Spending plans liven Wall Street
Stocks rally as government gears up to send people checks
After suffering their worst day in decades, stocks bounced back Tuesday as Washington policymakers talked up plans to try to cushion an economy careening toward a recession driven by the coronavirus outbreak.
The Trump administration moved to send checks to Americans as soon as in two weeks to stave off the financial effects of an unprecedented upheaval in social interactions. It also asked Congress for hundreds of billions in aid. The Federal Reserve reintroduced additional crisis-era tools to stabilize financial markets.
The S&P 500 index rose 143.06 points, or 6%, to 2,529.19, rebounding from a 12% collapse Monday, which was its steepest drop since 1987.
The Dow Jones Industrial Average see-sawed through the day. It went from up 600 points to down 300 to up 1,190 and then pulled back again. It ended the day up 1,048.86 points, or 5.2%, to 21,237.38. A day earlier, it lost nearly 3,000 points after Trump said a recession may be on the way.
The Nasdaq rose 430.19 points, or 6.2%, to 7,334.78.
The yield on the 10-year U.S. Treasury note, a key fixture of global finance, flew above 1% — a sign of happy investors. Oil prices fell.
The S&P 500, which dictates the movements of work
ers’ 401(k) accounts much more than the Dow, is still 25.3% below its record set last month. It’s close to where it was at the start of 2019, before one of the best years for stocks in decades.
Early trading Tuesday 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.
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 financial entities borrow billions by issuing commercial paper to fund their operations and manage their daily cash flows. The Fed did the same thing during the recession and ended up buying about $350 billion worth of these loans, or about 20% of this market.
Putting it into action required the sign-off of the Treasury Department, which will provide $10 billion of credit protection to the Fed, using Treasury’s Exchange Stabilization Fund.
Treasury Secretary Steven Mnuchin also announced that the White House was looking at giving direct cash payments to Americans as part of an economic stimulus package of around $850 billion, which the administration hopes will stanch the economic free fall caused by the coronavirus.
“We’re looking at sending checks to Americans immediately,” Mnuchin said Tuesday at a briefing. “And I mean, now in the next two weeks.”
The proposal could also include $50 billion for the airline industry and $250 billion for small businesses. The travel industry has been among the industries hardest hit by the outbreak. Planes sit grounded, and hotels and casinos shut their doors.
“This is the type of news the market wants,” Ilya Feygin, managing director at the institutional brokerage firm Wallach-Beth, said in an email. “Aid to households and businesses and attacking the virus directly, not monetary gimmicks.”
Mnuchin said Tuesday that President Donald Trump instructed him to allow for the deferment of tax payments, interest free and penalty free for 90 days. People can defer up to a $1 million, and corporations can defer up to $10 million in payments. The Treasury secretary said this would inject $300 billion into the economy.
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% of American gross domestic product.
The tone of the trading Tuesday reflected some of these concerns. The best performing parts of the market were traditionally defensive areas, such as the utilities and consumer staples, where investors hide out during trying economic times.
Uncertainty about how badly the economy will be hit by the coronavirus has put the market on a roller coaster with steep losses giving way to sharp gains, only to get wiped out again, sometimes all in the same day.
“I don’t think we’re going to be able to trust movements in the market for some time,” said Tom Martin, senior portfolio manager with Globalt Investments.
Trading was unsettled around the world Tuesday. European stocks swung from gains to losses and back to gains. South Korean stocks fell to their fifth straight loss of 2.5%, but Japanese stocks shook off an early loss to edge higher.
Stocks have had a few rebounds since the market began selling off in mid-February on worries that covid-19 will slam the economy and corporate profits. But all have ended up short-lived. The S&P 500 has had four days in the past few weeks where it surged more than 4%, something that did not happen at all last year. Each time, it has slumped more than 2.8% the following day.
On Tuesday, the yield on 10-year Treasuries rose 28 basis points to 1%, the highest in almost two weeks. The yield on 30-year Treasuries gained 32 basis points to 1.60%, the highest in almost two weeks.
West Texas Intermediate crude declined 6.4% to $26.87 a barrel, the lowest on record.
Gold strengthened 1.2% to $1,532.63 an ounce, the first advance in more than a week.
The virus has spread so quickly that its effects haven’t shown up in much U.S. economic data yet. A report Monday about manufacturing in the state of New York was the first piece of evidence that manufacturing is contracting because of the outbreak. On Tuesday, a report showed that retail sales weakened in February, when economists had been expecting a gain.
Estimates of vast U.S. job losses inflicted by the coronavirus outbreak are emerging, even as actual layoffs are only just starting.
Major retailers like Apple, Abercrombie & Fitch, and Nordstrom, as well as upstarts like Glossier and Warby Parker, are shutting their stores. Airlines are canceling flights and grounding planes. Yet so far, relatively few companies, especially outside of the hospitality industry, have announced significant job cuts.
Economists in recent days have made increasingly dire forecasts of the wave of layoffs to come. IHS Markit, an economic forecasting firm, said Monday that it expected the unemployment rate to rise to 6% by mid-2021, up from 3.5% in February. The Economic Policy Institute, a progressive think tank, estimated Tuesday that the outbreak could eliminate 3 million jobs by June.
The situation could be especially bad if layoffs hit the retail industry, the country’s biggest private-sector employer, as mall chains and department stores brace for fewer visitors and a broader downturn.
The news of financial help from Washington delivered a much-needed break to U.S. markets, which had been bouncing wildly between positive and negative territory on the heels of their worst day of trading since the 1987 “Black Monday” crash. All 11 S&P stock sectors were positive. All but five of the Dow 30 components were positive, with Dow Inc., Intel and Travelers the big winners. The yield on the 10-year U.S. Treasury note, a key fixture of global finance, flew above 1% — a sign of happy investors.
Boeing and McDonald’s were the losers. The fastfood giant expects to take a hit because nearly all of its franchises are operating only drive-thru, takeout and delivery services.
The decline of Boeing stock, once a Dow powerhouse, in some ways reflects the fall of the 11-year bull market that ended last week. At $125 per share, it is a fraction of the $400 it commanded a year ago, before problems surfaced in its 737 Max jet.