Stocks drop after talks stop
Stocks dropped on Wall Street Tuesday after President Donald Trump ordered a stop to negotiations with Democrats on a coronavirus economic stimulus bill until after the election.
The S&P 500 index slid 1.4% after having been up 0.7% prior to the president's announcement, which he made on twitter about an hour before the close of trading. The late-afternoon pullback erased most of the benchmark index's gains from a market rally a day earlier.
In a series of tweets, Trump said :“I have instructed my repre sent at ives to stop negotiating until after the election when, immediately after I win, we will pass a major stimulus bill that focuses on hardworking Americans and small business.” He also accused Speaker Nancy Pelosi of not negotiating in good faith.
The comments from the president came just hours after Federal Reserve Chair Jerome Powell urged Congress to come through with more aid, saying that too little support “would lead to a weak recovery, creating unnecessary hardship for households and businesses.”
Optimism that Democrats and Republicans would reach a deal on more stimulus ahead of the Nov. 3 elections had helped lift the stock market recently. Now, investors face the prospect that more aid may not come until next year, after the new Congress is seated, said Willie Delwiche, investment strategist at Baird.
“This isn't just pushing it off until after the election, this real is tically is pushing it off until spring,” Delwiche said. “I don't think this is just a one-day financial markets reaction. This really goes to the health of the recovery.”
The S&P 500 fell 47.66 points to 3,360.97. The Dow Jones Industrial Average dropped 375.88 points, or 1.3%, to 27,772.76. It had been up by more than 200 points. The Nasdaq composite lost 177.88 points, or 1.6%, to 11,154.60.
The tech-heavy index had been on pace for a 0.5% gain before Trump cut off the stimulus talks.
Small stocks also fell, but less than the rest of the market. The Russell 2000 index of smallcap stocks gave up 4.67 points, or 0.3%, to 1,577.29.
Stocks had been drifting between small gains and losses for much of the day before gainin gm om en tum into the late afternoon, then Trump's tweets knocked the market into reverse gear.
The move to nix the negotiations with Democrats dashes Wall Street' s hopes that another round of stimulus would soon be on the way. Bitter partisanship on Capitol Hill has been preventing a compromise on more aid for the economy, which has been punched into a recession by shut downs related to the coronavirus pandemic. Reports on t he economy have been mixed recently, as some areas show a slowdown after extra unemployment benefits and other stimulus earlier approved by Congress expired.
Powell has repeatedly urged Congress to provide additional aid, saying the Fed can' t prop up the economy by itself, even with interest rates at record lows. “The expansion is still far from complete,” Powell said in a speech to the National Association for Business Economics, group of corporate and academic economists.
Without more stimulus, economists expect that growth will slow significantly in the final three months of the year. Last month, Goldman Sachs slashed its forecast for growth in the fourth quarter to just 3% at an annual rate, down from a previous forecast of 6%, because they no longer expected an aid package to be approved. That would leave the U.S. economy 2.5% smaller at the end of 2020 than a year earlier, even after a large rebound in the July-September quarter.
“You' re going to see quite a significant dragon growth ,” said Gregory Daco, chief U.S. economist at Oxford Economics, a consulting firm. It“would really risk a double-dip recession.”
The stimulus cut off coincides with as lowdown in hiring, as employers added 661,000 jobs in September, the government said Friday. That was down from 1.5 million in August and 1.8 million in July.
The market' s slide comes a day after the S&P 500 posted its best day in more than three weeks. Other stock markets around t he world made mostly modest gains. Longer-term Treasury yields veered lower after Trump' s remarks. They had earlier been hanging close to their highest levels in months.
Tuesday' s selling was widespread, led by technology stocks and companies that rely on consumer spending. Utilities were the only gainers among the 11 sectors in the S& P 500.
A report on Tuesday showed that U.S. employers advertised slightly fewer job openings in August than the prior month. But the number was nevertheless better than economists expected.
Trading on Wall Street has gotten shakier recently as investors contend with a long list of uncertainties, from Trump' s C OVID -19 diagnosis to waxing and waning expectations a bout Congress' a bi l - ityt ode liver another round of stimulus for the economy.
The S&P 500 jumped 1.8% on Monday after Trump said he' s returning to the White House to complete his recovery from the corona virus, though his medical team said he's not yet fully “out of the woods.”