Markets stagger in virus anxiety
Global economy hit hard, oil prices crater as U.S. leaders try to cope
Financial markets reeled again Wednesday as the new coronavirus continued its relentless spread, governments ramped up efforts to contain it, and investors waited for lawmakers in Washington to take action on proposals to bolster the American economy.
The selling reflected another extreme swing in sentiment on
Wall Street. Stocks had jumped Tuesday as the White House called for urgent action to pump $1 trillion into the economy.
Stocks did recoup some losses late in the day Wednesday as the Senate began to vote on a bill to provide sick leave, jobless benefits, free coronavirus testing and other aid. President Donald Trump is expected to sign it. But when all was said and done, the
S&P 500 fell about 5 percent, stocks in Europe were sharply lower and oil prices cratered.
The renewed selling showed how fragile any gains have become as long as the virus continues to spread and the number of COVID-19 cases continues to grow at a staggering rate.
The turmoil on Wednesday was evident in other markets as well. The British pound fell to its lowest level in 35 years against the American dollar.
The American oil bench mark, West Texas Intermediate, dropped 24 percent to just over $21 a barrel, the lowest price since 2003. The global Brent benchmark fell to just above $25 a barrel, a level just below January 2016. Oil prices are more than 60 percent below where they were at the beginning of the year.
Rystad Energy, a consulting firm, said that supply of oil worldwide would exceed demand by about 3 million barrels a day in April as air travel and other transportation ground to a halt.
“With each day, there seems to be yet another trap door lying beneath oil prices, and we expect to see prices continue to roil,” said Louise Dickson, a Rystad analyst.
The U.S. economy is poised for the worst quarterly contraction ever, with a sudden slowdown in economic activity that’s more akin to what happened in wartime Europe than during previous slowdowns like the financial crisis more than a decade ago or even the Great Depression.
Greg Daco, chief U.S. economist at Oxford Economics, thinks the economy could shrink by 12
percent next quarter, with unemployment hitting 10 percent in April.
‘Trump bump’ gone
As it rose to record heights, the stock market had perhaps no bigger cheerleader than Trump, who saw the rally as an endorsement of his economic policies and crowed about the gains throughout his presidency.
But stocks have been falling for a month, and the severity of that drop has all but wiped out all of the gains that followed Trump’s inauguration. In intraday trading on Wednesday, the Dow Jones industrial average fell below its preinauguration closing level of 19,732 before recovering slightly to end the day less than 1 percent above its Jan. 19, 2017 close.
The S&P 500, a better measure of the broader market, is about 6 percent above its pre-inauguration level.
Trump’s victory in 2016, along with the Republican Party’s control of Congress, set off a surge in share prices as investors looked forward to the prospect of steep cuts to corporate tax rates and an administration stocked with industryfriendly faces.
In December 2017, Trump delivered a sweeping tax overhaul. By the following month, the S&P 500 was up more than 30 percent, and the gains kept coming for much of the year. For Trump, this was a surefire barometer of his success as president.
There was one other nasty dip along the way: In late 2018, investors grew increasingly worried about Trump’s trade war with China and the prospect that the Federal Reserve would raise interest rates. But with the economy still growing, the job market strong, and the Fed reversing course on its plan to raise interest rates, the market overcame that dip and climbed nearly 30 percent.
White House plan
The White House is asking Congress to allocate $500 billion for two separate waves of direct payments to U.S. taxpayers in the coming weeks and an additional $300 billion to help small businesses continue to meet payroll, according to a Treasury Department proposal circulating on Capitol Hill and among lobbyists.
The outline, a copy of which was obtained by The New York Times, calls for a total of $1 trillion in spending for those programs, which would also include $50 billion for secured loans for the airline industry, and another $150 billion for secured loans or loan guarantees for other parts of the economy hard hit by the unfolding financial crisis.
It would allow for the use of the Exchange Stabilization Fund, an emergency reserve account that is usually used for intervening in currency markets, to cover those costs and also temporarily allow it to guarantee money market mutual funds.
Lawmakers were moving swiftly Wednesday to try to incorporate the proposal and others from senators into legislation that could be put to a vote in the coming days. But the details remained far from complete.
The Treasury Department proposal calls for the authority to send two $250 billion rounds of checks directly to taxpayers, the first April 6 and the second May 18. Payments would be fixed, and their size dependent on income and family size, the summary said.
The proposed program to increase loans to small businesses would allow any employer with 500 employees or fewer to receive loans equaling six weeks of their payroll up to $1,540 per employee under the condition that companies must keep paying their employees for eight weeks after receiving the loan.
Business groups lobby
One of the biggest business lobbying groups, which spoke by phone with Trump on Wednesday, has asked the administration and congressional leaders to relax tax policies and cut regulations in response to the coronavirus pandemic.
On Wednesday, the president was expected to call into the quarterly meeting of Business Roundtable, which is chaired by Walmart’s chief executive and whose board includes companies like IBM, Apple and AT&T. The group also sent a letter to the president and top lawmakers in Congress calling for a payroll tax holiday for employers and tax credits for companies that retain employees as the economy contracts, as well as relief from tariffs.
The companies are asking for breaks from regulations governing global supply chains, including “regulatory flexibility and, if necessary, direct resources to sustain port infrastructure and multimodal transportation and delivery networks.”
$50B for airlines
Trump reassured airline executives Wednesday that the country would “support them and their amazing employees” as his administration proposed a new loan program for the industry to Congress.
The president spoke in a conference call with chief executives of the biggest airlines and UPS and FedEx. The call came as an administration proposal included $50 billion in secured loans for the industry, which has asked for $58 billion in grants and loans.