Stocks drop as investors brace for more damage to come.
Wall Street is back in selling mode.
Faced with grim new projections of the potential scale and economic ramifications of the coronavirus pandemic, investors dumped stocks on Wednesday. The S&P 500 fell more than 4 percent, bringing its decline over two days to 6 percent.
The drop, which followed a sell-off in Europe and Asia, came after President Trump said at a news conference on Tuesday that the United States would face a “very, very painful two weeks.” U.S. government scientists projected that the outbreak could kill up to 240,000 people in the country. On Wednesday, the United Nations warned of “enhanced instability, enhanced unrest and enhanced conflict.”
The economic readings continue to worsen as well. On Wednesday, surveys of manufacturing and factory activity in the United States, Europe and Japan showed activity slowing to levels not seen in a decade or more. In the United States, factory orders and employment measures fell to their lowest since 2009, the Institute for Supply Management said.
Fears are growing that the global downturn could be far more punishing and long lasting than initially feared — potentially enduring into next year, and even beyond — as governments intensify restrictions on business to halt the spread of the pandemic, and fear of the virus impedes consumer-led economic growth.
“The market is sort of steeling itself for the onslaught of bad news over the next couple weeks,” said Julian Emanuel, chief equity and derivatives strategist at the brokerage firm BTIG.
On Thursday, the U.S. government will report how many people filed for unemployment last week, and the data could show that as many as 5 million workers lost their jobs as people stay home and factories shut down.
“There was an expectation that April 30 was perhaps a doable date in terms of reopening the economy,” said Mr. Emanuel. “I think the market is trading today as if that date is more like the end of May.”
On Wednesday, the decline was led by companies that have become familiar targets of investor unease during the crisis. Airlines were the worst performing sector in the S&P 500 as government data showed a staggering drop in passenger traffic through airports. United Airlines fell 19 percent, and American Airlines dropped 12 percent.
Cruise operator Carnival was the worst performing stock in the S&P 500, with a decline of 33 percent, while rival Royal Caribbean fell 20 percent.
The Federal Reserve eased a key rule for big banks.
Big banks will get a temporary break on a rule that limits how much they can borrow as the Federal Reserve tries to keep markets functioning.
The Fed said on Wednesday that it will exclude U.S. Treasury securities and deposits at the central bank from bank holding companies’ supplementary leverage ratio. That ratio requires that banks maintain a certain level of capital on their balance sheets based on their total size and can constrain their risk taking.
By excluding Treasurys and deposits, the Fed is essentially giving banks more room to expand their balance sheets.
“Liquidity conditions in Treasury markets have deteriorated rapidly, and financial institutions are receiving significant inflows of customer deposits along with increased reserve levels,” the Fed said. “The regulatory restrictions that accompany this balance sheet growth may constrain the firms’ ability to continue to serve as financial intermediaries.”
The change, which will be in effect for a year, is one that market strategists have flagged as potentially useful, but it is also something big banks have long had on their wishlist. It will reduce a key capital requirement for the largest and most systemically important banks, a prospect that faced some criticism.
“Now is not the time to be permitting firms to deplete their capital buffers in this way,” said Gregg Gelzinis, a senior policy analyst at the left-leaning Center for American Progress. “Banks will certainly be pressing to make sure that the change is permanent.”
Oil industry leaders will meet with Trump.
Top oil company executives will meet with President Trump on Friday to discuss possible government steps to take pressure off the industry at a time of slumping energy demand, according to a person close to company leaders.
The executives are not entirely united, with some favoring tariffs on imported oil and others favoring relief from regulations and royalties on federal lands.
The plan for the meeting was reported earlier by The Wall Street Journal.
The meeting comes after Saudi Arabia sought to limit production as the coronavirus outbreak weighed on global markets, but failed to get Russia to agree. As a result, both countries are pumping more oil to gain market share from U.S. producers, driving prices to two-decade lows. West Texas intermediate crude, the American benchmark, is trading barely above $20 a barrel.
Elizabeth Warren pressures delivery companies over workers.
Senator Elizabeth Warren of Massachusetts called on food delivery start-ups to reclassify the workers who deliver their orders as employees rather than independent contractors, a move that would make the workers eligible for health care and other benefits.
In letters sent on Wednesday to the chief executives of DoorDash, Uber Eats, Instacart and GrubHub, Ms. Warren said the companies had misclassified their workers for years but the coronavirus pandemic increased the urgency with which they must act. California and Massachusetts have passed legislation that requires the so-called gig economy companies to reclassify their workers but the companies have resisted doing so.
“The coronavirus pandemic has illustrated how much your company is completely reliant on these workers to provide essential services to the public,” Ms. Warren wrote. “Delivery workers are experiencing serious health and economic vulnerabilities as a result of their jobs, and your company is failing to provide appropriate and necessary protections.”
Instacart and DoorDash spokespeople said that their companies had offered quarantine pay to delivery workers and wanted to work with Ms. Warren to protect workers. Uber said Congress should pass new laws to protect the gig economy model. A GrubHub representative said the company was also offering quarantine pay and sanitation supplies.
Automakers report a sharp drop in sales.
Automakers reported a plunge in new-vehicle sales as fear of the coronavirus and stay-at-home orders kept consumers from dealerships, adding to the troubles of the country’s largest manufacturing sector.
General Motors said sales fell 7 percent in the first quarter and Fiat Chrysler said first-quarter sales fell 10 percent. Both companies said a significant decline in March offset strong sales in January and February.
Hyundai reported a 42 percent drop in March, and Mercedes-Benz had a 50 percent decline. Other automakers will report monthly and quarterly totals later on Wednesday.
Industry forecasters expect to produce a total for March after all automakers have reported. ALG, a company that tracks trends in auto sales, estimated that industrywide March sales fell 37 percent from a year ago.
The drop in sales is the second big blow to automakers. Most of the industry has shut down factories across North America to prevent the spread of the virus among workers.
“The market right now is really shellshocked,” said Brian Benstock, general manager of Paragon Honda in Queens. He said his service department is “on limp mode” and his sales area is dark.
Data on airport screenings shows falloff in air travel.
As the coronavirus pandemic spread around the world in February and March, demand for flights quickly started to collapse. World governments enacted travel bans, borders closed, and travelers opted to stay at home in efforts to contain the outbreak. Those efforts have almost entirely halted air travel in the United States.
The number of people screened by the federal government at airport checkpoints fell dramatically each day in March when compared to the same day of the week a year earlier, ending the month at just 7 percent of last year’s volume, according to Transportation Security Administration data.
On March 1, the agency screened about 99 percent of the 2.3 million passengers, airline crew members and airport workers who filtered past its checkpoints on the same day last year. But by Tuesday, the end of the month, only about 146,000 people streamed past the checkpoints, or about 7 percent of the 2 million people screened last year.
Fears are growing that the downturn gripping the global economy could be far more punishing and long lasting than initially feared — potentially enduring into next year and even beyond.
The pandemic is above all a public health emergency. So long as human interaction remains dangerous, business cannot responsibly return to normal. And what was normal before may not be anymore. People may be less inclined to jam into crowded restaurants and concert halls even after the virus is contained.
The abrupt halt of commercial activity threatens to impose economic pain so profound and enduring in every region of the world at once that recovery could take years. The losses to companies, many already saturated with debt, risk setting off a financial crisis of cataclysmic proportions.
“I feel like the 2008 financial crisis was just a dry run for this,” said Kenneth S. Rogoff, a Harvard economist and co-author of a history of financial crises, “This Time Is Different: Eight Centuries of Financial Folly.”
“This is already shaping up as the deepest dive on record for the global economy for over 100 years,” he said. “Everything depends on how long it lasts, but if this goes on for a long time, it’s certainly going to be the mother of all financial crises.”
The Treasury Department and the Federal Reserve are racing to finalize the development of a Main Street lending program aimed at helping mid-market companies along with a new program to buttress states and municipalities suffering financially from the coronavirus pandemic.
Treasury Secretary Steven Mnuchin said on CNBC on Wednesday that the programs were part of the Trump administration’s ongoing efforts to stimulate an economy that is facing a deep recession. Mr. Mnuchin said he was also talking with members of Congress about legislation that would boost investment in the nation’s infrastructure and that he was prepared to ask for more money to support small business loans.
“Jay Powell and I are working round-the-clock at providing liquidity into the economy,” Mr. Mnuchin said.
Mr. Mnuchin would not reveal the timing of the new Fed programs, but said they would be coming shortly.
“We want to get up and running so that they’re available to American business and American workers quickly,” he said.
Mr. Mnuchin and Mr. Powell have emerged as the two most powerful players in the economic response to the coronavirus, turning what was a collegial friendship into a vital partnership.
Start-ups have always been risky, designed to grow fast or die, but the coronavirus pandemic is turbocharging Silicon Valley’s natural selection and causing a shake-up so sudden it has defied comparison.
In just a few weeks, more than 50 start-ups have cut or furloughed roughly 6,000 employees, according to a tally by The New York Times. Plans for initial public offerings are delayed. And funding is drying up for many young tech companies.
Start-ups in some areas — telemedicine, food delivery, online learning, remote work, gaming — are thriving amid the quarantines.
But at ClassPass, which offers a membership program for fitness classes, more than 95 percent of its revenue evaporated in just 10 days as studios and gyms around the world shut down.
The fallout is hitting prominent start-ups as well. Airbnb, the home rental start-up valued at $31 billion, has stopped hiring and has suspended $800 million of marketing. Bird, an electric scooter start-up, laid off 30 percent of its staff last week, while Everlane, an apparel company, cut or furloughed hundreds of workers.
There were signs that the boom times were shaky even before the coronavirus brought wide swaths of the U.S. economy to a halt. But the pain is now deeper and most likely just beginning, especially as investors, already bruised by a string of disappointing initial public offerings last year, become even more cautious.
What else is going on:
Whiting Petroleum, an oil company focused on shale projects in North Dakota and Colorado, said it was filing for Chapter 11 bankruptcy protection, citing “the severe downturn in oil and gas prices driven by uncertainty around the duration of the Saudi/Russia oil price war and the Covid-19 pandemic.” Whiting, which has roughly $1 billion of debt coming due over the next year, said it had reached an agreement in principle with some creditors on a comprehensive restructuring.
Investors pulled more than $83 billion out of equity and debt investments in emerging markets, new data from the Institute of International Finance shows. “This record-breaking outflow episode is significantly larger than the one seen during the global financial crisis,” economists at IIF wrote in a note on Wednesday.
Banks in Britain, including Barclays, HSBC and RBS, said they would not pay dividends or carry out share buybacks this year. The supervisory arm of the Bank of England, which had requested the move, also encouraged the banks not to award cash bonuses to senior staff members this year. The European Central Bank has issued a similar request to eurozone banks.
Reporting was contributed by Clifford Krauss, Erin Griffith, Alan Rappeport, Neal E. Boudette, Kate Conger, Ben Dooley, Peter S. Goodman, Niraj Chokshi, Li Yuan, Keith Bradsher, Noam Scheiber, Amie Tsang, Jason Karaian, Carlos Tejada, Stanley Reed, Quoctrung Bui, Katie Robertson, Mohammed Hadi, Kevin Granville and Daniel Victor.