Stocks on Wall Street climbed and Treasuries slid on Wednesday as investors weighed up the prospects that a stimulus plan of about $900bn could be derailed by President Donald Trump at the eleventh hour.
The benchmark S&P 500 closed higher for the first time in four days, rising 0.1 per cent in relatively light volume to put its year-to-date gains at 14 per cent. The technology-heavy Nasdaq Composite slipped 0.3 per cent.
The gains were broad, with shares of banks climbing as the price of US Treasuries slipped. The yield on the 10-year Treasury note climbed 0.03 percentage points to 0.94 per cent. It briefly hit 0.97 per cent, close to the highest level since the market turmoil in March.
Shares of JPMorgan Chase and Bank of America rose roughly 3 per cent, while Wells Fargo closed nearly 5 per cent higher. Hard-hit energy companies also advanced in tandem with a rise in oil prices.
Garrett Melson, a portfolio strategist at Natixis Advisors, said that investors were largely looking through the last-minute “twist” from Mr Trump.
The US president late on Tuesday evening called the stimulus package a “disgrace” and said he would ask Congress to “amend” the terms. He said that Congress should increase the size of cheques being paid out to eligible Americans to $2,000 per person, far above the level his Republican party has been willing to agree to.
“We either get the original package now, or we get another package next month with [Joe] Biden’s signature on it,” Mr Melson said.
Additional fiscal support is seen as critical to keep the economic recovery from faltering as coronavirus cases rise and cities consider new shutdowns. Consumer spending has flagged, and labour market gains have begun to stall. While the number of Americans applying for unemployment benefits declined last week, it still remains elevated compared with pre-Covid levels.
Activity in options markets also suggested a relatively sanguine response from investors to Mr Trump’s comments. The so-called put/call ratio, which measures the volume of the two options contracts traded each day, was almost unchanged from Tuesday at 0.5. An uptick in put contracts would have indicated investors had moved to take out protection against a drop in US stocks in the future.
The weakness in Treasuries accompanied a sell-off in sovereign bond markets in Europe as the UK and EU worked towards a trade deal. The yield on the 10-year UK gilt rose 0.10 percentage points to 0.28 per cent, while 10-year German Bund yields increased 0.05 percentage points to minus 0.55 per cent. Yields rise when bond prices fall.
Andrew Brenner, the head of international fixed income at National Alliance Securities, said he did not expect the decline in Treasuries to accelerate.
“Treasuries are getting hit hard on low volumes,” he said. “While we did not expect this sell-off today, it is happening. We think rates will not break, but as we said this [morning], if someone wanted to push markets hard, they would find little resistance.”
The dollar weakened against a basket of currencies, falling roughly 1 per cent against the British pound and 0.3 per cent compared to the euro. European stocks advanced on Wednesday, with the continent-wide Stoxx 600 index rising 1.1 per cent.
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