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Stocks Rebound From Monday’s Collapse

Wall Street rallies as Washington details spending plans.

After suffering their worst day in decades, stocks bounced back on Tuesday as Washington policymakers talked up plans to try to cushion an economy careening toward a deep recession driven by the coronavirus outbreak.

The S&P 500 rose 6 percent, rebounding from a 12 percent collapse on Monday, which was its steepest drop since 1987.Early trading was unsteady, and stocks briefly fell into negative territory. They then surged after the Federal Reserve said it would use its emergency lending powers to try to keep credit flowing to households and businesses in the United States by buying up commercial paper. Shares in Europe also recovered from early losses to end higher.

The market for commercial paper is part of the normally invisible plumbing of the American financial system, but it had become frozen in recent days. Companies and Finance News entities borrow billions by issuing commercial paper to fund their operations and manage their daily cash flows.On Tuesday evening, the Fed announced yet another program intended to spur lending. The new Primary Dealers Credit Facility is similar to one the central bank unveiled in 2008 to help banks — known as primary dealers — that are conduits between the Fed, Treasury Department and broader financial system.

Still, even if the financial system functions well, a daunting economic challenge continues to face the American economy, as the spread of the coronavirus forces federal, state and local officials to take simultaneous actions that will cut consumer spending. Such spending accounts for roughly 70 percent of American gross domestic product.On Tuesday, economists from S&P Global Ratings wrote that they expected the United States’ economy to shrink by 1 percent in the first quarter, and 6 percent in the second quarter, putting the country in recession. That 6 percent drop would be the sharpest falloff in economic activity since 2008.

Even as stocks gained, the trading on Tuesday reflected some of these concerns.  The best performing parts of the market were traditionally defensive areas, Press Release Distribution such as the utilities and consumer staples, where investors typically hide out during trying economic times. Oil prices also fell.

To address such expectations for deep economic weakness, Treasury Secretary Steven Mnuchin was pitching Republican senators for additional fiscal firepower on Tuesday, with the Trump administration preparing to ask for about $850 billion in additional stimulus to support the economy.

“This is the type of news the market wants,” Ilya Feygin, managing director at the institutional brokerage firm WallachBeth, said in an email. “Aid to households and businesses and attacking the virus directly, not monetary gimmicks.”

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