US stocks had their best day since Tuesday’s financial crisis, more than a decade ago, when signs of congressional action had been taken to mitigate the economic and financial effects of the corona virus on financial markets.
The U.S. benchmark S&P 500 closed at 9.4 percent on its daily high and anticipated a deal that would send nearly $ 2 billion into the U.S. economy in the form of rescue packages for affected companies and payments to individuals. Nasdaq grew 8 percent.
A 11.4 percent rise in the US blue chip Dow Jones Industrial Average was the largest since 1933 during the Great Depression.
“The market is definitely excited about the prospects for the historic $ 2 billion virus relief bill,” said Stephen Aniston, president of Vixcontango.com, a provider of volatility trading analysis.
“I can hardly imagine any other legislation that is as well received and popular as this. This is a very balanced package that will make Republicans and Democrats as well as the average American happy. ”
House representative Democratic spokeswoman Nancy Pelosi told CNBC Tuesday morning that there was “genuine optimism” that an agreement would be reached “in the next few hours.” Less than an hour later, Senate senior Republican Mitch McConnell said negotiators were “very close” to a deal.
The S&P 500 is still down more than 27 percent from its peak on February 19.
European exchanges also rose on Tuesday, with the continent’s Stoxx 600 index up 7.5 percent. The London FTSE 100 rose by 9 percent, the Frankfurt Dax by 11 percent.
The Federal Reserve’s additional monetary measures announced on Monday have further strengthened the broad global equity rally.
The U.S. Federal Reserve has made its most vigorous efforts to mitigate the aftermath of the pandemic, including a pledge to buy US government bonds in unlimited amounts and to support the US corporate bond market.
Mr. Aniston said that in the sectors most affected by the outbreak, such as airlines, where stock prices reversed sharply, “large short covers” are taking place. An exchange-traded US fund that tracks global airlines grew 19 percent, the SPDR S&P Homebuilders ETF rose 15 percent, a fund that tracked the automotive sector 12 percent, and the Energy Select Sector SPDR ETF 16 percent. Defensive sectors like consumer staples and utilities lagged Tuesday while the cyclicals were leading.
The Cboe Volatility Index – known as the “measure of fear” of the market – fell from an elevated level and was trading around the 60th
Kit Juckes, strategist at Société Générale, said the improvement in sentiment was due to “Herculean efforts by central banks and governments.”
“Overall, the response is broader and larger than in the 2008/2009 financial crisis. However, this is more global and more serious. If you take a step back and look at what the Fed did. . . It’s incredible, ”he said.
The dollar, which has risen sharply during the crisis, weakened to give some leverage to vulnerable currencies, including the British pound, which rose nearly 2 percent to $ 1.17.
The U.S. Treasury’s 10-year return rose 0.03 percentage points to 0.82 percent. The Exchange Traded Fund LQD, which tracks an investment grade corporate bond index, rose about 2 percent after rising 7 percent on Monday after the Fed’s intervention.
The price of Brent crude oil, the international oil marker, rose 0.4 percent to $ 27.15 a barrel.
The economic picture remains gloomy worldwide. Surveys on Tuesday showed that European business collapsed this month, giving some of the first glimpses of the extent of the pandemic’s damage to the region’s economy.
Analysts said the real situation is likely to be worse, with most restrictive measures to ban social contact taking effect in most countries after the polls were conducted.
Credit Suisse expected the S&P 500 to rise 20 percent from its current level by the end of the year. However, chief strategist for US stocks, Jonathan Golub, warned that stocks will continue to come under pressure in the coming weeks as poor economic data continues to test investor confidence.
“In order for the US economy to emerge from the current crisis and the ongoing recession relatively unscathed, more radical political interventions will be required over the next few weeks,” said Anna Stupnytska, global director of macro and investment strategy at Fidelity International.
“It is still unclear how deep that is,” said Bert Colijn, ING senior economist. “Perhaps the most relevant is how much unemployment and bankruptcy can be avoided to determine the possible steepness of a recovery.”