An unprecedented $2trn emergency stimulus package was passed by the US Congress last night in an extraordinary effort to combat the effects of the coronavirus pandemic.
Confirmation of the deal, which consists mostly of funds to bail out affected companies as well as so-called helicopter money for American households, resulted in the S&P and Dow stock markets witnessing their steepest one-day gains in more than 80 years. Stocks in Asia and Europe also recovered some of their recent losses before falling back in morning trading on Wednesday.
The Dow Jones Industrial Average jumped 11%, representing its biggest single-day rise in 87 years. At the time of writing some of these gains had been lost as markets around the world returned to their jittery fluctuations of recent weeks.
News that the United States Senate was close to agreeing a massive $2trn support package for the US economy saw markets surge higher yesterday."
Congress' announcement follows the Federal Reserve's package of monetary policy support, announced earlier this week, which effectively infinitely extended quantitative easing measures, and established facilities for the purchase of corporate bonds and support for municipal lenders.
Many industry commentators expected this to be the first of several such government stimulus packages to come out of Washington DC.
'A real step forward'
Brian Kloss, manager of the Legg Mason Brandywine Global Income Optimiser fund, said: "The agreement signed overnight in Congress is a real step forward for the US economy in the fight against the virus, and is intended to provide stability for small and medium sized enterprises, the firms which really drive the economy.
"Equity markets will likely take comfort in the short term as the authorities do everything in their power to protect jobs and economic growth. However, the outlook is still very dependent on how long the current shutdown lasts for. If it is a short term shutdown, in the region of four weeks, then yes, it will be able to provide that stability and should be sufficient.
"If the shutdown is extended, for example for three months, then it will be nowhere near enough. After all, this pandemic has already caused a huge shock to demand, and if you combine that with what will undoubtedly be some horrific data over the next few months, then the spending bill probably still won't be enough.
Kloss concluded: "Therefore should the shutdown continue, then this stimulus package will be the first of many. There is no doubt that the coronavirus pandemic is a force majeure and has greatly strained the current financial system. This bill is designed to help businesses get through this challenging period, as many companies need this relief to survive."
Mike Owens, global sales trader at Saxo Markets, said: "A mixture of factors playing into the strong move higher that we've seen on the FTSE and for global equity markets more generally. Firstly, the agreement from the US Senate on a $2trn Coronavirus stimulus package which the market sees as a key needed support and secondly, equities were looking extremely oversold at their levels on Monday evening which justified a bounce technically. Lastly, investors seem to be dusting themselves off and taking the opportunity to pick up stocks at beaten up prices as the most heavily sold off companies gain the most."
Russ Mould, AJ Bell investment director, warned that "investors will still need to tread carefully. Six of the FTSE 100's ten single-largest percentage daily gains of modern times came between September and December in October 2008 but the index only bottomed in March 2009 after a further heavy falls of nearly 30% as the effects of the collapse of Lehman Brothers and the ongoing global recession continued to hit confidence, corporate earnings and cash flows.
Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson Investors, asked if the US support package be enough: "News that the United States Senate was close to agreeing a massive $2trn support package for the US economy saw markets surge higher yesterday.
"Coming hot on the heels of the Fed escalating to QE infinity, equity markets made close to double-digit returns on the day. Given this was likely the last major policy innovation from stretched policy makers, the question is what comes now? Will this be enough to send markets higher or will the focus return to the viral data and the uncertainty of the eventual economic impact? Incremental policy news is unlikely to have the same effect going forward."