Traders try to make sense of Trump's surprising stimulus halt

Published Tue, Oct 6 20204:56 PM EDT

What was President Donald Trump thinking when he said stimulus talks were off? At first glance, the President's action would seem to be against his interest — winning the election. "The president would seem to be a big beneficiary of passing a stimulus bill," Mike O'Rourke from Jones Trading told me. But Jim Paulsen at Leuthold is one of many who believe that this is a standard page from the president's playbook, that it is simply another part of the negotiations. "I think the President might be thinking, maybe it's best for me to show that I am still in charge," Paulsen told me. "I'm not going to be pushed around, and I have to shake things up. He's used the approach before— setting off a bomb than coming back to the table. He did that all the time with the trade negotiations." Still, the S & P 500 dropped 70 points when Trump made the announcement. What is the obsession with stimulus? Because stimulus really matters. Stimulus is a bridge to the vaccine. If reopening was going smoothly, it would be less important, but reopening is not going smoothly, so stimulus is important. Without it, more unemployment is likely, and lower Q4 earnings as well. In other words, this is not some market story that traders have concocted to get markets higher. This morning ECB head Christine Lagarde worried that the V-recovery was not happening — that there was a "second arm" to the recovery, implying that the "V" is now at least a "W". Federal Reserve Chair Jerome Powell again Tuesday reiterated that more fiscal stimulus was needed. The message: central bankers are clearly concerned about a "cliff effect" — a sudden drop in economic activity as a result of the end of government support. Little surprise that a large swath of the market — everything from airlines to retailers to industrials to oil stocks — all dropped three to five percent. Which gets back to the issue — what was Trump's motivation? The vast majority of traders continue to maintain it is a negotiating ploy, but UBS' Art Cashin says Trump may have other ideas: "It's too late to help the election, but it could help the first Biden administration. That's likely what he is thinking. It's either, I am going to get a very good deal or I'm not going to help the Democrats." Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.

WASHINGTON, DC - OCTOBER 01: U.S. President Donald Trump walks to Marine One on the South Lawn of the White House on October 1, 2020 in Washington, DC. (Photo by Drew Angerer/Getty Images)

Drew Angerer | Getty Images News | Getty Images

What was President Donald Trump thinking when he said stimulus talks were off?

At first glance, the President's action would seem to be against his interest — winning the election.