The U.S. stock market neared record highs this week, fueled by an earnings season that exceeded expectations as well as aggressive spending from the Federal Reserve and Congress that helped blunt some of the economic damage caused by the coronavirus.
But the market also has traded on the expectation of further stimulus from Congress, said Roger Ferguson, the president and CEO of TIAA and a former vice chairman at the Federal Reserve. He urged Congress to take action, describing a market under pressure that eyes additional funding from Washington to boost the economic recovery.
Negotiations over the next round of relief stalled this week, as Democratic leaders called for at least $2 trillion in spending while Republican leaders appeared unwilling to go beyond the $1 trillion price tag on a proposal they put forward last month.
“The conversation between Democrats or Republicans right now is probably pretty heated,” Ferguson told Yahoo Finance on July 30. “They don't need to hear from Roger Ferguson to know exactly what the number should be.”
“But I do think they need to hear that markets are expecting a stimulus over time that continues to provide the support,” Ferguson adds. “The early combination of stimulus and monetary policy cushioned the financial system and real economy that could have been in much worse shape.”
Recent positive economic indicators may deter some lawmakers from pursuing an ambitious stimulus plan. The number of new individuals filing for unemployment insurance fell below one million this week for the first time since March. The Labor Department reported on Thursday that 960,000 filed for the benefits, a drop from the 1.18 million the week prior, but still well above the pre-coronavirus record of 695,000.
The encouraging employment data helped send the market soaring to near-record highs this week. The S&P 500 (^GSPC) topped its February record of 3,386.15 before dropping below it prior to the end of the trading day.
“There are so many pressures on the market,” Ferguson says. “Much of this is driven by the virus and one has to observe that there's still hot pockets of virus in and around the United States.”
Ferguson spoke to Yahoo Finance Editor-in-Chief Andy Serwer in an episode of “Influencers with Andy Serwer,” a weekly interview series with leaders in business, politics, and entertainment.
“Right now, the markets are thinking about a number of things,” Ferguson says. “Certainly they're thinking about the depths of the recession. They're thinking about corporate earnings. They're observing the impact of low interest rates and how long that's likely to last.”
He called on Congress to pass another round of stimulus to alleviate the economic pain.
“I would encourage Congress to continue to hammer out and to negotiate and to come forward with a package that is well-rounded and has a scale that actually has the desired impact,” he says.