Dow jumps over 400 points as Trump changes course, calls for piecemeal fiscal stimulus measures

Stocks rallied Wednesday after President Donald Trump, in a Tuesday evening tweetstorm, signaled he was open to a number of separate fiscal stimulus measures, only hours after calling off talks with congressional Democrats on a relief package until after the November election.

The Dow Jones Industrial Average DJIA, +1.56% rose 445 points, or 1.6%, to about 28,218, while the S&P 500 SPX, +1.33% was up 45 points, or 1.4%, at 3,406. The Nasdaq Composite COMP, +1.36% gained 145 points, also 1.3%, at 11,299. The small-cap Russell 2000 RUT, +1.80% outperformed, gaining 1.7%.

The Dow on Tuesday reversed a gain of more than 200 points to end the day with a loss of 375.88 points, or 1.3%, at 27,772.76, after Trump, in an afternoon tweet, said he had told negotiators to halt stimulus talks with Democrats until after the election.

The S&P 500 fell 47.66 points, or 1.4%, to finish at 3,360.97, while the Nasdaq Composite closed at 11,154.60, down 177.88 points, or 1.6%.

What’s driving the market?

On Tuesday a little more than an hour ahead of Tuesday’s market close, Trump in a tweet accused congressional Democrats of negotiating in bad faith and announced that he had pulled the plug on stimulus talks until after the election. He added that after winning the election he would push through a “major Stimulus Bill.”

A few hours later however, in another flurry of tweets Trump said that he would immediately sign individual stimulus measures, if sent to him, including a round of $1,200 individual stimulus checks and a package of $25 billion in airline payroll support and $135 billion for the Paycheck Protection Program for small businesses which he said could be paid for out of unused funds from the Cares Act.

Trump’s two-hour late evening tweet spree lifted equity futures, but analysts said a path to a another round of fiscal stimulus still appeared unclear.

“Markets had become resigned to the fact that we weren’t getting anything,” said Will Geisdorf, senior research analyst with Sarasota, Florida-based Allegiant Private Advisors. He thinks the positive tone for stocks over the past week or so was due to the pleasant surprise that talks between the White House and congressional Democrats became more serious.

“Wall Street is not Main Street,” Geisdorf said in an interview. “Main Street is in a much worse position if we see the next stimulus pushed off because a lot of companies will need to make another round of job cuts. But I’m not sure that has a big impact on the markets. I think the markets are somewhat prepared for that and they can kind of look past that for a couple more months. “

Through the “noise” in the markets, he sees positive signs: “Small caps have started to outperform a little, which is a positive, and there’s slightly broader participation, which is healthy. The only explanation I would have is with the polling starting to show Biden with a clearer lead, the whole idea of a contested election becomes a little less likely.”

Analysts remain hopeful that another round of fiscal stimulus by Congress will emerge eventually in the months ahead though.

“Although markets responded positively to (Trump’s) comments, the chance of any actual fiscal stimulus appears to be nil at this point as both time and political will are absent.,” said Boris Schlossberg, managing director at BK Asset Management, in a note.

“The market’s reaction may have been naive but the underlying bid in stocks suggests that longer-term investors are convinced that the U.S. economy will get a large stimulus package irrespective of who the president will be in 2021 and that conviction remains highly supportive of stocks,” he said.

Technology stocks were also in focus after the House Judiciary Antitrust, Commercial and Administrative Law Subcommittee late Tuesday issued a highly critical report on the business practices of industry juggernauts Inc. AMZN, +1.92%, Apple Inc. AAPL, +1.61%, Facebook Inc. FB, -1.03% and Google parent Alphabet Inc. GOOG, -0.43% GOOGL, -0.53%. The report concluded that big tech firms pose a threat to markets that might require breaking up the most prominent U.S. tech companies and limiting their acquisitions.

Minutes of the Federal Reserve’s September policy meeting are due for publication at 2 p.m. Eastern.

Separately, the Atlanta, Boston and Minneapolis Fed banks will hold a joint event on racism and the economy at 2:40 p.m.

New York Fed President John Williams is scheduled to hold a conversation with Henry Kissinger at the Economic Club of New York at 2 p.m. Williams is also scheduled to deliver a speech at a conference on the road ahead for central banks sponsored by the Hoover Institution at 3 p.m.

Which companies are in focus?
  • Airline stocks were on the rise, with the industry-tracking U.S. Global Jets ETF JETS, +2.21% up more than 2.5% after Trump’s call for a stand-alone aid package.
  • DraftKings Inc. said it has priced a previously announced offering of 32 million shares at $52 a share. The company is selling 16 million shares, while shareholders are selling another 16 million, for a total offering size of $1.664 billion. DraftKings will not receive any of the proceeds from the shares being offered by selling shareholders. Shares DKNG, -4.17% were down 6.7% in early trade.
  • Inc. AMZN, +1.92% shares were 1.2% higher Wednesday morning after a price target upgrade, to $3,800.
  • Sunworks Inc. SUNW, +46.42% shares surged nearly 35% after the solar power systems provider reported stronger-than-expected bookings.
What are other assets doing?

The yield on the 10-year Treasury note TMUBMUSD10Y, 0.769% rose 3 basis points to 0.771% after Trump’s reversal on stimulus. Yields and bond prices move in opposite directions.

In global equities, Hong Kong’s Hang Seng Index HSI, +1.09% rose 1.1%, while Japan’s Nikkei 225 NIK, -0.04% closed fractionally lower. The pan-European Stoxx 600 Europe SXXP, -0.15%  was trading 0.2% lower, near 365.01, and London’s FTSE 100 UKX, +0.08%  was up about 0.1%, near 5,957.05 .

Gold slid, with the December contract GCZ20, -0.96% falling 1.2% to $1,885.40 an ounce on Comex. Oil futures reversed big gains from earlier in the week as traders gauged rising inventory, pushing the U.S. benchmark CL.1, -2.65% down 2.7%, back below $40 a barrel.

The greenback was essentially unchanged at 93.69, based on the ICE U.S. Dollar Index DXY, -0.05%.

Originally published on MarketWatch

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