Topline: Following a wild day of trading, Wall Street staged a big comeback late on Tuesday as stocks rebounded from the brink of a bear market amid news that the Trump administration is planning to introduce an economic stimulus package to mitigate the fallout from the coronavirus outbreak.
- The Dow Jones Industrial Average ended the day up by over 1,100 points, gaining 4.9%, while the S&P 500 rose 5%—its biggest gain since December 2018. Both indexes halved their losses from Monday’s historic market plunge.
- President Trump has proposed the idea of a 0% payroll tax rate for the rest of 2020, as well as offering federal assistance to airlines, hotels and cruise operators that have been hit by cancellations due to the coronavirus.
- Stocks pared back gains after starting the day positive, briefly falling into the red after news that the Trump administration is still far from ready to roll out any specific economic proposals in response to the outbreak, according to CNBC.
- Stocks rallied again later in the afternoon, however, after President Trump met with lawmakers: In a press conference, he downplayed the economic severity of the coronavirus and promised a fiscal stimulus response to the outbreak—though specific details are yet to be announced.
- Among other potential stimulus measures that may soon be introduced, the Trump administration is also pushing for federal aid to oil and natural gas companies—many of which are heavily levered, the Washington Post reports.
- That helped oil prices as they jumped more than 11% amid hopes for renewed OPEC talks—one day after a price war between Russia and Saudi Arabia caused oil prices to fall 25% in the sharpest decline since the 1991 Gulf War.
Crucial quotes: “A lot of good things are going to happen,” Trump, who has promised “dramatic” economic relief, told reporters after his meeting with Senate Republicans on Tuesday. He said that the government was “working on a lot of different things” and making progress in addressing the coronavirus health crisis, both economically and medically. Trump also highlighted the strength of consumer spending as an important indicator that the economy is still holding steady: “The consumer has never been in a better position than they are right now.”
Chief critic: “That stocks were able to rebound off the extreme losses on Monday isn’t terribly surprising,” says Adam Crisafulli, founder of Vital Knowledge. “Prices will remain volatile, but investors need to remain careful about allowing sharp daily swings to influence their fundamental views.” Crisafulli argues that “fiscal policy won’t rescue this market” since there isn’t enough support from lawmakers on either side to implement a payroll tax cut in the U.S., and central banks have only limited tools to arrest the stock market’s decline.
What to watch for: Whether the Federal Reserve will cut rates to zero. The Federal Reserve last week made its largest emergency cut to interest rates since the 2008 financial crisis, slashing the benchmark rate by half a percentage point. With the current rate now sitting at 1% to 1.25%, pressure is mounting for further rate cuts when the Fed meets on March 17 and 18. Fed fund futures indicate that Wall Street analysts are expecting a rate cut of another 0.5% to 0.75%. Trump himself again criticized the Fed in a tweet on Tuesday, condemning the central bank for being “pathetic” and too “slow moving” in addressing the economic impact from the coronavirus.
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