Question

Explain why you think the market responded negatively to the suspension of Congressional negotiations for additional coronavirus relief until after the Presidential election and positively to the President's return to the White House after his coronavirus treatment.

Answer 1

Regarding suspension of congressional negotiations for additional relief - The coronavirus relief funds are meant to be utilised for helping the ailing economy by providing money to most affected companies and individuals. Some measures proposed to be undertaken in this additional relief fund are funding for schools, expanded unemployment benefits and a second round of the Paycheck Protection Program. In the first stimulus package, around USD2tn were distributed among qualifying individuals, companies, small business, public health, education, etc. These relief funds put money directly in the hands of people, which in turn will spend the money to buy things. When consumers buy things, companies which sell things to consumers benefit from it. In short, the economic cycle starts rolling. Hence, relief funds increases the earnings outlook for companies and results in higher stock price, in general. However, suspension of the congressional negotiations on additional relief funds will mean that the companies' earnings will be depressed for longer. Therefore, as the outlook for future earnings diminishes, the market pulls back.

President's return to the White House after his coronavirus treatment - Absence of the leader of the state is viewed as a major risk for any economy due to a variety of reasons. Without the President in office, no major policies can be executed, most of the important decisions get deferred for a later date, and the state machinery's focus is on maintaining the status-quo. So, the return of the President can be viewed by many in the market as a sign that things will start rolling again. Given the imminent elections, President Trump is likely to take measures to boost the economy which is a positive for the market. Hence, the positive reaction to his return to office.