Stimulus...Again

 

By Alex Eule |  Wednesday, October 7 Getting to Yes. Investors won't take no for an answer. Less than 24 hours after President Trump said a stimulus deal would have to wait until after the election, investors pinned their hopes on smaller rescue efforts, or possibly the idea that a grand bargain was still possible. In follow-up tweets, the president said he still supported a $1,200 stimulus check, more funding for the Paycheck Protection Program, and help for the airline industry. Investors seem to be betting that lawmakers find a way to to yes, even as they all say no.   The Dow Jones Industrial Average erased yesterday's losses and more, finishing today up 531 points, or 1.9%. It was the Dow's best day since mid July. But there's another potential explanation for the market's latest move. While Washington has been divided for the last two years, the latest polling shows an increased chance of a so-called Blue Wave, with Democrats taking the White House and the Senate, while holding onto the House of Representatives. That would allow for a more aggressive response from Washington by early next year. The idea that Democrats could be good for stocks is a shift in sentiment, and it reflects investors' increased desire for federal spending.  Here's how Jason Draho, UBS' head of asset allocation for the Americas, recently summarized the situation:  Investors have reevaluated the likelihood and timing of more fiscal stimulus versus higher taxes. Another fiscal package was expected to pass before the August Congressional recess, and then before the end of the fiscal year on Sept. 30. Now with the odds of passage before the election fast shrinking, it’s instead likely to be the Democrats' first priority post-election. Concern about higher corporate taxes and more regulation in a Blue Wave still exist, but they’re taking a backseat to the anticipation of the fiscal floodgates being wide open in 2021. Also helpful is that a decisive election result reduces the risk of a protracted and contested outcome. Sen. Kamala Harris and Vice President Mike Pence will likely be asked about more stimulus at tonight's vice presidential debate. Their answers could determine tomorrow's trading. For investors -- and the rest of us -- the election is drowning out everything else.

 

DJIA: +1.91% to 28,303.46 S&P 500: +1.74% to 3,419.44 Nasdaq: +1.88% to 11,364.60 The Hot Stock: Alexion Pharmaceuticals +8.0% The Biggest Loser: Cboe Global Markets -2.3% Best Sector: Materials +2.6% Worst Sector: Real Estate +0.3%