President Donald Trump’s vow to end talks on coronavirus stimulus until after the election prompted a selloff in markets yesterday.
The Dow Jones Industrial Average, S&P 500 and Nasdaq all dropped as much as 2 percent in afternoon trading. The three indexes ended the day 1.3 percent, 1.4 percent and 1.6 percent lower respectively.
Trump’s move came just hours after Federal Reserve Chair Jerome Powell made his strongest call yet for higher spending to shield the economy.
Powell said now would be the wrong time to halt support as doing so could “lead to a weak recovery, creating unnecessary hardship for households and businesses.”
However, Trump said in a tweet at 2.48 p.m. on Tuesday: “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.”
The tweet was one of 40 made in a two-hour period. The Dow, S&P 500 and Nasdaq were all trading higher before it was sent.
Earlier on Tuesday, Trump spoke with House Minority Leader Kevin McCarthy, Senate Majority Leader Mitch McConnell and Treasury Secretary Steven Mnuchin about the relief.
Even without Trump’s change in tune, the prospects for another stimulus package were bleak, at best. Talks have been sporadic for months as the Republicans and Democrats remain far apart on issues such as enhanced unemployment benefits, as well as state and local aid. Congress has left town until after Election Day, with political tensions high just weeks before voters cast their ballots.
In the lame-duck season after the election, another stimulus package may not be politically feasible until January when the new Congress and president are sworn into office, depending on the outcomes of November 3.
House Speaker Nancy Pelosi said of Trump’s decision to nix any support: “Walking away from coronavirus talks demonstrates that President Trump is unwilling to crush the virus, as is required by the Heroes Act. He shows his contempt for science, his disdain for our heroes—in health care, first responders, sanitation, transportation, food workers, teachers, teachers, teachers and others—and he refuses to put money in workers’ pockets, unless his name is printed on the check.”
Trump has previously touted markets as a vote of confidence in his governing. However, some say in doing this he has ignored the fact that stock markets often don’t reflect what the real economy is doing. Markets have been on the up for months in spite of gloomy GDP and jobs data due to help from things like stimulus.
Previously, economists have said that unprecedented amounts of stimulus from central banks was the driving force for the stock market rally, alongside an accelerated pile into tech stocks.
Stimulus helps economies in the long-run as well as being reactive to short-term forces. Ignoring Powell’s calls could come at a cost for the country.
Commenting on economic recoveries in developed markets so far, Paul F. Gruenwald, global chief economist at S&P Global, said in a note dated October 6: “The big bounce is largely mechanical and the next leg of the recovery will be more difficult.
“Indeed, momentum is already beginning to fade. Challenges are mostly fiscal include protecting those hardest hit, keeping viable firms afloat, and facilitating necessary structural changes.”
Going into the election, recent polls have found that the economy is the most important issue to the electorate.
A Gallup poll found that among U.S. registered voters, the economy was the most important issue of 16 that may potentially affect their choice for president.
Nearly 90 percent of registered voters consider the presidential candidates’ positions on the economy “extremely” (44 percent) or “very” (45 percent) important to their vote.
Despite the fact that U.S. stock futures are trading higher today, Trump may need to pledge more support to keep business and investors on side.
Start your unlimited Newsweek trial