The hope of another stimulus bill sent the market soaring yesterday, with the Dow adding 530 points after President Trump tweeted that he was considering a targeted aid package for airlines as well as more money for small businesses through the Paycheck Protection Program.
This buoyed the markets yesterday. However, many doubts linger that a comprehensive relief bill will get done before the election.
“I’m surprised that everybody is all bulled up about it again,” said John Briggs, head of strategy at NatWest Markets, one of many who see the likelihood of a deal coming together before the election as remote. Senate Republicans will soon focus their energy on the Supreme Court nomination and may not see the need to compromise on an aid package before the election is decided.
Tom Lee, the founder of Fundstrat, said both sides want a stimulus bill. He said it’s just a matter of finding common ground.
“Stimulus isn’t not going to happen. It’s just that the timing is not that clear. And that’s a situation where I think the market is going to be able to look through it ultimately. It’s not like one side or the other doesn’t want stimulus. The sticking point is the ultimate magnitude,” said Lee.
Lee believes the markets would soar on a complete compromise, but even a piecemeal approach would send markets higher. “It shows a sense of urgency,” he said.
Lee is more worried about the potential for no bill at all should both sides be unwilling to budge on their demands.
“I think the economy is in a rough spot right now because there are still a lot of restrictions, and I think people are pretty fearful of going out, so it’s important to get some sort of bridge until the economy comes back. It would also not be helpful if it took until next year. First quarter would be really terrifying. I think equities aren’t comfortable in the short term with uncertainty. That’s why the election is creating a lot of turmoil as well,” Lee said.
An ‘Emotional’ Market
Chris Rupkey, chief financial economist at MUFG Union Bank, said the uncertainty around the election and a stimulus bill has made the markets “highly emotional.”
“The markets are highly emotional here. You almost wonder if they’ve got Covid themselves. The movements are a greater magnitude than you would think, given the news. As an economist I don’t know how much stimulus is necessary at this stage. It’s still going to be a slog. It would be nice if we could get those $600 a week unemployment checks back to people without work.”
Like Lee, Rupkey isn’t sure a stimulus deal can get done before the election.
“I think investors should realize here there’s probably not going to be a deal anyway until we see the results on Nov. 3. A lot of this is we’re coming back from a 10% sell-off so there’s some momentum from people getting back in after the sell-off. There’s a discount and they want to get back in. It could be on the flimsiest of headlines.”
Julian Emanuel, head of equity and derivatives strategy at BTIG, points out that stock market performance leading up to the election strongly correlates to who wins.
Passing a stimulus bill, which would send markets higher, would benefit Trump. This is something that Emanuel says both parties are aware of.
“Trump and his opponents know history- when the market has been higher in the 90 days prior to the election, the incumbent has won 85.7% of the time,” Emanuel said in a note. “Conversely, when the market is down in September and October cumulatively prior to an election (3,500) is the level to watch), the incumbent party has lost on 6 of 6 elections.”