Just in case you were trying to figure out how important a successful conclusion to the coronavirus talks is to the market–the answer today from stocks was “Very.”
As of 1 p.m. New York time today, the Standard & Poor’s 500 was up 0.66% and the NADSAQ Composite was higher by 1.29%. The advance was driven by the hope that with Treasury Secretary Steve Mnuchin and House Speaker Nancy Pelosi talking to each other again, there might be a deal soon on a new coronavirus stimulus package. That hope got some fuel from leaks that the White House had given Mnuchin permission to sweeten the pot from the last Republican offer of $500 billion or $1 trillion or whatever (depending on what Republicans we’re looking at since the Senate and White House aren’t talking off the same numbers.) The latest bill from the Democratic House of Representatives calls for $2.2 trillion in spending.
But those hopes got dashed for another day when Pelosi and Mnuchin both emerged from their phone conference saying that the two sides remain very far apart. Mnuchin said that anything with a 2 in front of it was a bridge too far. Pelosi, already having come down from the initial House total of $3.4 trillion, didn’t sound like she was inclined to drop further.
But Washington math is nothing if not flexible. The big drop in the House total is mostly a result of changes in the duration of spending and not in spending rates.
With that as a model there’s always the chance of a compromise that keeps Democratic spending priorities but brings the total down to levels acceptable to the White House if not most Senate Republicans. Then the issue would be whether or not Senate Majority leader Mitch McConnell would allow a compromise to come to a vote in the Senate knowing that it would take Democratic votes in the Senate to pass. So far that’s been a non-starter but with the election looming ever closer, it’s hard to know what McConnell’s breaking point might be.
In any case, while the news stalled the morning’s advance, it didn’t lead to much if a retreat.
The S&P 500 went from up 0.66% to up 0.53% at the close. The Financial Select Sector SPDR ETF (XLF) went from up 0.390% to up 0.17%. Disney (DIS) went from a loss of 0.16% at 1 p.m. to loss of 0.62% at the close.
The market’s willingness to hang steady is especially remarkable since tomorrow brings the September employment report before the market opens. And nobody knows what that report will say or what the market reaction might be.