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After Monday’s market crash, President Donald Trump assured some fiscal stimulus measures with possible tax relief for the year 2020. Tuesday’s market recovery was most likely in the hopes of this announcement.
The volatility in the U.S. stock market is currently at its peak. Over the last 10 days, Dow Jones has been swinging 1000 points every consecutive day over the rising fears of coronavirus, the whole market was down as well. However, this Monday was different! After the failed OPEC+ deal last Friday, Dow Jones crashed 2000 points in a single day, its biggest crash since the 2008 financial crisis.
However, Tuesday was a much-needed relief rally for the investor. Dow Jones was nearly 5% up and at the market closing was 1100 points up above 25,000 levels on Tuesday. Similarly, other indices like the S&P 500 and the Nasdaq Composite followed suit. The S&P 500 was up 4.9% going above 2882 levels whereas the Nasdaq Composite was up 4.9% to 8,347.40.
The FAANG Group – Facebook Inc (NASDAQ: FB), Amazon.com Inc (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL), Netflix Inc (NASDAQ: NFLX) and Google-parent Alphabet Inc (NASDAQ: GOOGL) – also surged over 5% on Tuesday. Apart from tech companies, financial stocks like JPMorgan Chase & Co (NYSE: JPM) and Home Depot Inc (NYSE: HD) also surged above 7% each. Both these sectors – tech and financials – were 6% up. The third-best-performing sector on Tuesday was energy which was 4% up.
Fiscal Stimulus and Payroll Tax Relief
Soon after the markets took a massive beating on Monday, U.S. President Donald Trump briefed the media about possible stimulus measures. Trump said that on Tuesday, he will be meeting the Senate and House Republicans for discussing possible tax relief measures.
“We are to be meeting with House Republicans, Mitch McConnell, and discussing a possible payroll tax cut or relief, substantial relief, very substantial relief,” Trump said.
This was supposedly the major reason for Tuesday’s market rally as investors are waiting for some concrete stimulus measures. Speaking to CNBC, Brent Schutte, chief investment strategist for Northwestern Mutual Wealth Management, said:
“Fiscal stimulus is the antidote that can bridge the gap between what was happening before coronavirus and what will happen after it. It certainly can’t cure the virus, but it can help contain some of the economic fallout. Today’s trading activity is the market trying to gauge whether the stimulus is going to be sufficient.”
Last week, the Trump administration had already signed an $8.3 billion spending package to allay the market concerns due to coronavirus. It is learned that Trump has also pitched a 0% payroll tax rate for the rest of 2020. Ed Mills, Washington policy analyst at Raymond James, said:
“While we believe that a fiscal stimulus package will be produced, the timing and scope remain uncertain. When asked about the potential for a fiscal package, some Republican leaders on the Hill signaled that they believe these actions to be premature and key Congressional Democrats arguing that there are more immediate priorities over tax cuts and plan to introduce their own package in coming days.”
The oil market also saw some recovery on Tuesday, after crashing 30% on Monday. On Tuesday, the U.S. West Texas Intermediate crude futures were up 10.4%. The oil markets witnessed its worst crash on Monday after 1991.
Besides, the 10-years Treasury yields also dropped below 0.5% on Monday, making its all-time low. On Tuesday, these yields recovered back to 0.6%.