Stocks fell Tuesday after President Donald Trump said he opposed House Democrats’ $2.4 trillion virus relief proposal, effectively stamping out hopes that another round of fiscal stimulus to aid the virus-stricken economy would come before the election.
“We made a very generous offer of $1.6 Trillion Dollars and, as usual, she is not negotiating in good faith,” Trump wrote in a Twitter post Tuesday afternoon. “I am rejecting their.. … request, and looking to the future of our Country. I have instructed my representatives 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.”
Stocks, which had traded mixed earlier in the day, fell sharply, with the Dow dropping more than 250 points, or about 0.9%. The Nasdaq underperformed, dropping 1%.
Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi had been slated to hold more discussions around the size of another round of virus-related relief measures on Tuesday, following about a week of regular phone calls over the package. The negotiators had so far remained at an impasse over the dollar sum of the next round of relief, with Mnuchin last offering a deal worth about $1.6 trillion.
Other policymakers have called for further fiscal stimulus in the near-term to help support the economy. Federal Reserve Chair Jerome Powell, in virtual remarks during the National Association for Business Economics’ Annual Meeting, re-upped his assertion that further fiscal support would help promote a faster economic recovery when working alongside the Federal Reserve’s own efforts.
“The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods,” Powell said.
Meanwhile, investors also continued to eye developments around the election in light of Trump’s recent Covid-19 diagnosis. Trump departed Walter Reed National Military Medical Center on Monday to return to the White House, just days after entering the hospital on Friday to be treated. White House physician Dr. Sean Conley said Trump had “met or exceeded all standard hospital discharge criteria,” while conceding that he “may not be entirely out of the woods yet” in his recovery process.
In the days since, Vice President Joe Biden has widened his lead in a number of recent polls capturing the period following the Trump’s positive Covid-19 test. A Reuters/Ipsos poll conducted Oct. 2-3 showed Biden ahead by 10 percentage points, for an increase in his lead since the period after the first presidential debate but before Trump announced his virus test result.
Lisa Shalett, Morgan Stanley Wealth Management chief investment officer, told Yahoo Finance on Monday that the widening in the polls – more so than the candidate in the lead himself – helped remove an element of uncertainty that had recently been weighing on stocks.
“As the polls widen, the only thing that that’s telling you is that the odds of this being an election that doesn’t get decided for weeks or months perhaps comes off the table,” Shalett said. “And I think that last week and the last week in September was really dominated by that, where people were less concerned about who wins, and this idea that somehow our democracy was going to be so challenged that we weren’t going to know the results of a presidential election unless it went to court.”
“I don’t think investors want this to go to court, regardless of whether the winner has a blue shirt or a red shirt at the end of the day,” she added. “And I think that with widening polls that possibility gets taken off the table and so a little bit of risk premium comes out.”
Others, however, maintained that investors were more specifically pricing in the rising likelihood of a Biden presidency and potential for a Democratic sweep.
“To me, the optimism in the market has to do with an increased conviction that Joe Biden will win [the presidency] and that will bring in a Blue Wave which in turn, will bring a large fiscal stimulus package early next year,” Isaac Boltansky, Compass Point Research director of policy research, told Yahoo Finance’s The First Trade.