Stocks continued their descent Friday, as the expected relief rally has passed and investors are nervous Congress’ $2 trillion stimulus package didn't move fast enough for liquidity-starved businesses and households.
The House of Representatives just passed the bill and President Trump is expected to sign it.
All three major U.S. indexes fell as much as more than 3% by midday, with the S&P 500 falling 2.8%.
The S&P 500 has risen around 13% in the past 8 days, as stimulus from the Federal Reserve and potentially from Congress — while not a solution to the virus — can tide over businesses and households who need cash and a low cost of borrowing while they pay running costs without much revenue or income.
But with the $2 trillion bill, which will include checks to households and relaxed loan terms to small businesses, moved slowly and many elements of the relief rally over, stocks are stuck in the red again.
First off, “The three reasons to have the relief rally may be in the rearview mirror, yet the economy still largely remains shut down with the worst of the economic news directly in front of us,” wrote Canaccord Genuity’s Chief Market Strategist Tony Dwyer in a note.
His stated three main reasons for the relief rally is that the more than 30% drop from the S&P 500’s all-time-high historically indicates a short-term rally, pension plans — uncertain about the long-term outlook — did add to their equity market positions on the drop to protect against missing upside, and stimulus may have its short-term impact. “Over the coming days, the market will not be as oversold, the pension rebalancing will be done, and the bulk of monetary and fiscal stimulus will have bene announced,” Dwyer said.
As for the bill, people and small businesses need liquidity now before they run out of cash and file for bankruptcies.
"It’s critical for the Federal government to get this legislation pushed through,” Danielle DiMartino Booth, Founder of Quill Intelligence and forearm adviser to the President of the Dallas Fed told TheStreet Friday morning.
"The reason stocks were selling off as hard as they were was when there was doubt that a bill was getting passed through the Senate. Every minute, there’s delay — there’s an extended period of time that there’s a delay that the money is going to small businesses.”
That worry still exists as the economy only has so much time to receive money before personal and business bankruptcies take hold.
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