Markets WantCongress to Help Private Sector, Morgan Stanley Head Says

There’s only so much the Fed can do to backstop markets in the coronavirus crisis, says Jim Caron, head of global macro strategies for Morgan Stanley Investment Management’s fixed-income group.

Kevin Dietsch/UPI/Bloomberg

Kevin Dietsch/UPI/Bloomberg

Investors want more action from Congress to help small businesses through the coronavirus pandemic, as there’s only so much the Federal Reserve can do to curb a downward spiral in markets, according to a senior portfolio manager in Morgan Stanley’s asset management business.

While the Fed’s move Tuesday to support commercial paper provides needed relief to markets, investors are still looking for legislative action, Jim Caron, head of global macro strategies for Morgan Stanley Investment Management’s fixed-income group, said in a phone interview.

Small and mid-sized businesses will be hurt the most by inactivity as people stay home to stop the spread of the virus, according to Caron. He said a loan to this part of the economy could help keep businesses open so people can go back to work after the virus passes.

“What we haven’t been seeing is enough private sector support,” said Caron. That’s why markets have been “disappointed,” including after the Fed’s emergency rate cut on Sunday, March 15.

The Fed announced Tuesday morning that it will set up a commercial paper funding facility to “support the flow of credit to households and businesses.” The stock market rallied on the move, with the Standard & Poor’s 500 index up more than six percent in mid-afternoon trading in New York. That compares with a steep drop of 12 percent on March 16.

Caron said he likes the step made by the Fed, as the commercial paper market has been strained.

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“The commercial paper market has been very illiquid,” said Caron. “When you have illiquidity in some of the shortest, safest paper, the longer, riskier paper is going to be even more stressed.”

With corporate debt trading lower on coronavirus fears, Morgan Stanley’s asset management group has found “selective” buying opportunities, according to Caron. His group has been willing to buy investment-grade and high-yield debt, as well as fixed-income assets in emerging markets, even as it has been “playing some defense” in the market turmoil.

“Everything is under stress right now,” said Caron, making it easy to find cheap assets. “But liquidity is tough,” he said, “so it’s hard to make a lot of these actions.”

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Now Congress needs to step up and help the private sector, said Caron. He believes the U.S. should introduce “credit facilities” targeting private industries that are in trouble, including airlines, as well as smaller businesses across the board.

While other countries have already included small and mid-sized businesses under their emergency “support facilities,” he said, “the U.S. has not at this point.”

Small and mid-sized companies account for the majority of jobs in the U.S., according to Caron. He said a small business might have ten or 20 employees, while a mid-sized company could employ 50 to 100 people.

It’s hard to know how long the pandemic will last, said Caron. Every time President Donald Trump and Congressional leaders speak without a plan to support businesses, he said, “it’s a failure and the market goes down.”

Treasury Secretary Steve Mnuchin announced on Tuesday the White House is working with Congress to pass an economic stimulus package “very quickly” to help small businesses and American workers.

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