Stimulus update: As Senate adjourns, hopes for a pre-election stimulus agreement evaporate

Senators have left the Capitol—likely taking any hopes of an imminent stimulus agreement with them.

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As the Senate adjourned Monday for a pre-election break, senators left the Capitol—very likely taking any hopes of an imminent stimulus agreement with them.

Hopes of the two sides reaching a deal had dimmed in recent weeks. Though House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin have continued to talk regularly, they have remained stuck on the overall size of a stimulus package, with the White House at $1.9 trillion, and the Democrats aiming for at least $2.2 trillion. Other sticking points include the amount of funding for state and local governments and liability protection.

On Monday, Speaker Pelosi’s deputy chief of staff Drew Hammill tweeted that the Speaker and Secretary Mnuchin spoke for 52 minutes, and “it is clear that our progress depends on Leader [Mitch] McConnell agreeing to bipartisan comprehensive legislation.”

However, Republican senators including Senate Majority Leader McConnell have long opposed a larger deal, instead proposing their own smaller $500 billion deal last week that was blocked by Democrats. Leader McConnell also reportedly told the White House last week not to accept a deal before the election, though President Trump has appeared motivated in recent weeks to push for an even larger bill.

It is now unclear when a package could pass. According to Bloomberg, Senate Appropriations chairman Richard Shelby, a Republican from Alabama, said, “We’ll come back in November. The question might be, Will there be something then?”

Investors have been eagerly awaiting a stimulus bill, and stocks traded moderately lower on Tuesday after Monday’s selloff—with the S&P 500 trading down roughly 0.1% in midday trading, while the Dow fell over 0.5%.

While many on Wall Street have predicted that a “Blue Wave” would be on balance good for the stock market, J.P. Morgan analysts wrote last week: “We see an ‘orderly’ Trump victory as the most favorable outcome for equities (upside to ~3,900). We also view gridlock outcomes as a net positive with market volatility likely subsiding and driving mechanical re-leveraging within equities. A ‘Blue Sweep’ scenario is expected to be mostly neutral in the short term as it would likely be accompanied by some immediate positive catalysts (i.e., larger fiscal stimulus/infrastructure) but also negative catalysts (i.e., rising corporate taxes).”

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