Topline: Stocks continued to rebound on Wednesday—posting a second straight day of gains for the first time since February—after Congress came closer to passing a highly anticipated $2 trillion coronavirus stimulus bill, but a disagreement between Senator Bernie Sanders and GOP Senators later in the day kept stocks from holding onto their earlier gains.
- The Dow Jones industrial average gained 2.4%, nearly 500 points, on Wednesday, while the S&P 500 was up 1.1% and the Nasdaq Composite lost 0.4%.
- Stocks surged by up to 6% earlier in the afternoon, but abruptly cut back gains after reports that a Senate vote on the coronavirus stimulus bill could be delayed further, after a disagreement on a key unemployment insurance proposal between Senator Bernie Sanders and four other GOP senators.
- Sanders threatened that if his GOP colleagues did not drop their opposition on unemployment insurance, he would hold up the vote planned for Wednesday evening to lobby for stronger restrictions on the $500 billion “corporate welfare fund” included in the bill.
- Despite the market pullback, stocks still posted gains for a second day in a row—for the first time since February—after bouncing back from a three-year low point on Monday.
- Stocks have moved higher in recent days thanks to Congress coming closer to passing the $2 trillion stimulus bill—following days of tense negotiations and two failed votes.
- “It does feel like its part of a bottoming process—policy action is usually one of the catalysts that helps markets start finding the bottom,” says Mark Freeman, chief investment officer at Socorro Asset Management.
Crucial statistics: The Dow has risen more than 13% in the last two days. Boeing shares led the index higher on Wednesday, surging 24%, while Nike also gained 9.2%.
Crucial quote: “The market was extremely stretched to the downside, so it is not surprising that the fiscal deal passing has created a temporary ricochet higher,” says Jeff Mills, chief investment officer at Bryn Mawr Trust. “A couple days of calm is a welcome relief, but I would take more comfort in a few days where stock prices only move a percent or two,” he says. “These wild swings up and down tell me investors still can’t figure out what is going on, and massive swings are occurring as each new piece of incremental information is digested.”
Tangent: Freeman also praised the “tremendous positive impact” from the Federal Reserve’s massive intervention to stabilize credit markets earlier this week. “I wouldn’t overlook the Fed’s actions on Monday and how that is flowing through to the credit side of the market: Equities don’t rally unless credit markets are healing.”
Key background: On Tuesday, the stock market rebounded sharply for its best day since 1933. The Dow and S&P 500 surged 11.3% and 9.3% higher, respectively, as stocks rallied on news that Congress was making progress with the $2 trillion coronavirus relief package.
What to watch for: “The consumer is a critical component of this economy,” says Freeman. “The extent to which the bill can cushion the economic impact there will be crucial—nothing matters more than the consumer.”
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