Stocks drop as investors brace for more damage to come.
Stocks on Wall Street fell sharply on Wednesday, following a slump in global markets, as investors face new projections of the potential scale and economic ramifications of the coronavirus pandemic.
The S&P 500 fell nearly 4 percent in early trading, extending its losses from March — with a 12.5 percent drop — the worst month for stocks since 2008.
Though the panic-driven, stomach-churning market volatility of recent weeks had subsided in recent days, numerous signs point to dire prospects for the world economy as the pandemic continues its spread. 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. And on Wednesday, the United Nations warned of “enhanced instability, enhanced unrest and enhanced conflict.”
And economic readings continue to worsen. On Wednesday, a monthly measure of factory activity in Europe collapsed to its lowest level since at least 2012, while data showed Japan’s factory activity slowed to its lowest rate in a decade. Investors will get more data on the job market in the United States later this week, with the government reporting weekly jobless claims on Thursday and the unemployment rate on Friday.
The first quarter of this year saw the end of the record-breaking, 11-year bull market in U.S. stocks, a crash in oil prices and the seizing up of Wall Street’s more esoteric markets, among other twists and turns. An enormous fiscal and policy response at the end of March helped undo some of the worst damage. The S&P 500 recouped more than half its losses in the final week of the month after lawmakers passed a $2 trillion spending package, and the Federal Reserve said it would buy an unlimited amount of government-backed debt to keep markets functioning.
Calmer markets do not mean that the worst is over. As people stay home and factories shut down, millions of workers have lost their jobs. Economic data showing the scale of the damage has only just begun to roll in, and Wall Street analysts continue to downgrade expectations for the economy.
On Wednesday, stocks in London and Paris stocks were trading 2 to 4 percent lower, following similar drops in Asia.
The first quarter was bad. The second could be even worse.
Analysts now expect average earnings for S&P 500 companies to fall by 10 percent this quarter, versus the same period last year. That would be the first double-digit percentage decline since 2009, according to FactSet. At the start of the year, notes today’s DealBook newsletter, market watchers thought earnings would grow 6 percent this quarter.
Bear in mind, too, that analysts are a notoriously over-optimistic bunch. Forward-looking earnings estimates routinely drift lower as companies drop hints about trading conditions. The grim news from firms dealing with coronavirus shutdowns does not suggest that this pattern will be broken in the coming months.
Why the global recession could last a long time.
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.”
Start-up employees are among those out of work with little warning.
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.
Inside the fast-moving market for masks.
The stakes are high, and so are the prices. Wholesale costs for N95 respirators, a crucial type of mask for protecting medical workers, have quintupled. Trans-Pacific airfreight charges have tripled.
The White House said over the weekend that it had organized 22 flights to airlift personal protection equipment. The aim is to resupply hospitals that are within 72 hours of running out of protection equipment, said Gregory Forrester, the chief executive of National Voluntary Organizations Active in Disaster.
“If any one of these planes don’t take off,” he said, “that’s going to be an issue.”
China has become a major part of the solution. Already a giant in mask manufacturing, it has ramped up production to nearly 12 times its earlier level. The huge mobilization effort has involved redesigning freight train routes and sending large numbers of workers across the country in sealed buses.
The Chinese government has encouraged global deals, but buying and selling masks is no easy feat. Traders, some just weeks into their new but unstable careers, have to navigate confusion, fraud attempts, byzantine customs laws and other barriers.
Japanese data points to a growing risk to the country’s economy.
Japan’s factory activity in March slowed to its lowest rate in a decade and its manufacturers are increasingly pessimistic about the state of the country’s economy, data showed on Wednesday, in the latest indications of the pressure that the coronavirus is putting on Japanese businesses.
The country’s economy was already on the brink of a technical recession — two consecutive quarters of contraction — after a 7.1 percent drop in economic output in the final three months of last year.
But a gauge of factory output, known as the purchasing manager’s index, fell to 44.8 in a monthly survey by Jibun Bank and IHS Markit. A reading of less than 50 indicates economic contraction.
The reading was the lowest level since 2009, when the country was grappling with the effects of the global financial crisis.
Japanese manufacturers’ concerns about the course of the economy over the coming three months have also sharpened significantly, turning negative for the first time since 2011, in the aftermath of the Fukushima nuclear disaster, according to a central bank survey of business conditions, known as the Tankan, that was released on Wednesday.
So far, Japan has managed to limit the spread of the coronavirus without resorting to the kinds of strict measures that have caused widespread economic shutdowns in the United States, China and Europe.
Public health officials pushed airlines to collect passenger data. They refused.
For 15 years, the U.S. government has been pressing airlines to prepare for a possible pandemic by collecting passengers’ contact information so that public health authorities could track down people exposed to a contagious virus.
The airlines have repeatedly refused, even last month as the coronavirus proliferated across the United States.
As the coronavirus spread into the United States this year, the federal government was not able to get in touch with or monitor airline passengers who might have been exposed to the disease or were bringing it into new communities.
Airline executives and lobbyists have protested that it would be expensive and time-consuming for them to start collecting basic information like email addresses and phone numbers for all passengers.
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.
BP, the London-based oil giant, said on Wednesday that it was cutting capital spending for 2020 to $12 billion, around 25 percent less than earlier guidance, in response to the fallout from the coronavirus pandemic. Among the trims are $1 billion from shale drilling and other “onshore” activity and another $1 billion from refining and marketing.
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.
Some workers at Whole Foods held a sickout on Tuesday seeking to pressure the company to provide paid leave for those who choose to quarantine and to double the pay of those who work during the pandemic. There appeared to be at least dozens who called in sick, based on conversations among organizers in a messaging app that they allowed journalists to join. The company said that it had raised pay $2 per hour through the end of April and was providing two weeks of paid sick leave for workers.
Reporting was contributed by Ben Dooley, Peter S. Goodman, Niraj Chokshi, Li Yuan, Keith Bradsher, Noam Scheiber, Amie Tsang, Jason Karaian, Carlos Tejada, Stanley Reed, Kevin Granville and Daniel Victor.