Wall Street Coasts on Best Quarter as Stimulus Efforts Run Dry

The second quarter of 2020 was one of the best quarters for Wall Street, despite concerns that the stimulus programs propping up the economy may expire next month. 

Shoppers move about in Garden State Plaza in Paramus, N.J., on Monday. (AP Photo/Seth Wenig, File)

MANHATTAN (CN) — Despite some choppy trading on Tuesday, investors capped off one of the best overall quarters on Wall Street. 

By the closing bell, the Dow Jones Industrial Average gained 215 points, less than a 1% increase, while the S&P 500 gained 1.6%. Both markets are still behind the eight ball after Friday’s rout, but the Nasdaq gained 1.8%, coming close to its previous high of 10,130. 

Despite the ups and downs, the second quarter has been one of Wall Street’s best in decades. The Dow has gained about 15% over the last three months, while the S&P 500 has gained about 19% and the Nasdaq gained a huge 28% in that period.

As key stimulus and lending programs may taper off, however, some experts are becoming increasingly worried about the prospects in the third quarter.

During a hearing before the House Financial Services Committee, key fiscal and monetary policymakers said they are prepared to expand lending facilities to prevent an economic collapse. 

Federal Reserve Chairman Jerome Powell noted that banks have taken on “a wave of deposits,” and that financial system is prepared to handle a rocky recovery, unlike during the Great Recession. “They are a source of strength in this situation unlike the last situation where they were a source of weakness,” he told lawmakers.

Powell credited some of the Fed’s own programs, including the recently unveiled Main Street Lending Program, with stabilizing markets. The chairman also said he is open to lowering the threshold on some of those programs to allow additional borrowers. 

Meanwhile some stimulus programs still have funds left in their coffers.

The deadline to apply for loans under the Paycheck Protection Program — the lending program to help small businesses keep paying their employees — ends at midnight Tuesday. At least $130 billion remains unspent in the program, though lawmakers are looking at ways to use the appropriated funds.

Treasury Secretary Steven Mnuchin told the House he supports repurposing the unspent billions for other uses, and that he has spoken with senators about drafting legislation by the end of July to do so with a target on such hard-hit industries as restaurants and hotels.

Some lawmakers are nevertheless concerned about the continued lack of disclosure about PPP. Mnuchin has said he would provide disclosures about small businesses that received more than $150,000 in PPP funds, though neither the Treasury Department nor the Small Business Administration has yet posted any such disclosures.

The program’s struggles may also create political problems for repurposing the unspent funds. “We need to know if the program worked as intended by Congress,” Congresswoman Nydia Velazquez of New York said. “What about the millions of minorities and women-owned businesses that were not able to access to program?”

Velazquez, a Democrat who chairs the House Small Business Committee, has scrutinized the PPP for a lack of transparency and has asked the inspector general to look into various problems with the program. 

“No one should get a second loan unless we know that most businesses who are struggling get a chance to get a loan,” she told Mnuchin during the hearing.

Meanwhile, lawmakers are concerned about the expiration of other stimulus programs, including additional unemployment insurance benefits.

The $600 weekly plus-up of unemployment benefits ends at the end of next month, though the benefits have become increasingly political, with Democrats calling for an extension through later in the year and some Republicans saying the benefits are doing more harm than good.

“We’re not out of this thing,” Colorado Congressman Ed Perlmutter, a Democrat, who warned of the hit to the economy if state and local governments begin laying off employees.

“I see a brick wall at the end of July,” Perlmutter said.

Former White House economic adviser Stephen Moore told Fox Business last week that extending the $600 plus-up would prevent an economic recovery and would be a political disaster for President Trump. “If Trump gets this right, he has a very strong chance of getting reelected,” Moore said on “Varney & Co.” “If he gets it wrong, he has no chance of getting reelected.”

Negotiations on a fourth phase of stimulus efforts are slated to begin in July, though it is unclear whether such a package would include a payroll tax cut like the White House wants, extended unemployment benefits like Democrats want, or indeed if any package would even pass.

A second wave of coronavirus also could derail the economy, though financial experts say it is unlikely states will impose the same kind of lockdowns as in March. 

In an investor’s note Tuesday, AxiTrader Chief Global Market Strategist Stephen Innes wrote: “It seems unavoidable that we’ll continue to see isolated virus outbreaks as the world reintegrates.”

But “barring a full-blown resurgence,” Innes added, “it seems highly unlikely that aggressive lockdown measures will be re-imposed globally, which would leave the gradual recovery of demand intact.”

The administration’s leading infectious disease expert, Dr. Anthony Fauci, told lawmakers on Tuesday the outbreak is on trend to surpass 100,000 new infections per day in the United States if nothing is done. In the past week, more than 35,000 new cases of Covid-19 have been reported daily.

To date, more than 10.3 million people have been infected by Covid-19 worldwide, while about 507,000 have died, according to data compiled by Johns Hopkins University. In the United States, 2.6 million people have contracted Covid-19, while more than 126,000 have died.

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