MANHATTAN (CN) — After meager earnings the last few trading days, Wall Street bounced back on Wednesday amid efforts by lawmakers to enact new stimulus measures.
Wall Street has had no shortage of bad news recently — from the recent protests across America against police violence to rising tensions with China — but the market has become inured to such negative tidings.
On Wednesday it was no different, with the Dow Jones Industrial Average gaining 527 points by the closing bell. The S&P 500 also did well, marking a 1.3% increase for the day, while the Nasdaq now sits only 135 points below its high point back of 9,817 points in February.
“The list of things the market cares about seems to dwindle,” Stephen Innes of Axi Corp. wrote in an investor’s note Wednesday morning. “Instead, news flow around new stimulus packages and possible vaccine breakthroughs are greeted emphatically.”
Some economists have been encouraged by slowing unemployment claims over the last two months. On Wednesday, Moody’s Analytics economist Mark Zandi was quoted on CNBC as saying that jobs will start coming back this week. “The Covid-19 recession is over, barring another second wave, a major second wave, or real serious policy errors,” he said.
Zandi had previously said that many of the lost jobs would not come back, however, and that the unemployment rate would likely reach 8% or 9% by November.
Lawmakers in the House and Senate now plan for a fourth, and possibly final, stimulus package. The idea is that such legislation would pass sometime in July.
In a hearing Wednesday before the House Budget Committee, former directors of the nonpartisan Congressional Budget Office warned lawmakers that more will need to be done to shore up the economy despite the rising federal budget.
Unemployment benefits and other programs designed to help Americans during the pandemic should be extended past July, said Douglas Elmendorf, dean of Harvard University’s Kennedy School and former CBO director from 2009 through 2015.
Elmendorf cited historical precedent for government spending as an economic driver, noting that the U.S. economy tightened spending in the middle of the Great Depression, causing the economy to once again contract.
“That is the lesson that was forgotten in 1937,” Elmendorf said. “It was forgotten in 2011. It is crucially important that Congress not forget it now.”
Douglas Holtz-Eakin, president of the American Action Forum and a CBO director from 2003 to 2005, said the “missing link” in stimulus payments has been the $500 billion appropriated to the Treasury to help states and localities, as well as the Federal Reserve’s Main Street Lending Program.
Federal Reserve Chairman Jerome Powell has said the Main Street lending program will roll out sometime in the next few days. The Trump administration has caught flak for some of its other stimulus programs holding onto billions of dollars in emergency aid.
“To this date, not a single dollar has flowed out of those facilities. That is something that needs to be rectified quickly,” said Holtz-Eakin, who served as economic adviser to Senator John McCain’s 2008 presidential campaign. “That $500 billion could turn into $4 trillion or $5 trillion in additional support for the U.S. economy.”
Some lawmakers worry, however, about ballooning budget deficits as a result of the pandemic. “We want to do a lot,” Georgia Representative Rob Woodall said during the hearing. “And my concern is whether we borrow it all or whether were going to collect it as tax revenues, we can only spend each dollar once.”
In addition to another stimulus, lawmakers are tinkering at the edges of existing programs, such as the Paycheck Protection Program.
Under the PPP’s current guidelines, small businesses have only eight weeks to spend their loans, but a bill passed last week in the House extends that timeline to 24 weeks and grants additional flexibility on how the funds can be used.
According to a June 2 survey by the National Federation of Independent Business, more than three-quarters of small business owners have applied for a PPP loan, and more than 9 out of 10 who applied for a loan have received it.
The number of people infected worldwide with Covid-19 has grown to nearly 6.4 million, while 382,000 have died. according to data compiled by Johns Hopkins University. In the United States, 1.8 million are confirmed to have had Covid-19, while nearly 107,000 have died.