S&P 500 : Need Stimulus Fast

(Fri, 9 Oct 2020). The S&P 500 could fall by as much as 7% without immediate stimulus relief, according to BTIG. President Trump’s partial aid might not be enough.

President Trump said Tuesday he’ll delay stimulus talks until after the election, sending stocks lower. BTIG says the S&P 500 could fall at least another 7% without a stimulus bill. Trump signaled support for some stimulus relief on Tuesday night. President Donald Trump announced Tuesday that he was halting stimulus talks until after the election, causing stocks to drop suddenly before markets close.

Trump instructs his representatives to end stimulus talks with Democrats until after the election. Trump’s declaration to end stimulus negotiations took Wall Street by surprise as the market rose in hopes that a second deal could be reached before the election. The move on Tuesday triggered a sharp selloff in recovery-sensitive stocks, such as airlines and retailers.

Fed Bank of Minneapolis President Neel Kashkari warned that delaying stimulus will have ‘enormous consequences’ and that the downturn will end up being much worse. Several major Wall Street say they would lower their growth forecasts if negotiations stalled.

The S&P 500 Could Drop 7% Without Immediate Stimulus Bill

BTIG, a global financial services firm specializing in institutional trading, believes the selloff is far from over. Julian Emanuel, BTIG’s chief equity and derivatives strategist, said the S&P 500 is vulnerable to test its 200-day moving average of 3,113, which is roughly 7% below Tuesday’s close of 3,360.95. The moving average is a widely observed momentum indicator.

Emanuel indicated that market weakness in the run-up to Election Day could hurt Trump’s re-election chances if history is any guide. When the market has been higher in the 90 days before the election, the incumbent won 85.7% of the time. Investors should expect wilder moves in the market between now and the election:

While weakness between now and Inauguration Day (1/20/21) is likely a buying opportunity – with low rates, eventual further stimulus and medical progress on the Virus supportive elements for 2021 – we are reminded that in a period of elevated volatility and uncertainty that the long run is made up of a series of short runs which are frequently gut-wrenching.

Stocks Gain on Hopes of Partial Relief

There is still hope for short-term help. Trump tweeted Tuesday night that Congress should approve $25 billion in emergency funding for airlines and $135 billion for the currently exhausted Paycheck Protection Program. The president subsequently backed another round of direct payments. He’s “ready to sign right now” if a standalone bill for the $1,200 checks reached his desk. The S&P 500 soared more than 1% after the news.

While Trump’s support for piecemeal stimulus clearly boosted investor sentiment on Wednesday, some analysts were skeptical of the impact it could have.

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