Topsy-Turvy Stimulus Talks Leave Markets Up, Just Barely

As go stimulus negotiations recently on Capitol Hill, so, too, go rallies and valleys on Wall Street.

Pedestrians pass the New York Stock Exchange last Friday in New York. (AP Photo/John Minchillo)

MANHATTAN (CN) — Markets rose on renewed hopes that lawmakers could agree on a relief bill, keeping markets on track for a positive closing Friday after a raucous early part of the week.

The markets this week have been on a roller coaster. Investors rallied on Monday, with the Dow Jones Industrial Average picking up 460 points on stimulus hopes. Those hopes were dashed Tuesday, however, and most of the gains lost after President Trump apparently scuttled the stimulus until after the election. The Dow shed more than 300 points by Tuesday’s close.

On Friday, the Dow gained 161 points, a 0.5% increase, while the Nasdaq and S&P 500 gained 1.38% and 0.88%, respectively.

“Like Pavlov’s dogs, stocks continued to react to every promising headline, but the moves have become much muted in scope, and the only clear signal from the markets this week is that volatility has compressed markedly,” Boris Schlossberg of BK Asset Management wrote in an investor’s note. 

“Equities appear to have reached the end of their ‘stimulus’ premium and may be vulnerable to some profit-taking if news fails to provide further evidence of progress,” Schlossberg added.

Contradictory comments from the president over the last week did not help matters. On Tuesday, Trump tweeted that he had instructed White House officials to cut off negotiations until after Election Day due to Democrats’ $2.4 trillion request being too large.

Hours later, however, the president agreed with the chair of the Federal Reserve that no stimulus could be too big in the current environment.

“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Jerome Powell said during a speech to the National Association for Business Economics on Tuesday. “By the contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste.”

Trump, bizarrely, retweeted a story citing Powell’s comments with the statement, “True!”

By Friday, the president was back on board with relief negotiations. “Covid Relief Negotiations are moving along. Go Big!” he tweeted.

Regardless of the president’s support, some speculate it may be a slog getting something put together that will pass both Democrats’ muster and the requirements of the GOP-led Senate.

“Should Mr. Trump win next month, he will still most likely face a divided Congress and a Democratic House somewhat irked by his second upset victor,” wrote Nicholas Colas, co-founder of DataTrek Research. “Negotiating a CARES ACT II will be no easier in November/December 2020 than it is right now.” 

Colas noted a Biden victory would not likely lead to smooth stimulus sailing after Election Day. “Nothing will happen in Washington between [Election Day and Inauguration Day], including fiscal stimulus,” he wrote. “The same goes for the political environment in D.C. if the election results are contested.”

Others are more optimistic. “Eventually, though, more money printing is coming,” wrote James Meyer at Tower Bridge Advisors. “It is just a matter of timing. That is why the market responded so quickly after the sell-off on Tuesday. So long as the sides are talking, prospects for a pre-election bill get priced into stocks.”

In the absence of a stimulus package, some agencies are making minor moves to help businesses and investors.

Late Thursday, the Small Business Administration streamlined its loan-forgiveness application for Paycheck Protection Program loans of $50,000 or less. Treasury Secretary Steven Mnuchin said he favors legislation to further simplify the forgiveness process.

The PPP has provided nearly $525 billion in loans to small businesses, according to the Treasury Department, and has been hailed by members on both sides of the aisle as a necessary lifeline to struggling businesses.

But the program has also come under fire for allowing publicly traded and larger companies to tap into the funds, while some have complained about the complex and confusing application and loan forgiveness instructions.

Small businesses remain concerned about PPP borrowing. According to a survey earlier in the week by the National Federation of Independent Business, almost 9 out of 10 PPP borrowers have spent their entire loan and are preparing to apply for loan forgiveness. Of that amount, 22% expect to lay off employees in the next six months, while almost half anticipate needing additional financial support during the next year.

“Small businesses are in danger of closing for good if they don’t get additional financial assistance,” said Holly Wade, executive director of NFIB’s research center. “It has been over six months from the onset of the health crisis and economic shutdowns, and small businesses are still struggling.”

Weekly unemployment numbers were mixed this week, with 840,000 new claims under regular state unemployment programs during the week ending October 3. Yet those needing special Pandemic Unemployment Assistance continues to grow, with 464,000 applying under that program last week.

Worse, researchers at the Federal Reserve Bank of St. Louis found recently that while most unemployment groups are declining, long-term unemployment is increasing and stood at 5.1% of the labor force as of August. “If the previous recession is any indication, reducing long-term unemployment may take a long time,” the researchers wrote.

Markets last week dipped sharply after news broke that President Trump had contracted coronavirus. Trump spent last weekend at Walter Reed Medical Center on an experimental dose of Regeneron, and after his release he claimed he has been “cured.”

Following the president’s release, however, questions remain about when exactly he contracted the virus, as well as whether he remains contagious. Trump will appear on Tucker Carlson’s show Friday night, where he will reportedly undergo a live medical evaluation by Dr. Marc Siegel, a network contributor. Siegel had previously claimed Covid-19 was no worse than the common flu.

To date, more than 36.6 million have contracted Covid-19 worldwide, according to data compiled by Johns Hopkins University. In the United States alone, just shy of 7.6 million have been confirmed infected while more than 213,000 have died. More than 1 million people have died from the virus.

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