding markets and signaling a willingness to absorb duration, the Fed reduced left-tail risks. Fiscal support bridged household and corporate cash flows. Spreads tightened from wides, though dispersion grew by sector. We expected uneven recovery paths and permanent shifts in behavior, requiring focus on balance sheets and adaptability rather than pre-crisis momentum alone.

In client portfolios we added investment-grade credit, emphasizing issuers with central bank eligibility and resilient liquidity. We trimmed downside hedges as volatility fell, and set rules for staged equity re-risking tied to primary issuance breadth, hospital data trajectories, and fiscal extension signals. We maintained elevated cash and core duration as macro shock absorbers while rotating away from structurally challenged sectors.

We built a roadmap for normalization. We monitored small-business lending, jobless claims, and mobility data. We planned to add selectively to cyclicals once inventories cleared and profit visibility improved. Policy had changed the distribution of outcomes; our portfolios reflected that with more carry and controlled equity exposure, ready to scale as the policy bridge held.