Wall Street ended its two-day slump after the Senate passed more funding to support small businesses ravaged by Covid-19-inspired social-distancing guidelines.
MANHATTAN (CN) — After two days of losses, Wall Street did an about-face and opened to mild gains on Wednesday following news of additional loan funding for small businesses.
The Senate unanimously passed the $484 billion relief plan Tuesday afternoon, fueling the Small Business Administration’s Paycheck Protection Program with $310 billion in additional funding.
The program’s original $349 billion in funding ran dry earlier this month after just two weeks of working with small businesses, sole proprietorships and self-employed business owners who had rushed their banks to get a cut of the cash.
At the opening bell, the Dow Jones Industrial Average immediately gained 430 points. The S&P 500 and Nasdaq also recouped losses, gaining 2% each during the first few minutes of trading.
The market rebound comes after a two-day sell-off due to plunging oil prices. Oil contracts for June have stopped falling but now remain at about $14 a barrel for the West Texas Intermediate, still a precariously low level.
Markets in Asia and Europe also gained back some of their losses on Tuesday. Markets in Japan and Australia closed with minor losses, but those in Hong Kong, South Korea and Shanghai all gained less than a percentage point by close. Markets in Europe were all up at least half a percentage point by 8:30 a.m. EST.
Any uptick in trading could be another false start, some say. “All bear markets include false rallies, often associated with supportive monetary policy,” a group of Citigroup analysts wrote in an investor note. “But markets only find a sustainable base when there are signs that cheap money is feeding through into the real economy, rather than temporarily supporting asset prices.”
Despite its popularity, the SBA’s lending program has been rife with both technical and systemic problems. Many of the kinks have reportedly now been ironed out, but plenty of small business applicants have not yet received their checks.
A survey earlier this week by the National Federation of Independent Business found that 80% of small businesses that submitted successful applications had not yet received their funds, with many unsure where they are in the application process.
NFIB President Brad Close lauded the new bill for setting aside $60 billion specifically for small- and mid-sized community banks.
Other groups have expressed concerns. The Consumer Bankers Association called the program “a lifeline for the millions of men and women employed by America’s small businesses” but worried about the bill’s language may require some banks to reprogram their application systems.
Senator Marco Rubio, a Florida Republican who has pushed for keeping the PPP funded, said banks have relatively easy documentation requirements under program. “Just imagine if we made applicants produce extensive records,” Rubio tweeted late Tuesday night. “Every story now would instead be about how #PPPloans have burdensome record requirements & take weeks to approve.”
A deeper concern is that this second infusion of funding may last only a few days.
In comments to Politico, CBA President Richard Hunt said he expects banks can stretch the funding for perhaps an additional three days. “But the odds are more like 48 hours,” he told Politico.
Added to those problems, the SBA revealed Tuesday that its website inadvertently exposed the personal information of nearly 8,000 small business owners who had applied under a separate funding program. The agency notified the affected owners and offered them a year of free credit monitoring.