Stocks surged Tuesday, recouping some losses as market participants anxiously awaited further fiscal stimulus measures from policymakers to combat the economic fallout from the coronavirus pandemic.
During pre-market trading, contracts of each of the S&P 500, Nasdaq 100 and Dow Jones Industrial Average rallied about 5% to hit their upper trading limits, which are established each day by CME Group. The indices were pinned to “limit up” as of Tuesday morning, with about two hours to go until the opening bell.
Monday was yet another ugly day on Wall Street, which saw the Dow erase nearly all of its gains from the presidential election day in November 2016. It capped a second straight session in the red after the U.S. Senate again failed to approve a nearly $2 trillion economic rescue package, disappointing investors hoping to see a speedy authorization of the relief legislation.
Late Monday, House Speaker Nancy Pelosi unveiled a $2.5 trillion coronavirus economic rescue package as a countermeasure to the Senate’s polarized debate. She signaled optimism on Tuesday that the warring parties were closing in on an agreement.
The repeat stalling of the Senate bill came just hours after the U.S. Federal Reserve unleashed its own set of new and extensive measures to help keep corporate credit flows and other critical parts of financial markets functioning smoothly. The new program included unprecedented measures from the Fed, including purchases of eligible corporate bonds from companies and exchange-traded funds, and purchases of commercial mortgage-backed securities.
“With the Fed now all-in and then some, the onus will be largely on fiscal policy to provide any further support for consumers and businesses,” Ben Ayers, senior economist for Nationwide, said in an email Monday. “Early signals suggest widespread layoffs and cutbacks by businesses with the sudden economic stop seen across the globe, necessitating further action to cushion the harm to the economy.”
Damage from the outbreak has taken a massive toll on small and local businesses, as well as the country’s largest corporations, as residents practice social distancing and shun leisure and travel. These huge, if temporary, societal changes have been aimed at slowing the spread of the coronavirus, which has sickened more than 46,000 U.S. citizens as of Tuesday morning, according to Johns Hopkins data.
The ensuing business disruptions and economic uncertainty has weighed heavily on risk assets, with the S&P 500 tumbling by about 34% from its recent closing high on February 19.
President Urges Back to Work Possible in Weeks, Not Months
President Trump says he’s ready to get Americans back to work as he believes the economy will crater absent a strong signal, and wants to stagger the reopening of work nationwide, people who’ve spoken to him tell Axios.
Behind the scenes: Trump has been hearing from lots of people in the business community and conservative media telling him the economy can’t survive this shutdown much longer. The sources say that “horrific,” “truly scary” economic consequences were described to Trump.
“We have to get this going,” Trump said during a dinnertime briefing that lasted nearly two hours.
- “[T]he faster we get it going, the more likely it is that those stores, little businesses, big businesses, medium-sized businesses open up.”
- “And we’ll get [the economy] going very fast. … As soon as we say ‘let’s go’ — and it’s gonna be pretty soon. … It’s gonna be sooner than people would think.”
What’s next: Nothing has been decided yet. But Trump has been persuaded, in line with his instincts, that the economy can’t sustain this shutdown for much longer.
- The administration is discussing different tiers to ease Americans back into normal life after the 15-day period that ends next Monday.
- People with underlying health issues or in the highest risk age range will likely be asked to stick with isolation.
- But others could be encouraged to get back into a more normal routine.
Between the lines: Remember that Trump has no public health professionals in his circle of informal advisers. Those are not his go-to calls when he’s in the residence late at night. They’re all business or media folks.
- The president wants an end date to give businesses, markets and consumers — hence his fixation on the 15-day deadline.
11:15 Gold rallies, suggesting investors are done selling (for now)
One of the more curious features of the current market volatility has been gold (GC=F), which hasn’t behaved much like a safe-haven as traders liquidate positions. The Fed’s “Big Bertha” stimulus, which several market commentators have branded “QE-infinity” means that bullion’s sell-off may be done in the short term (especially with the dollar weakening), and investors are starting to focus on the ugly fundamentals to come.
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