US stocks have had a mixed start to trading a day after the biggest rally in a decade as investors mull over a $2 trillion stimulus package agreed by Congress yesterday.
Wall Street’s Dow Jones was 1.3 per cent higher an hour into trading, while the S&P 500 was up 0.1 per cent. The Nasdaq was down 0.6 per cent, however.
European shares had risen as much as five per cent in the morning session but slipped back in the run up to the US opening bell. The FTSE 100 was up 1.6 per cent, the pan-European Stoxx 600 was 0.3 per cent higher, but the German Dax was down 1.3 per cent.
Allianz chief economic adviser Mohamed El-Erian said the earlier rally is “running out of steam for now”.
He predicted that the session will be “choppy” as investors “oscillate between putting money to work and follow massive policy interventions… or reduce exposures”.
Today’s volatility followed a surge in equities yesterday when the Dow Jones rose more than 10 per cent as Congress neared agreement on an unprecedented stimulus deal that will send cheques directly to Americans and lend as much as $500bn to hard-hit firms.
The stimulus adds to measures taken by the US Federal Reserve, which has slashed interest rates to zero and pledged to buy an unlimited amount of bonds to support lending in the economy.
However, as the coronavirus crisis has unfolded, markets have repeatedly shrugged off major interventions from governments and central banks. Analysts said that after a bout of optimism yesterday, traders were once again considering the longer term impact of the virus.
Joshua Mahony, market analyst at trading platform IG, said: “The closer we move to seeing all the major stimulus packages being announced, the more likely we are to see markets refocus their attention to the economic collapse that appears inevitable.”
“The longevity of this slowdown should ensure relatively downbeat sentiment for months to come,” he said.
Investors bought US government bonds, a traditional safe-haven asset at times of stress. The 10-year Treasury yield fell four basis points (0.04 percentage points) to 0.807 per cent.