Question

Stock Market & Zero Interest Rates, What happened to the stock market, will it recover? Will be go into a Recession or Depression?

Housing -- Mortgage Payments & Rent, Landlords & Evictions; Will this create a housing crisis?

CARES Act - Background Information, relief provided, costs of CARES Act, was it enough?

Answer 1

1. Stock Market & Zero Interest Rates, What happened to the stock market, will it recover? Will be go into a Recession or Depression?

Interest Rates and the Stock Market

                   If a company is seen as cutting back on its growth or is less profitable—either through higher debt expenses or less revenue the estimated amount of future cash flows will drop. All else being equal, this will lower the price of the company's stock.

Some sectors do benefit from interest rate hikes. One sector that tends to benefit most is the financial industry. Banks, brokerages, mortgage companies, and insurance companies' earnings often increase as interest rates move higher because they charge more for lending.

Changes in interest rates can create opportunities for investors. To be able to take advantage or to hedge against these swings in interest rates you would need an investment account through a broker.

Understanding the relationship between interest rates and the stock market can help investors understand how changes may affect their investments, and how to make better financial decisions.

The interest rate that moves markets is the federal funds rate. Also known as the discount rate, this is the rate depository institutions are charged for borrowing money from Federal Reserve banks.

The federal funds rate is used by the Federal Reserve (the Fed) to attempt to control inflation. By increasing the federal funds rate, the Fed basically attempts to shrink the supply of money available for purchasing or doing things, thus making money more expensive to obtain. Conversely, when it decreases the federal funds rate, it increases the money supply and encourages spending by making it cheaper to borrow.

                                When the Fed increases the discount rate, it does not directly affect the stock market. The only truly direct effect is that borrowing money from the Fed is more expensive for banks. But, as noted above, increases in the rate have a ripple effect.

Because it costs those more to borrow money, financial institutions often increase the rates they charge their customers to borrow money. Individuals are affected through increases to credit card and mortgage interest rates, especially if these loans carry a variable interest rate. This has the effect of decreasing the amount of money consumers can spend. After all, people still have to pay the bills, and when those bills become more expensive, households are left with less disposable income. This means people will spend less discretionary money, which, in turn, affects businesses' revenues and profits.

But businesses are affected directly as well because they also borrow money from banks to run and expand their operations. When the banks make borrowing more expensive, companies may not borrow as much and will pay higher rates of interest on their loans. Less business spending can slow the growth of a company it may curtail expansion plans or new ventures, or even induce cutbacks. There may be a decrease in earnings as well, which, for a public company, usually affects its stock price negatively.

                                              When the economy is slowing, the Federal Reserve cuts the federal funds rate to stimulate financial activity. A decrease in interest rates by the Fed has the opposite effect of a rate hike. Investors and economists alike view lower interest rates as catalysts for growth a benefit to personal and corporate borrowing, which, in turn, leads to greater profits and a robust economy. Consumers will spend more, with the lower interest rates making them feel they can finally afford to buy that new house or send their kids to a private school. Businesses will enjoy the ability to finance operations, acquisitions, and expansions at a cheaper rate, thereby increasing their future earnings potential, which, in turn, leads to higher stock prices.

Particular winners of lower federal funds rates are dividend-paying sectors such as utilities and real estate investment trusts (REITs). Additionally, large companies with stable cash flows and strong balance sheets benefit from cheaper debt financing.

Impact of Recessions on Investors and interest rate during recession

A recession as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession is a period of declining economic performance across an entire economy that lasts for several months. Businesses, investors, and government officials track various economic indicators that can help predict or confirm the onset of recessions, but they're officially declared by the NBER.A variety of economic theories have been developed to explain how and why recessions occur.

                      Interest rates play a key role in the economy and in the process of the economic cycle of expansion and recession. Market interest rates are the result of the interaction of the supply and demand for credit. They represent both the price of liquidity for businesses and the preferences for present versus future consumption by consumers and savers, and so they constitute a key link between on-paper finance and the real economic interests of households and individuals. As such, they are also a primary area of concern for economic policy makers and central banks, both in general and especially during challenging economic times.

1. Interest rates are a key link in the economy between investors and savers, finance and real economic activity.

2. Markets for liquid credit function similarly to other types of markets, according to the laws of supply and demand.

3. When an economy enters recession, demand for liquidity increases but the supply of credit decreases, which would normally be expected to result in an increase in interest rates.

4. However, a central bank, such as the Federal Reserve, can use monetary policy to counteract the normal forces of supply and demand to reduce interest rates, and this is why we actually see falling interest rates during recessions

What happens to interest rates during recessions is thus a product of the interplay between all of these forces, groups, and institutions. How this plays out in any given recession depends on the goals, choices, and actions of these players. In modern times under central banking and fiat money as the universal norms, interest rates typically fall during recessions due to massive expansionary monetary policy.

                                              Numerous economic theories attempt to explain why and how the economy might fall off of its long-term growth trend and into a period of temporary recession. These theories can be broadly categorized as based on real economic factors, financial factors, or psychological factors, with some theories that bridge the gaps between these.

Some economists believe that real changes and structural shifts in industries best explain when and how economic recessions occur. For example, a sudden, sustained spike in oil prices due to a geopolitical crisis might simultaneously raise costs across many industries or a revolutionary new technology might rapidly make entire industries obsolete, in either case triggering a widespread recession.

2. Mortgage Payments & Rent, Landlords & Evictions; Will this create a housing crisis

A mortgage is a long-term loan designed to help you buy a house. In addition to repaying the principal, you also have to make interest payments to the lender. The home and land around it serve as collateral. But if you are looking to own a home, you need to know more than these generalities

                        The main factors determining your monthly mortgage payments are the size and term of the loan. Size is the amount of money you borrow and the term is the length of time you have to pay it back. Generally, the longer your term, the lower your monthly payment. That’s why 30-year mortgages are the most popular. Once you know the size of the loan you need for your new home, a mortgage calculator is an easy way to compare mortgage types and various lenders.

                  The first mortgage payment is due one full month after the last day of the month in which the home purchase closed. Unlike rent, due on the first day of the month for that month, mortgage payments are paid in arrears, on the first day of the month but for the previous month.

                  A landlord is the owner of a house, apartment, condominium, land, or real estate which is rented or leased to an individual or business, who is called a tenant (also a lessee or renter).a payment made periodically by a tenant to a landlord in return for the use of land, a building, an apartment, an office, or other property. An eviction is a legal process in which a landlord removes a tenant from a rental property. Many evictions happen because the tenant has not paid rent, or even because the tenant is habitually late on the rent. Your lease may outline other reasons you can be evicted.

      Millions of homeowners and renters already are behind on payments in the economic collapse, and the jobless ranks are growing. While aggressive federal and state intervention and temporary corporate measures have prevented a surge in evictions and foreclosures, the housing and rental market has fallen.  

Thus Mortgage Payments & Rent, Landlords & Evictions; Will this create a housing crisis.

3. CARES Act - Background Information, relief provided, costs of CARES Act, was it enough

The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, is a law intended to address the economic fallout of the COVID-19 pandemic in the United States. In its original form, it was introduced in the United States Congress.

                      In March 2020, U.S. lawmakers agreed on the passage of a $2 trillion stimulus bill called the CARES (Coronavirus Aid, Relief, and Economic Security) Act to blunt the impact of an economic downturn set in motion by the global coronavirus pandemic. On March 27, 2020, President Trump signed the bill into law. With most forecasters predicting that the U.S. economy is either already in a recession or heading into one, policymakers crafted legislation that dedicates historic government funding to support large and small businesses, industries, individuals and families, gig workers and independent contractors, and hospitals.

1. $367 billion loan and grant program for small businesses

2. Expansion of unemployment benefits to include people furloughed, gig workers, and freelancers, with benefits increased by $600 per week for a period of four months

3. Direct payments to families of $1,200 per adult and $500 per child for households making up to $75,000

4. Over $130 billion to hospitals, health care systems, and providers

5. $500 billion fund for loans to corporate America (which Democrats called a slush fund when the Treasury was solely in charge) overseen by an inspector general and a congressional panel, with every loan document made public

6. Cash grants of $25 billion for airlines (in addition to loans), $4 billion for air cargo carriers, $3 billion for airline contractors (caterers, etc.) for payroll support

7. Ban on stock buybacks for large companies receiving government loans during the term of their assistance plus one year

8. $150 billion to state and local governments

                            The CARES Act also established the Pandemic Emergency Unemployment Compensation (PEUC) program, which allows workers who have exhausted their unemployment compensation benefits to receive 13 more weeks of benefits, if they are able to work. Also, the Pandemic Unemployment Assistance (PUA) extends benefits to self-employed, freelancers, and independent contractors.

                         The Provider Relief Funds supports American families, workers, and the heroic healthcare providers in the battle against the COVID-19 outbreak. HHS is distributing $175 billion to hospitals and healthcare providers on the front lines of the coronavirus response.