US stocks rebounded Wednesday after President Trump signaled support for limited coronavirus stimulus spending just hours after pulling the plug on negotiations with Congress.
The Dow Jones industrial average climbed as much as 386.84 points, or about 1.4 percent, to 28,159.60 in early trading following Trump’s late-night tweets that he’d sign bills providing more federal aid to pandemic-battered airlines and small businesses along with another round of $1,200 stimulus checks for Americans.
The S&P 500 and the tech-heavy Nasdaq also each climbed 1.4 percent after the opening bell, nearly erasing the losses they suffered Tuesday after Trump said the White House would stop negotiating a large-scale stimulus deal until after the Nov. 3 election.
While Wall Street appeared encouraged by Trump’s support for targeted spending after weeks of watching the fragile stimulus talks, it’s far from certain that the bills he demanded will make it to his desk.
“While not ideal, the measures would shore up investor confidence and provide a temporary buffer with businesses and households, but I’m not sure the Democrats will back a piecemeal approach,” said Craig Erlam, senior market analyst at OANDA.
Trump’s sudden move to kill another stimulus deal followed a grim Tuesday warning from Federal Reserve chairman Jerome Powell, who said the nation’s nascent recovery from the coronavirus crisis could fall apart if policymakers don’t keep up aggressive efforts to support the economy.
But some experts have already predicted that another big spending package won’t arrive until early 2021, after the hotly contested presidential election.
“Markets have grown accustomed to Washington threatening to kill the hostage, but not actually doing so,” said Isaac Boltansky, director of policy research at Compass Point Research & Trading. “Without a pre-election deal, the assumption should be that it will take until January or February for more assistance as its difficult to see how Washington could claw through the fog of disdain and distrust in the lame duck.”
There’s still a risk, though, that the stalling recovery could falter further if Washington doesn’t strike another deal.
“Should there be no stimulus package announced shortly after the election, investors could get increasingly nervous about the economic recovery losing momentum,” said Milan Cutkovic, market analyst at Axi.
Additional reporting by Thornton McEnery