Tuesday’s robust U.S. equities rally had mostly faded by early afternoon as markets checked their expectations regarding a White House stimulus plan to buffer the economy from the coronavirus, and as dip buyers booked gains from the morning surge.
But while stock market investors had pared some profits from the morning bounce by 1 p.m. ET, bonds continued to stay off yesterday’s risk-off lows. Oil prices, too, held onto the morning’s 10 percent gains after plummeting by over 20 percent yesterday and sparking a shock equities selloff.
President Donald Trump announced on Monday that the White House would ask Congress to approve an assistance package for workers and businesses to deal with the economic fallout from the coronavirus crisis, including “a possible payroll tax cut.”
“We’re also going to be talking about hourly wage earners getting help,” so they don’t worry about missing a paycheck, Trump added.
But the details of the plan remain unclear and since both spending and tax maneuvers need Congressional approval, some time will lapse until the help ends up in the hands of those in need.
Still, the goal is to get more cash into the pockets of workers and companies quickly, according to business groups and economists.
“This isn’t a situation where we need to flood the economy. What we need to do is help anyone who’s adversely impacted navigate and get to the other side of this,” said Neil Bradley, chief policy officer for the U.S. Chamber of Commerce, in remarks to Reuters.
That includes income support for workers laid off and aid for the travel, tourismm and other sectors impacted by the virus, Bradley said. The Chamber plans to make formal proposals to the administration later this week.
“The way we think about it is, if you have a business that was an otherwise profitable ongoing concern that is impacted by this, you shouldn’t have to go out of business because of this temporary shock,” Bradley said. “Individuals that were otherwise employed should not have to go into default.”
Administration officials headed to Capitol Hill Tuesday to discuss the stimulus plan with Senate Republicans, with markets awaiting further details.
At 12:57 ET on March 10, the major Wall Street averages were up between 1.03 and 1.59 percent, down from their morning trading peaks of over 3 percent.
The so-called “fear gauge,” or the VIX volatility index, was down by 2.66 percent from the previous day’s peaks, which broke higher on Monday than during the 2008 financial crisis. High volatility levels are reflective of wild market swings and outsized investor fear.
Moves in bonds also projected rising investor confidence, with the U.S. 10-year and 30-year Treasury yields climbing by over 9 percent Monday. The uptick in yields, which move in the opposite direction to prices, was a sign that risk-on sentiment was returning to markets that yesterday rushed to safety, pressing the benchmark 10-year note yield to a record low.
Oil prices also rebounded Monday, with West Texas Intermediate and Brent Crude futures up over 11 percent at 1:19 pm ET. At the same time, the OVX oil price volatility index was down nearly 10 percent, suggesting some stabilization after hitting record highs on Monday.
Crude oil prices suffered their biggest single-day drop in 30 years on Monday after Saudi Arabia fired the first salvo in a price war over the weekend.
State oil giant Saudi Aramco said in a statement March 7 that it was cutting its official selling price for April for all its crude grades to all destinations, amounting to unprecedented discounts of nearly 20 percent in key markets.
The price offensive came after talks between Russia and the Organization of the Petroleum Exporting Countries (OPEC) failed to agree on production cuts last week amid a coronavirus-driven collapse in oil demand.
“Look, you’ve got one of the most powerful commodities in the hands of two of the largest superpowers in the world, and they are not agreeing on it,” said Peter Tuchman, NYSE trader, in comments to Reuters. “And you throw that on top of a market that’s full of anxiety about the potential economic global slowdown due to the virus, which I don’t even think we’ve seen yet, and you end up with a perfect storm. That’s what we have in there today.”
The steep decline in oil prices shook trader confidence around the world, with the three big Wall Street averages registering one of their worst days since the 2008 financial crisis and the Dow experiencing its biggest ever single-day points drop.
Reuters contributed to this report.