Stocks reversed course and slumped Tuesday after President Donald Trump said he has asked White House officials to halt stimulus negotiations until after the election hours after Federal Reserve Chair Jerome Powell urged Congress to pass a robust package, saying that providing too little relief would weaken the recovery from the coronavirus recession.
The Dow Jones industrial average tumbled 376 points, or 1.3%, to 27,773 after rising about 200 points earlier on expectations for an agreement. The Standard & Poor's 500 index was down 48 points, or 1.4%, at 3,361 while the tech-heavy Nasdaq dropped 1.6% to 11,155.
In a mid-afternoon tweet, Trump said the White House has made a “very generous offer” of a $1.6 trillion relief package while Speaker Nancy Pelosi is seeking $2.4 trillion. Trump charged that Pelosi “is not negotiating in good faith.”
“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,” Trump tweeted.
Nancy Pelosi is asking for $2.4 Trillion Dollars to bailout poorly run, high crime, Democrat States, money that is in no way related to COVID-19. We made a very generous offer of $1.6 Trillion Dollars and, as usual, she is not negotiating in good faith. I am rejecting their...
— Donald J. Trump (@realDonaldTrump) October 6, 2020
The Dow surged 466 points Monday and gained another 200 points earlier Tuesday as Pelosi and Treasury Secretary Steven Mnuchin continued negotiations that appeared to narrow their differences.
“Clearly, there were people in the market who were hoping against hope for a deal,” says Chris Zaccarelli chief investment officer of Independent Advisor Alliance.
“I think it was pretty unrealistic to expect a compromise prior to the election,” Zaccarelli says. He believes both Democrats and Republicans are more likely to become entrenched in their positions to appeal to their base voters.
Zaccarelli says markets could still be moved as hopes for a federal aid wax and wane in coming weeks, but Trump's pronouncement may well shelve negotiations, leaving stocks trading in a narrow range amid uncertainty over the election outcome.
Any stimulus legislation likely would restore at least part of a $600 weekly federal supplement to state unemployment benefits that expired in late July and provide more funding for struggling small businesses and teetering airlines. as well as another wave of checks for most U.S. households.
The Democratic-controlled House recently passed a $2.2 trillion measure while Republicans have said they favor a roughly $1 trillion package, though. The two sides are deadlocked over the amount of bonus unemployment benefits and the size of aid to state and local governments.
Earlier Tuesday, Federal Reserve's Powell urged Congress to pass a robust stimulus emphasizing that too small of a package would make the recovery weaker while adding that “overdoing it” would only strengthen the rebound.
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Powell, a Republican appointed Fed chair by Trump, said in a speech at a virtual annual meeting held by the National Association for Business Economics. “Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth.”
Meanwhile, he said, there’s little downside to passing a relief package that some may view as excessive.
“By contrast, the risks of overdoing it seemed, for now, to be smaller,” he said in the prepared speech. “Even if policy actions ultimately prove to be greater than needed, they will not go to waste. 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 noted the pace of the recovery has moderated since “the outsized gains in May and June,” with job, income and spending gains all slowing. Meanwhile, more Americans are permanently losing their jobs after millions of furloughed restaurant, retail and other employees were rehired as states have allowed more businesses shuttered by the crisis to reopen.
There’s a risk that a prolonged slowing in the pace of the recovery “could trigger typical recessionary dynamics, as weakness feeds on weakness. A long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy,” such as between low-income and wealthy Americans.
Another risk, he said, is that COVID-19 cases “might again rise to levels that more significantly limit economic activity , not to mention the tragic effects on lives and well-being.”
“The expansion is still far from complete,” Powell said.
Contributing: Nicholas Wu and Christal Hayes
This article originally appeared on USA TODAY: Trump stimulus package: Stocks fall after Trump says he'll delay talks on relief