The indices managed huge gains as they rallied all day and closed at the highs on a steady stream of headlines that a congressional deal on a fiscal stimulus bill would be announced at any time. The deal announcement has been pushed back all day and Treasury Secretary Mnuchin is now saying it will be Tuesday night. The exact details are still being ironed out but this deal could be the biggest in history at more than $2 trillion.
In addition to the anticipation of the fiscal stimulus bill, there has been constant debate about the possibility of starting back to work. President Trump stated that he'd like to see a much higher level of activity by Easter, which is on April 12. Others say that this is far too dangerous and that the country should be more aggressive with "shelter in place" orders before even considering a return to normal operations.
The market is using the debate as a basis for some optimism that there is light at the end of the tunnel. Although the coronavirus crisis has not yet peaked, this is the first time there has been much talk about when it may come to an end. There is still much uncertainty, although it does allow the market to finally price in some of the economic damage if there is a potential end date.
The big question now is whether the market can manage two positive days in a row for the first time since Feb. 12. There is so much anticipation of this fiscal stimulus bill that the conditions for a "sell the news" reaction are quite high. However, this is the best buying momentum since the market rolled over a month ago.
Big bounces are not at all uncommon in a crisis like we are having now. During the 2008-09 Great Recession, there were rallies of 15.7%, 18.7% and 24.8% before the indices hit their ultimate low in early March 2009.
Given the nature of what has happened over the past month, it simply is not reasonable to expect that a recovery will be simple and easy. We still have no clue as to the ultimate economic damage. There are going to be the biggest surges in unemployment claims in history and the massive financial stimulus is not going to repair all the damage being done.
Meanwhile, fiscal stimulus bill is sure to be the subject of much criticism and it has been priced into the market a little today during the 11% bounce in the DJIA. Still, this is very strong momentum and creates some fear of missing out as well as hope that the worst is over. I don't believe those emotional reactions will prove to be good reasons to chase but this bounce can easily continue from here. But once again, it's a bounce and not a bottom.
Have a good evening. I'll see you Wednesday.