Stocks in the U.S. soared Tuesday after rallying in the final hour of trading as investors regained confidence in the Trump administration’s efforts to combat the economic effects of the coronavirus outbreak.
President Trump and his top economic aides attended a weekly policy lunch for Senate Republicans Tuesday to pitch his administration’s proposals to provide stimulus to the economy and aid to workers and businesses hit by the coronavirus. Treasury Secretary Steven Mnuchin, trade adviser Peter Navarro and White House economic adviser also attended the meeting.
After the lunch, Trump briefly spoke to reporters.
“It was a great meeting, there is great unity in the Republican party,” Trump said, adding that the party was “mostly all there” on a payroll tax cut portion of the economic aid package.
That turned around the stock market, which had given back some of their gains Tuesday after Democrats indicated overnight and Tuesday morning they would not cooperate with the Trump administration’s efforts to stimulate the economy and anonymous White House sources were quoted as saying that details of those efforts have yet to be worked out.
The major stock indexes initially jumped higher on Tuesday, reversing about half of the record losses recorded Monday, after President Donald Trump announced that the administration would advance a plan to provide aid to workers and companies hit by the coronavirus. But by 2 p.m. those gains had faded.
At 2 p.m. the Dow Jones Industrial Average was up by around 425 points or 1.78 percent. The S&P 500 was up around 1.9 percent. The Nasdaq Composite was up by around 2 percent.
But by the close of trading Tuesday, the Dow was up 1167 points, around 4.89 percent. The S&P was up 4.94 percent and the Nasdaq had gained 4.95 percent.
President Trump on Monday night said that his administration would propose a significant payroll tax cut, a plan to make sure workers without sick leave would not miss paychecks if they take off from work because of coronavirus, make sure loans are available to small businesses, and provide assistance to businesses or sectors hardest hit by the virus.
Capitol Hill Democrats on Monday night immediately attacked the president’s proposals on the grounds that it would not help workers who had lost their jobs because of coronavirus. House Speaker Nancy Pelosi (D-CA.) falsely claimed that a payroll tax cut would be “tax cuts for major corporations.” Senate Minority Leader Chuck Schumer (D-NY) also signaled opposition to the tax cut.
The last payroll tax cut was put in place by the Obama administration, which slashed two percentage points off of the 6.2 percent Social Security portion of the payroll tax paid by employees. Democrats at the time widely supported the cut even though it too did not provide help to unemployed workers. At the time, the ranks of the unemployed were far larger because the unemployment rate was 9.6 percent. Today just 3.5 percent of Americans are unemployed.
The Obama administration said described it as “a tax cut of about $1,000 for the typical American working family in 2011.”
The Social Security payroll tax is 12.4 percent on the first $137,700 of wages. It is officially split between employees and employers, although most economists consider the entire amount to be a tax on worker earnings. Self-employed workers pay the full amount themselves. The Medicare payroll tax is an additional 2.9 percent levy on all wages, also split between employees and employers, with no cap. Top earners pay another 0.9 percent Medicare surtax.
Anonymous White House sources also undermined confidence in the stimulus measures, with CNBC’s Eamon Javers reporting that unnamed officials had said that the details of any plan were not yet in place. That raised fears that developing any economic stimulus could take several weeks or even months, which many investors fear would mean it would arrive too late to stop the economy from sliding toward a recession.