Markets swooned in the last hour of trading on Tuesday after President Trump announced that he is halting talks on a next round of coronavirus aid until after the election.
“I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business,” Trump tweeted at 2:48 p.m. “Our Economy is doing very well. The Stock Market is at record levels, JOBS and unemployment also coming back in record numbers.”
The Dow Jones industrial average was up more than 200 points at the time. The S&P 500 and the Nasdaq were also in the green. But within seconds of the missive, all three indices nosedived.
The Dow gave up 520 points from its high to finish down 375.88 on the day to 27,772.76, a 1.34 percentage loss. The closing bell was equally gory for the S&P 500, which ended lower 47.6 points, or 1.4 percent, to 3,360.97, and the Nasdaq which closed down 177.88 points, or 1.57 percent, at 11,154.60.
Stocks rallied one day earlier on Trump’s release from Walter Reed Medical Center and signs that House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin were growing serious about hammering out a deal.
Investors have been banking on a second round of aid for laid-off workers and struggling businesses in hopes that it could help jumpstart an economy struggling to recover from the pandemic. While the unemployment rate is now at 7.9 percent, down from 14.7 percent in April, there have been signs that another wave of layoffs could be coming as people continue to avoid travel, concerts and other activities that require people to congregate.
Earlier on Tuesday, Federal Reserve Chairman Jay Powell called for more government spending to support the nation’s nascent economic recovery from the coronavirus pandemic.
The risks of policymakers “overdoing it” with stimulus are fairly small, Powell said, but providing too little support would weaken the recovery by leading to more bankruptcies, hurting productivity and choking wage growth.
“Even if policy actions ultimately prove to be greater than needed, they will not go to waste,” Powell said. “Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” he warned.
According to Trump’s tweet, Mnuchin and Senate GOP negotiators were offering $1.6 trillion to prop up the economy while Pelosi and Democrats were holding out for $2.4 trillion.
For some on Wall Street, the president’s decision is tantamount to playing with fire.
“We need further stimulus to get us to the other side of this event,” said Michael Antonelli, managing director at Baird. “I do think we’ll get further stimulus whether the incumbent is reelected or the challenger wins, but in the meantime, we’re going to have to buckle in for headline volatility.”
That volatility is already being seen in airline stocks. American Airlines fell 4.5 percent on the day, closing at $12.53 a share.
A Global Asset Management Seoul Korea Magazine