Wall Street rebounds on economic rescue hopes

March 25, 2020 07:18
The Dow Jones Industrial Average soared 11.37 percent on Tuesday, its biggest one-day percentage gain since 1933. Photo: AFP

The Dow soared on Tuesday to its biggest one-day percentage gain since 1933, after US lawmakers said they were close to a deal for an economic rescue package in response to the coronavirus outbreak, injecting optimism following the biggest selloff since the financial crisis.

All three main US stock indexes rebounded strongly from Monday’s brutal selloff as the coronavirus outbreak forced entire nations to shut down.

Senior Democrats and Republicans said they were close to a deal on a US$2 trillion stimulus bill, aimed at providing financial aid to Americans out of work and help for distressed industries.

The proposal would include a US$500 billion fund to help hard-hit industries and a comparable amount to send direct payments of up to US$3,000 to millions of US families, as well as US$350 billion for small-business loans, US$250 billion for expanded unemployment aid and at least US$75 billion for hospitals.

The legislation adds to aggressive action announced by the Federal Reserve in recent days, including purchase of corporate bonds and announcing that the US central bank will make direct loans to companies.

King Lip, chief investment strategist at Baker Avenue Asset Management in San Francisco, said expectations on the stimulus bill were driving optimism on Wall Street, but said his firm was still waiting to buy back into the market.

“With all of this stimulus, we just need a catalyst to spark the fire,” Lip said. “That spark will be a peaking of the cases, and when it starts to come down, I think that’s when everything gets lit up.”

Investors were also pleased after President Donald Trump said he was considering how to restart parts of business life when a 15-day shutdown ends next week, even as the highly contagious virus spreads rapidly and poorly equipped hospitals struggle with a wave of deadly cases.

A separate proposal in the US House of Representatives to grant airlines and contractors a US$40 billion bailout lifted the S&P 1500 airlines index by 15 percent.

The severity of the spread of Covid-19 and expectations of aggressive stimulus measures have whipsawed financial markets and ended Wall Street’s 11-year bull run.

Boeing Co. powered the Dow’s gains, jumping nearly 21 percent after chief executive Dave Calhoun said the planemaker expected the 737 MAX jet to return to service by mid-year. Its shares have lost nearly two-thirds of their value so far in 2020.

Data on Monday showed US business activity hit a record low in March, bolstering expert views that the economy was already in a recession.

Traders were still weighing the uncertainty of the path of the coronavirus outbreak.

“We don’t know how long it’s going to take to peak. We don’t know how to treat it. We don’t have a vaccine. So all of those uncertainties are causing a myriad of aftershocks,” said Nancy Perez, senior portfolio manager at Boston Private Wealth in Miami.

The Dow Jones Industrial Average soared 11.37 percent to end at 20,704.91 points, while the S&P 500 jumped 9.38 percent to 2,447.33. The Nasdaq Composite rallied 8.12 percent to 7,417.86.

Many investors remain braced for more volatility ahead, however. The trajectory of the coronavirus pandemic remains uncertain, while its economic toll is becoming increasingly clear.

US unemployment could hit 30 percent and second-quarter economic output could be half the norm, St. Louis Federal Reserve President James Bullard told Reuters in an interview.

Some investors see “a lose-lose situation”, said Michael O’Rourke, chief market strategist at Jones Trading. “You either break the healthcare system or you break the economy.” Reuters

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