Stocks fell on Monday even after the Federal Reserve unveiled new measures to keep markets working properly. Wall Street awaited Washington lawmakers to agree to an economic stimulus and rescue plan to cushion the blow from the coronavirus outbreak.
The Dow Jones Industrial Average traded 152 points lower, or 0.8%. The 30-stock average also hit its lowest level in three years. The S&P 500 slid 0.8% while the Nasdaq Composite outperformed, rising 0.6%.
One of the measures taken by the Fed was an open-ended asset purchase program, which the central bank will run in the “amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”
“While the Fed’s actions are an enormous help, the only way the markets are going to find sustainable improvement is when the economy is allowed to come back to life, or at least there is a real path in place for how that is going to happen,” said Paul Hickey of Bespoke Investment Group, in a note.
Treasury Secretary Steven Mnuchin told CNBC’s Jim Cramer on “Squawk Box” Monday that Congress was “very close” to getting a fiscal package done, noting it must be pushed forward “today.”
“We’re using some of the funds we have, but we need Congress to approve additional funds today so that we can move forward and support American workers and the American economy,” Mnuchin said.
A fiscal stimulus bill failed a key procedural Senate vote Sunday as Democrats warned the measure did not do enough to help impacted workers and instead offered too much for company bailouts. House Speaker Nancy Pelosi had signaled she was not on board with the Republican version of the stimulus plan, saying: “From my standpoint, we’re apart.”
On a positive note, Senate Minority Leader Chuck Schumer, D-NY, said disagreements over the bill could be overcome in the next 24 hours. A spokesman for Schumer later added the senator and Treasury Secretary Steven Mnuchin had a “productive meeting.”
National Economic Council Director Larry Kudlow said Saturday an economic stimulus package will total more than $2 trillion, noting it will be equal to roughly 10% of U.S. economic output. Last week, President Donald Trump signed a $100 billion bill that expanded paid leave in the U.S.
However, investors were worried after Trump sent a series of tweets that may signal he is considering sending workers back to work before the pandemic is under control. Trump also retweeted an account saying: “Flatten the curve NOT the Economy.”
Boeing shares rose 4.6%, outperforming the market, as Goldman Sachs made a bold call Sunday evening, telling clients the company had enough cash to survive the coronavirus downturn and that air travel would eventually return. The shares are off 70% this year.
David Kostin, chief U.S. equity strategist at Goldman Sachs, said the difference between a fast or a prolonged recovery in the stock market will come down to three factors: How quickly the virus is contained, whether businesses will have ” access to enough capital and liquidity to last the 90 to 180 days,” and whether fiscal stimulus can stabilize growth forecasts.
“If short-term shutdowns lead to business defaults, closures, and permanent layoffs, the damage to corporate earnings growth could persist well after the virus is contained,” Kostin said in a note.
Wall Street has been clamoring for fiscal economic relief as the number of coronavirus cases keeps surging. The number of confirmed global cases surpassed 350,000 as deaths now total over 15,000, according to data from Johns Hopkins University.
In the U.S., more than 35,000 cases have now been confirmed. New York Gov. Andrew Cuomo said Sunday cases in the state soared to 15,168 over the weekend, more than the total number of cases in France or South Korea.
Economists at Goldman Sachs wrote Friday they expect a 24% contraction for the second quarter after a 6% drop in the first quarter. Morgan Stanley economist Ellen Zentner said in a note Sunday she expects a historic 30% contraction in the second quarter.
“Suffice to say that the economy entered a unique, sudden-stop recession in March,” wrote Prajakta Bhide, strategist at MRB Partners. “If there is no concrete evidence of meaningful progress toward controlling the epidemic in the next eight weeks, there will be no basis for people and businesses to feel safe to begin to normalize economic activity.”
Last week, stocks suffered their biggest one-week decline since the financial crisis in 2008, with the S&P 500 dropping more than 13%. Those losses put the broad market average more than 32% below its record set on Feb. 19.
“Things will get worse before they get better and the markets will continue to reflect that reality,” said Marc Chaikin, CEO of Chaikin Analytics, in a note. “This means that a bottoming process will take more time and probably inflict more damage to equities.”
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