(Reuters) – Wall Street snapped back from three-year lows on Tuesday, and the Dow surged over 8%, after U.S. lawmakers said they were close to a deal for an economic rescue package, injecting a shot of optimism into markets reeling from the biggest selloff since the financial crisis.
All three main U.S. stock indexes rebounded strongly from Monday’s brutal selloff as the coronavirus outbreak forced entire nations to shut down.
Senior Democrats and Republicans said on Tuesday they were close to a deal on a $2 trillion stimulus bill, aimed at providing financial aid to Americans out of work and help for distressed industries.
The expected legislative measure adds to aggressive action announced by the Federal Reserve in recent days, including the purchase of corporate bonds and announcing that it will make direct loans to companies.
King Lip, chief investment strategist at Baker Avenue Asset Management in San Francisco, said expectations on the stimulus bill were driving optimism on Wall Street, but he said his firm was still waiting to buy back into the market.
“With all of this stimulus, we just need a catalyst to spark the fire,” Lip said. “That spark will be a peaking of the cases, and when it starts to come down, I think that’s when everything gets lit up.”
Investors were also pleased after President Donald Trump said on Monday that he was considering how to restart parts of business life when a 15-day shutdown ends next week, even as the highly contagious virus spreads rapidly and poorly equipped hospitals struggle with a wave of deadly cases.
A separate proposal in the U.S. House of Representatives to grant airlines and contractors a $40 billion bailout lifted the S&P 1500 airlines index .SPCOMAIR by 15%.
The severity of the spread of COVID-19 and the expectations of aggressive stimulus measures have whipsawed financial markets and ended an 11-year bull market.
The Dow Jones Industrial Average, which erased over three years of gains in one month, was on track for its second best day since 2008. With Tuesday’s rally, the S&P 500 remained down about $8 trillion from its Feb. 19 record high.
Powering the Dow’s gains was Boeing Co (BA.N), which jumped 14% after Chief Executive Dave Calhoun said the planemaker expected the 737 MAX jet to return to service by mid-year. Its shares have lost nearly two-thirds of their value so far in 2020.
Data on Monday showed U.S. business activity hit a record low in March, bolstering expert views that the economy was already in a recession.
Traders remained uncertain about when a peak in the number of new COVID-19 cases might be reached.
“We don’t know how long it’s going to take to peak. We don’t know how to treat it. We don’t have a vaccine. So all of those uncertainties are causing a myriad of aftershocks,” said Nancy Perez, senior portfolio manager at Boston Private Wealth in Miami.
The big banks index .SPXBK jumped about 9%, tracking an increase in U.S. government bond yields. [US/]
Advancing issues outnumbered declining ones on the NYSE by a 7.55-to-1 ratio; on Nasdaq, a 5.04-to-1 ratio favored advancers.
The S&P 500 posted no new 52-week highs and four new lows; the Nasdaq Composite recorded four new highs and 74 new lows.
Reporting by Noel Randewich in San Francisco; Additional reporting by Uday Sampath and Medha Singh in Bengaluru; Editing by Leslie Adler