Stocks Surge 7% On Building Hopes For US Virus Stimulus

NEW YORK (AP) — Stocks on Wall Street joined a worldwide rally Tuesday as optimism rose, for one morning at least, that government officials and central banks are unleashing enough aid to ease the economic pain caused by the coronavirus outbreak.

The S&P 500 surged more than 6%, and the Dow jumped nearly 1,400 points in morning trading as a wave of buying interrupted what has been a brutal month of nearly nonstop selling. Depite the rally, investors were far from saying markets have hit bottom. Rallies nearly as big as this have punctuated the last few weeks, and none lasted more than a day.

Tuesday’s optimism was born in part out of signs that Congress and White House officials may reach an agreement soon on nearly $2 trillion in aid for the economy, though some issues remain. Investors have been frustrated waiting for the U.S. government to do what it can to help the economy, which is shutting down by the day. The Federal Reserve is doing nearly all it can, and it launched its latest round of extraordinary aid Monday.

The buying circled the world. South Korean stocks surged 8.6%, Germany’s market jumped 7.3% and Treasury yields rose in a sign that investors are feeling less fearful. Even crude oil, which has more than halved this year, rose.

“I don’t think there’s any more confidence in the fundamental outlook, but the fact that we’re making progress is good news,” said Katie Nixon, chief investment officer at Northern Trust Wealth Management. “It’s sort of like, keep the patient alive in the emergency room so you can provide some treatment options.”

The market has seen rebounds like this before, only for them to wash out immediately. Since the market began selling off on Feb. 20, the S&P 500 has had six days where it’s risen, and all but one of them were big gains of more than 4%. After every one of them, stocks fell again the next day.

Ultimately, investors say they need to see the number of new infections peak before markets can find a floor. The increasing spread is forcing companies to park airplanes, shut hotels and close restaurants to dine-in customers. Altogether, estimates suggest at least 10% of the U.S. economy is shutting down, according to Rob Sharpe, head of investments and group chief investment officer at T. Rowe Price.

The S&P 500 was up 6.5%, as of 11 a.m. Eastern time. The Dow Jones Industrial Average rose 1,356 points, or 7.3%, to 19,942 and the Nasdaq was up 5.5%.

Economists are topping each other’s dire forecasts for how much the economy will shrink this spring due to the closures of businesses, and a growing number say a recession seems inevitable.

To support the economy while health experts work to corral the virus, the Federal Reserve on Monday pledged to buy as many Treasurys and mortgage-backed securities as it takes to keep lending markets working smoothly..

Investors are waiting for Congress and the White House to also do what they can. They debated through the weekend and Monday on a plan to send cash to households and help support the hard-hit travel industry, among other things. After negotiations dragged through the night, a Senate vote could come later Tuesday.

Governments and central banks in other countries around the world are also unveiling unprecedented levels of support for their economies in an attempt to limit the scale of the upcoming virus-related slump. Germany, a bastion of budgetary discipline, also approved a big fiscal boost.

Markets rose even as more dismal data came in about the global economy. In the United States, a preliminary reading on business activity in March showed the steepest contraction on record, going back to 2009. Reports were also gloomy for Europe.

“Everyone was prepared for a set of shockers, and that is precisely what we got, but they are not a surprise,” said Chris Beauchamp, chief market analyst at IG. “It is at times like this that the market’s propensity to look forward is demonstrated most effectively.”

A further boost to sentiment has come from the news that China is preparing to lift the lockdown in Wuhan, the epicenter of the outbreak, and from Italy reporting a reduction in the number of new cases and coronavirus-related deaths.

“It’s still early days, of course — perhaps investors can start to envisage life beyond the coronavirus,” said Craig Erlam, senior market analyst at OANDA Europe. “That could make stocks look a little more attractive, although anyone jumping back in now will need to have nerves of steel.”

For most people, the coronavirus causes only mild or moderate symptoms, such as fever and cough. Those with mild illness recover in about two weeks. Severe illness including pneumonia can occur, especially in the elderly and people with existing health problems. Recovery could take six weeks in such cases.

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AP Business Writer Joe McDonald contributed from Beijing.