Stimulus chatter is back. Don't get your hopes up

London(CNN Business) US stocks rose sharply on Monday on the back of one hope: That a divided Congress would come together to pass additional spending measures to ease the economic pain from the Covid-19 pandemic.

What's happening: After passing a $3.4 trillion stimulus package in May that Republicans have viewed as a non-starter, House Speaker Nancy Pelosi and fellow Democrats now say they're prepared to move forward with a scaled-back $2.2 trillion package.

The bill includes additional support for small businesses and airline workers and more funds for education and child care. It also proposes a second round of $1,200 checks for Americans and would revive $600 per week in federal unemployment payments, which expired in July.

Optimism that stimulus discussions could pick back up, even as Congress focuses its attention on the controversial nomination of Amy Coney Barrett to the Supreme Court, drove the Dow up 410 points, or 1.5%. The S&P 500 rose 1.6%, while the Nasdaq rallied 1.9%.

"Given how far apart the two sides were, markets had all but given up on action prior the election," said Jamie Cox, managing partner at Harris Financial Group.

But in practice, the new package may not be a game changer. Pelosi spoke to Treasury Secretary Steven Mnuchin on Monday night, and they agreed to talk again Tuesday. However, the price tag is still too high for Senate Republicans and the White House, CNN's Manu Raju reports.

Mark Haefele, chief investment officer at UBS Global Wealth Management, told clients that stimulus expectations shouldn't boost markets for long. Futures are slightly lower Tuesday.

"We expect near-term volatility to persist as investors balance the prospects for further fiscal stimulus against continued US political uncertainty," which is higher due to the Barrett nomination consuming the Senate, Haefele said.

Economists have increasingly counted out another stimulus deal before the end of the year, and have downgraded expectations for growth accordingly.

Morgan Stanley became the latest Wall Street bank this week to slash its forecast for the fourth quarter on the view that extra spending won't arrive this year. It now expects the US economy to grow at a 3.5% annualized pace between October and December, down from 9.3% previously.

Covid-19 has killed 1 million people around the world

More than 1 million people have died from the coronavirus across the globe, a grim milestone in a pandemic that's changed the way billions of people live and work in fewer than nine months.

The latest: The death toll from the coronavirus, which causes Covid-19, now stands at 1,002,394, according to data from Johns Hopkins University. More than total 33 million infections have been confirmed worldwide.

The health crisis is far from over. And the economic disaster it triggered is dragging on, too.

Take a look: The Back-to-Normal Index from CNN Business and Moody's Analytics shows that the US economy is operating at nearly 81% of where it was in early March, its highest level yet. But progress has been slow going, and remains fragile.

Additionally, about 11.5 million people in the United States who became unemployed because of Covid-19 remain out of work.

Restrictions on daily life aimed at controlling the virus, which delivered the largest peacetime shock to the global economy on record, are still in place in many countries, and some are tightening rules again. The outlook for the coming months is increasingly uncertain, especially amid a second wave of infections in Europe.

"As time goes on we will get better at dealing with the virus and regaining a semblance of working order for the global economy," Michael Darda, chief economist and market strategist at MKM Partners, said in a recent note to clients. "That does not mean there won't be setbacks along the way."

Bracing for the first US presidential debate

Investors are likely to tune in to the first televised US presidential debate alongside prospective voters as expectations of market volatility around the US election in November shoot higher.

View from Wall Street: A recent Citi poll of nearly 80 clients found that investors are split on whether they believe Trump or Biden will take the White House. In June, more than 60% of survey respondents saw Biden emerging victorious.

PredictIt, a betting platform, puts the odds of a Biden win at 59%. Odds have remained relatively stable over the past three months.

But the risk of a contested election, in which the results aren't conclusive for some time after the vote, is starting to garner more attention. Any fresh comments from Trump indicating he won't concede if he loses could feed investor alarm.

Watch this space: Wells Fargo analyst Christopher Harvey thinks stocks could pull back as much as 10% if there's a contested election result. Such views are leading more traders to adjust their portfolios on the expectation that November could be choppy.

Up next

US consumer confidence data for September posts at 10 a.m. ET. Micron reports earnings after US markets close.

Coming tomorrow: Palantir and Asana are due to start trading on the New York Stock Exchange.