Is A Stimulus Deal Still On The Table ?
Dear Rich Lifer,
President Trump has been flip-flopping on his stance regarding continuing stimulus deal talks, sending Congress and the stock market into disarray.
This past Tuesday, Trump said he would be pausing on the stimulus talks entirely, which sent the markets diving.
Not eight hours later, he was changing his mind again, calling for piecemeal legislation to address economic hardship created by the coronavirus pandemic. (Democrats have continued to reject this type of piecemeal deal.)
Then, Wednesday night, Treasury Secretary Steven Mnuchin called Speaker Nancy Pelosi to say that Trump was, in fact, interested in negotiating a comprehensive agreement.
Trump’s latest interest in a large-scale stimulus deal has broken with the majority of Republicans.
The Effect on Stocks
This decision seems to be having a positive impact on stocks, which edged higher on Thursday, climbing to their highest levels since early September.
The S&P 500 rose 27.38 points (or 0.8%) to 3446.83.
The Dow Jones Industrial Average climbed 122.05 points (or 0.4%) to 28425.51.
And the tech-heavy Nasdaq Composite advanced 56.38 points (or 0.5%) to 11420.98
It seems that investors are cautiously optimistic that Congress will be able to reach an agreement on new stimulus measures.
Esty Dwek, head of global market strategy at Natixis Investment Managers, stated,
“It’s still all about stimulus at this point: we’re seeing markets move on optimism that some kind of package is going to get done. It’s just a question of how much the Republicans will agree to.”
Applications for jobless benefits last week remained elevated at 840,000, slightly higher than economists’ expectations for 825,000, reflecting a slow pace of recovery in the labor market.
Although talks between Republicans and Democrats have resumed, it’s still very uncertain if a new stimulus bill will be passed before the upcoming election.
Pelosi had ruled out moving forward with special support for the battered airline industry without a broader agreement.
She told reporters,
“Let’s take a serious, not a skinny, not an emaciated but a serious appropriate approach, to crushing the virus.”
Trump responded by telling Fox Business Network,
“I shut down talks two days ago because they weren’t working out. Now they‘re starting to work out … We’re talking about airlines and we’re talking about a bigger deal than airlines.”
He also mentioned $1,200 stimulus checks as well as other unspecified items.
Democrats have passed a $2.2 trillion bill, down from a $3.5 trillion bill passed in May, while Republicans have proposed a $1.6 trillion offer.
Airlines Take Center Stage
The airline industry has been one of the hardest hit due to the coronavirus. Airlines received $25 billion in aid under the Cares Act passed in March, but have still struggled to bounce back.
Passenger volume is down around 70% from a year ago, according to Transportation Security Administration data. This has resulted in the firing or furloughing of 50,000 airline workers.
These huge hits have put airlines at the center of stimulus negotiations. As we mentioned above, Pelosi has stated that aid for airlines must go hand-in-hand with a larger package.
“There is not going to be any stand-alone bill unless there is a bigger bill and it can be part of that, or it could be in addition to these negotiations.”
The airline industry also shines a light on the continued inability of Republicans and Democrats to compromise.
Last week, House Democrats attempted to pass separate legislation to prevent tens of thousands of layoffs in the struggling industry, but it was blocked by Republicans, who said they hadn’t had a chance to vet it.
Republican Senator Shelley Moore Capito said that the Senate should focus on a package like the one it voted on last month rather than legislation targeted at certain types of businesses.
However, the “skinny” bill was blocked by Democrats in the Senate.
While it seems like both sides of the aisle continue to flip-flop over a stimulus bill, millions in hard-hit industries continue to suffer.
How Investors Are Responding
The market’s continual rise has made some investors nervous that speculative buying has pushed stocks to expensive levels, putting them at risk for a reversal even if the economy continues to improve.
The rise seen Thursday was led by energy companies.
The S&P 500 energy sector gained 3.8%.
Oil prices climbed on the prospect of a boost to U.S. growth, with the U.S. crude benchmark adding 3.1% to $41.19 a barrel.
Pharmaceuticals also soared. Regeneron Pharmaceuticals (REGN) shares rose $8.19, or 1.4%, to $599.88, after Trump said an experimental coronavirus treatment made by the company was key to his recovery.
Regeneron has apparently applied to the Food and Drug Administration for emergency use authorization for its experimental treatment.
Eli Lilly (TWTR), another drugmaker mentioned by the president in a Wednesday evening video posted on Twitter, climbed $4.54, or 3%, to $153.50
The Wall Street Journal reported Friday that The White House is preparing a $1.8 trillion coronavirus relief offer, its largest proposal to date continuing negotiations with congressional Democrats.
White House adviser Larry Kudlow said Friday that President Trump had approved moving ahead with a revised stimulus offer that would include aid for small businesses and airlines, as well as checks for households.
This $1.8 trillion is still not hitting the Democrats proposed $2.2 trillion bill, so we will have to wait to see how they will respond to this new price tag.
To a richer life,
The Rich Life Roadmap Team