U.S. stocks fell Tuesday after President Trump dashed hopes for a new economic relief package before the November election.
Stocks had been climbing in the afternoon but immediately reversed course after Mr. Trump tweeted that he had told his representatives to end negotiations with Democrats over a new aid package, saying that House Speaker Nancy Pelosi was “not negotiating in good faith.”
The S&P 500 dropped 47.66 points, or 1.4%, to 3360.97, while the Dow Jones Industrial Average slid 375.88 points, or 1.3%, to 27772.76 and the Nasdaq Composite declined 177.88 points, or 1.6%, to 11154.60.
Yields on longer-term U.S. government bonds also fell as investors shifted to safer assets, although the move was notably modest compared with the gains that preceded them over the past two sessions.
“Clearly it deflates some of the optimism that was being priced into the market,” said Jon Hill, an interest-rate strategist at BMO Capital Markets. Still, he added, investors seem to realize that the announcement “doesn’t mean we’re never getting another fiscal deal—it just means it won’t happen before the election and possibly not before inauguration.”
Many economists say a new aid package is important for the economy as the country continues to deal with the fallout from the coronavirus pandemic.
Republicans and Democrats had been moving closer after the House passed a $2.2 trillion bill last week, a reduction from the $3.5 trillion bill House Democrats passed in May. Treasury Secretary Steven Mnuchin had proposed a $1.6 trillion offer last week in response.
Before Mr. Trump’s tweet, investors had been largely occupied by the latest developments with his health. Mr. Trump left the hospital Monday after three days of treatment for Covid-19. His doctor said he reported no symptoms on Tuesday, and his campaign said he plans to attend next week’s debate against former Vice President Joe Biden.
Some analysts say indications that Mr. Biden could secure a decisive victory over Mr. Trump in November are helping to support markets despite other factors weighing on investors’ sentiment.
Investors are betting that a decisive electoral victory for Joe Biden could mean less uncertainty in the days after the election and a bigger stimulus package next year.
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New polls favoring Mr. Biden have helped ease concerns about a narrow win for either candidate, which would escalate the risk of legal disputes and lead to a period of uncertainty in the days after the election. Some also say that a sweep by Democrats of the White House and both chambers of Congress could increase the chances of a large fiscal-spending package after a new government is in place.
“A month or two ago, the market showed a preference for a Trump victory, and now the preference is for a Biden comprehensive win,” said Edward Park, chief investment officer of Brooks Macdonald.
Mr. Trump’s diagnosis last week created fresh uncertainty for his presidential campaign and complicated plans for his Supreme Court nominee. Senate Majority Leader Mitch McConnell canceled scheduled votes after several GOP senators tested positive, but he has said confirmation hearings for Judge Amy Coney Barrett are on track to begin Oct. 12. Mr. Trump tweeted Tuesday that he had told Mr. McConnell to concentrate his efforts on the confirmation proceedings rather than the fiscal package.
Cruise-ship operators were among best performers Tuesday, with shares of Royal Caribbean climbing 93 cents, or 1.4%, to $66.18 and Carnival rising 23 cents, or 1.5% to $15.19. Large tech stocks dragged on the market, with Apple sliding $3.34, or 2.9%, to $113.16.
Earlier in the day, bonds and stocks had registered a muted response to Federal Reserve Chairman Jerome Powell’s latest comments on the economy. In remarks delivered at a virtual economic conference, Mr. Powell once again warned of the risks to the economy if Congress and the White House don’t provide additional support to households and businesses.
The yield on the benchmark 10-year U.S. Treasury note settled at 0.741%, according to Tradeweb, compared with 0.760% Monday. Yields, which rise when bond prices fall, reached their highest close since June on Monday, lifted by hopes for fiscal stimulus either before or after the election.
The U.S. posted its largest monthly trade deficit since 2006 in August, the Commerce Department said Tuesday, as imports of consumer goods recovered to…
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