The news is terrible but Wall Street is still having its best month in decades.
Stocks fell on Thursday, giving up some of their gains from the day before, after reports that showed millions more Americans applied for weekly unemployment benefits and consumer spending collapsed.
But it was a small retreat in an otherwise stellar month for Wall Street. Even with Thursday’s decline factored in, the S&P 500 is on track for its best month since 1987, a gain that came even as it became increasingly clear that the Covid-19 crisis was pushing the United States into a dire economic downturn.
The roughly 12 percent gain this month means the S&P 500 is now up roughly 30 percent from its March 23 low. It’s a rally that has surprised even the most ardent bulls.
“Frankly, I’m shocked by the speed of the rally,” said Julian Emanuel, chief equity and derivatives strategist at the brokerage firm BTIG, who has been anticipating a rebound since before the rally began.
The rally, even in the face of crushing economic data, highlights investors’ confidence that things will return to normal sooner than they thought when stocks were collapsing in late February and early March.
Both the Federal government and the central bank have pumped trillions of dollars into the economy and financial markets, lockdown measures appear to be having some success in reducing rates of infection, and some states are laying out the conditions for reopening.
“Instead of now talking about shutting everything down we’re talking about opening it back up again,” said Scott Clemons, chief investment strategist for private banking at Brown Brothers Harriman. “That’s a good change in the conversation.”
Some southern states have begun trying to return to normal, and bigger states such as New York and California have started laying out the conditions for reopening.
That doesn’t mean the economy is suddenly going to be back on track.
Markets tend to rebound far before any actual improvement in economic fundamentals is apparent, as investors buy shares based on expectations for what will happen later in the year, rather than the current climate. During the last recession, the stock market bottomed in March 2009. But the unemployment rate didn’t begin to drop until October of that year.
Top Wall Street economists expect the second-quarter economic data to look, well, cataclysmic. J.P. Morgan economists, for example, believe the American economy will shrink at a previously unthinkable 40-percent annual rate in the second quarter. The Congressional Budget Office thinks unemployment could hit 16 percent by the third quarter.
It’s also important to recognize that the current rally has been relatively narrow, with an outsized part of the gains for the S&P 500 index attributable to a handful of giant technology companies — Microsoft, Apple, Amazon, Alphabet and Facebook. In April, these companies grew to account for roughly 20 percent of the total value of the S&P.
The rebound in shares of technology companies — in part because their businesses are seen as benefiting in various ways from stay-at-home orders — has been most evident in the Nasdaq composite, which has nearly erased all of its losses for 2020.
Macy’s plans to reopen 68 of its stores on Monday in states with looser restrictions for nonessential businesses, and another 50 on May 11, the company said in an email on Thursday.
The beleaguered company, which also owns Bloomingdales and Bluemercury, expects that all 775 of its locations will be reopened in six weeks based on state and local guidelines and if infection rates decline as projected, Macy’s chief executive, Jeff Gennette, said in an interview with The Wall Street Journal.
The company made the announcement the same week that documents from Simon Property Group, the country’s biggest mall operator, outlined plans to reopen 49 shopping centers between Friday and Monday. Macy’s said that roughly one-fourth of the stores it planned to reopen on Monday were in Simon malls.
In an online presentation, Macy’s said that its stores must meet certain requirements to reopen. The stores must be “financially attractive” and have “minimum viable staffing.” They must also meet certain health and safety standards, including staff training on new health and safety routines, as well as enough sanitation supplies and sneeze guards installed.
To counter a deep economic decline, the European Central Bank said Thursday it would effectively pay banks to lend money as it vowed to do whatever was necessary to counteract the economic impact of the coronavirus.
Under certain conditions, the central bank will allow commercial banks in the eurozone to borrow at a rate of minus 1 percent provided the money is passed on to businesses and consumers. The negative interest rate means that banks do not need to pay back all of the money that they borrow.
Christine Lagarde, the president of the E.C.B., said at a news conference Thursday that the eurozone economy could decline by as much as 12 percent this year. The downturn is “unprecedented in peacetime,” she said.
The central bank also said in a statement Thursday that it was prepared to further increase its purchases of government and corporate bonds, a form of money printing intended to keep market interest rates low and make it easier for businesses and consumers to get credit.
The central bank had previously earmarked more than 1 trillion euros, or $1.1 trillion, for asset purchases. But the bank said Thursday it is prepared to raise that sum “as much as necessary and for as long as needed.”
Consumer spending collapsed in March as the coronavirus pandemic put millions of Americans out of work and forced tens of millions more to stay home instead of going out and spending.
Spending fell 7.5 percent from February, by far the biggest drop in the six decades that records have been kept, the Commerce Department said Thursday. The biggest previous decline was 2.1 percent in 1987. (Adjusted for inflation, spending fell 7.3 percent, also a record.)
Figures for April could be even worse. Layoffs and business closures did not hit until late March in many places, whereas nearly the whole country has been under some form of lockdown for most of April. Many forecasters think spending could fall at an annualized rate of 40 percent or more in the second quarter, even if some businesses begin to reopen in May and June.
With consumer activity responsible for more than two-thirds of the country’s economic performance, that would probably lead to the worst drop in economic output since World War II.
Incomes, too, fell in March, though not as sharply as spending. Overall personal income declined by 2 percent. Wage and salary income fell by 3.1 percent as layoffs and cuts in hours rippled through the economy. Business owners fared even worse; so-called proprietor’s income, derived from partnerships and other mostly small businesses, fell by 8.2 percent.
Still, the slightly milder decline in incomes could be a silver lining for the economy: Americans are saving more. “At least households have the means to boost consumption a little when the lockdowns ease,” economists at Capital Economics wrote in a note to clients.
The American economy continues to stagger under the weight of the coronavirus pandemic, with another 3.8 million workers filing for unemployment benefits last week.
The figures announced Thursday by the Labor Department bring the number of workers joining the official jobless ranks in the last six weeks to more than 30 million, and underscore just how dire economic conditions remain.
Many state agencies still find themselves overwhelmed by the flood of claims, leaving perhaps millions with dwindling resources to pay the rent or put food on the table.
If anything, according to many economists, the job losses may be far worse than government figures indicate. A study by the Economic Policy Institute found that roughly 50 percent more people than counted as filing claims in a recent four-week period may have qualified for benefits but were stymied in applying or did not even try because they found the process too formidable.
“The problem is even bigger than the data suggest,” said Elise Gould, a senior economist with the institute, a left-leaning research group. “We’re undercounting the economic pain.”
Economic output in France and Spain slumped more than 5 percent during the quarter — declines not seen since the end of World War II, according to official statistics from those countries. Lockdowns did not begin until March, near the end of the period covered by the report, suggesting that data for the quarter that began in April could be even worse.
In France, Germany and many other countries, employees are on government subsidized furloughs and do not count as unemployed. The jobless rate is almost certain to rise further as airlines, carmakers and other large corporations lay off workers in reaction to plunging sales.
The Fed will expand its program to bolster midsize businesses.
The Federal Reserve on Thursday said it planned to expand its effort to lend directly to midsize businesses through its Main Street Lending Program.
The program, which the Fed first announced on March 23, is part of the central bank’s broader push to keep credit flowing into the economy. The Fed has yet to give a start date for the program.
Fed officials had previously provided an outline of how the Main Street program might work, but went back to the drawing board after receiving more than 2,200 comments from banks, businesses and individuals recommending tweaks. Now, the Fed will make loans as small as $500,000 — down from a minimum of $1 million previously — and expand eligibility requirements so that bigger companies can qualify.
The revision also creates a new program category that will allow riskier companiesto gain access to the Fed-supported loans.
American Airlines reported a loss of $2.2 billion in the first quarter of the year, a damaging but expected blow in an industry rocked by the pandemic. The company ended the quarter with $6.8 billion in cash on hand and planned to increase that to $11 billion by the end of June, a recognition that the downturn will be prolonged.
“Never before has our airline, or our industry, faced such a significant challenge,” the company’s chief executive, Doug Parker, said in a statement.
Here are the other big companies that reported earnings on Thursday:
Twitter said it had an unprofitable quarter for the first time in more than two years, even as more users rushed to the platform. The company lost $8.3 million in the first quarter, breaking a profitability streak that started at the end of 2017. Advertising revenue dropped by 27 percent from March 11 to March 31.
ConocoPhillips said it was cutting production by 35 percent after posting $1.7 billion loss in the first quarter. The company, the largest independent producer of oil and natural gas in the United States, generated $1.6 billion in cash from its operations in the quarter and was in better financial shape than other oil companies.
Comcast saw its biggest jump in broadband subscribers and now has nearly 27 million internet customers. But it also saw one of its biggest declines in video, with more than 388,000 people cutting their TV subscriptions. Advertising, which includes its NBCUniversal division, dropped more than 2 percent, and its theme parks business plummeted 27 percent.
Kraft Heinz, which has struggled in recent years as consumers steered clear of its packaged foods, reported on Thursday that first-quarter sales surged 3.3 percent to $6.2 billion as shoppers stocked up on Kraft Macaroni & Cheese, Heinz ketchup and Planters nuts.
The maker of Lysol, Reckitt Benckiser, reported a surge in sales for the first quarter of 2020. Revenue was up 13 percent over the period a year earlier. The company also said it saw strong demand for its Mucinex and Norofen cold and pain relief medicines.
Dunkin’ Brands, one of the world’s largest fast-food restaurant companies, reported that sales plunged 19 percent at Dunkin’ Donuts and 23 percent at Baskin-Robbins in the last three weeks of March.
Royal Dutch Shell, Europe’s largest oil company, said on Thursday that it would cut its dividend for the first time since World War II as the company reported a loss of $24 million for the quarter compared with $6 billion in profit in the period a year earlier.
More companies return small-business loans.
A California citrus grower returned its federal stimulus loan on Thursday, adding to the more than 25 public and private companies that have given back their funds amid public outcry.
Limoneira Company, an agribusiness that grows lemons, citrus, avocado and other produce, said in a securities filing that it would give back the $3.61 million loan it received from City National Bank. The flood of returns from firms that have received forgivable Paycheck Protection Loans comes after the federal government said it did not believe that large public companies with access to other capital should take the money.
Catch up: Here’s what else is happening.
Tapestry, the company that owns the brands Coach and Kate Spade, said it would open about 40 of its stores in North America on Friday for “contactless curbside or storefront pickup.”
Reporting was contributed by Jack Ewing, Stanley Reed, Kate Conger, Ben Dooley, Nelson D. Schwartz, Alexandra Stevenson, Sapna Maheshwari, David McCabe, Edmund Lee, Mohammed Hadi, Matt Phillips, Ben Casselman, Jason Karaian, Niraj Chokshi, Neal E. Boudette, Steve Lohr and Mike Isaac.