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Stocks rallied on Wednesday, with Wall Street poised to close at a high that would seem to defy dire predictions of the economic damage brought by the coronavirus pandemic.
The S&P 500 rose more than 1.5 percent, on track for its biggest daily gain in weeks and one that could leave it above the mark of 3,386.15, reached in February before the fast-spreading virus set off an enormous decline in stock prices.
The index is up about 50 percent from its lowest point this year, gains that have been fueled by a number of factors, including government spending to prop up the economy and a rally in shares of big technology companies.
Technology stocks again drove the rally on Wednesday, with the Nasdaq composite jumping by more than 2 percent and the information technology sector of the S&P 500 the best performing corner of the market.
Companies such as Apple, Amazon and Microsoft have attracted investors despite the deep economic downturn in the United States, with buyers betting that those companies are poised to thrive in a stay-at-home economy and emerge from the crisis in an even stronger competitive position.
Still, the march higher has also meant that investors have looked past a number of risks that lie ahead. Most prominent among them this week is the inability of lawmakers in Washington to reach any consensus about another economic aid package. On Tuesday, stocks reversed their gains after the Senate majority leader, Mitch McConnell, said that talks over a new plan for unemployment benefits and other spending had “stalled.”
The cost of the pandemic was on display in Britain, where the government released data showing the economy shrank by more than 20 percent in the April to June quarter, when the economy was in the grips of a lockdown to curb the virus’s spread. That was not only the steepest fall on record for Britain, but the worst second-quarter collapse among European and North American countries.
The United States budget deficit grew to a record $2.8 trillion for the fiscal year to date as the federal government continued to pump money into an economy coping with the coronavirus pandemic, the Treasury Department said on Wednesday.
The monthly shortfall of $63 billion for July was an improvement from the prior month, however, as tax payments that were delayed from April came in and as government loans that were being supported through the $660 billion Paycheck Protection Program slowed.
The ballooning deficit comes as Congress continues to debate another round of fiscal stimulus on top of the $2.2 trillion in economic relief that was approved in March. Republican lawmakers have begun expressing concern about the size of the deficit — which is the gap between what the U.S. spends and what it takes in — and have cited that as a reason to slow future spending. But many economists say the United States should be running a large deficit now, as millions remain out of work and business activity remains depressed.
The Federal Reserve chair, Jerome H. Powell, has also cautioned that now is “not the time” to act on concerns about the deficit.
Much of the spending in July came from the Department of Health and Human Services and the Department of Labor, which has been paying out an additional $600 per week in supplemental unemployment insurance benefits. That extra money expired at the end of July.
Government receipts for the month were $563 billion, up sharply from the same month the previous year as tax dollars began to flow into the Treasury. The Trump administration had delayed Tax Day by three months to July 15 to help workers hit by the pandemic.
For the fiscal year, tax receipts are down by just 1 percent compared with 2019.
Lawmakers in Congress and the Trump administration have been locked in negotiations over how much to spend on another relief package as the existing programs run dry. The White House and Republicans are willing to spend slightly more than $1 trillion while Democrats want to spend more than $3 trillion.
Treasury Secretary Steven Mnuchin said in an interview on the Fox Business Network on Wednesday that about 20 percent of U.S. gross domestic product has been pumped into the economy this year through support measures and that it was important to be mindful about piling on substantially more debt.
A Federal Reserve regional bank president warned that the country’s inability to control the spread of coronavirus is undermining its economic rebound and risks delaying the return of full employment, as nervous consumers stay home to avoid getting infected.
“We must get the virus under control in order for a sustainable economic recovery to take hold,” Eric Rosengren, president of the Federal Reserve Bank of Boston, said on Wednesday. He added later that “states lifted protective measures too soon and in a manner not calibrated for the true risks posed by the virus.”
Mr. Rosengren said that “common sense precautions — such as wearing masks when around other people, maintaining safe social distance and avoiding crowded indoor settings — are much less costly than having to shut down whole sectors of the economy again.” It was important for Americans to take such steps “to avoid more tragic outcomes along with further economic pain,” he said.
Mr. Rosengren said that real-time data suggest the recovery may be “losing steam,” echoing remarks the Fed chair, Jerome H. Powell, made at a news conference in late July, when he suggested that a resurgence in virus cases might be slowing the rebound.
The Boston Fed chief, whose central bank branch is running the Fed’s Main Street loan program for midsize businesses, said that the government’s program to provide funding to those companies will be useful in the fall if activity slows and credit conditions worsen. Some have called the program a failure because it has supported relatively few loans so far.
Mr. Rosengren said he “completely” disagrees with that assessment.
“The program can serve as a vital bridge to address cash-flow interruption ushered in by the pandemic,” Mr. Rosengren said, noting that “as borrowers and banks have become more familiar with the program, we have seen a steady increase in banks submitting loans to our portal.”
The program now has $856 million in loans in some stage of the approval process, he said, a pickup from the program’s slow start, but still a fraction of its $600 billion capacity.
The Chinese internet giant Tencent on Wednesday said it believed that President Trump’s recent executive order targeting its messaging app WeChat would not affect its other businesses in the United States.
Tencent reported Wednesday that net profit rose 37 percent for the second quarter. Revenue from online games jumped 40 percent jump as the pandemic lockdowns kept people indoors.
The Aug. 6 order from the White House prohibits Americans from making transactions with Tencent that are “related to WeChat” starting late next month. But it does not specify which transactions, saying only that the secretary of commerce would identify them later.
The order sent Tencent’s shares tumbling last week. In the United States, the company has a sprawling but low-profile presence that includes the video game, entertainment and tech industries.
“Based on our initial reading and subsequent press reports, the executive order is focused on WeChat in the United States and not our other businesses in the U.S.,” John Lo, Tencent’s chief financial officer, said in a call with analysts. “We are in the process of seeking further clarification from relevant parties in the U.S.”
A ban on WeChat in the United States would cut off a key tool used by Chinese living abroad to chat, swap videos and memes, and read the news. But its financial impact on Tencent would be less significant, the company’s chief strategy officer, James Mitchell, said on Wednesday’s call.
The United States represents less than 2 percent of Tencent’s global revenue, Mr. Mitchell said. He also said that Tencent did not believe that the White House order prevented American companies from advertising on the company’s platforms in China. The order, he said, specifies that it only affects transactions that are subject to the jurisdiction of the United States.
Treasury Secretary Steven Mnuchin said on Wednesday that there had been no progress this week in negotiations with Congress over another economic stimulus package, and accused Democrats of being intransigent for political reasons.
The talks collapsed last Friday, spurring President Trump to roll out several executive actions intended to extend additional unemployment insurance benefits and deter evictions. Since then, the lines of communication between Republicans and Democrats have fallen silent.
“Perhaps they think that any deal is good for the president and that’s why they don’t want to do it,” Mr. Mnuchin said in an interview on the Fox Business Network.
Mr. Mnuchin highlighted federal funding for state and local governments as the most significant area of disagreement. He said the White House was willing to provide an additional $150 billion to states to deal with coronavirus-related costs, while Democrats wanted to give states approximately $1 trillion.
The Treasury secretary said that Democrats believed state economies would not be able to fully reopen in the next two years and that they wanted federal money to help support ailing pension funds and to fill budget shortfalls that states were facing before the pandemic. Mr. Mnuchin argued that most states had not exhausted the $150 billion that was allocated in the previous relief legislation passed in March.
While Democrats are holding out for a larger package, Mr. Mnuchin on Wednesday urged them to consider narrowing the deal to items that they agree on and suggested that Republicans were willing to spend “a little over $1 trillion.”
“We don’t have to do everything at once,” he said.
The British economy sunk into its deepest recession on record in the second quarter, taking it back to the size it was in 2003. Official statistics showed gross domestic product dropped by 20.4 percent between April and June, compared with the previous quarter.
The pandemic-induced collapse was harsher in Britain than other large economies in Europe and North America. The second-quarter fall in economic output was twice as deep in Britain as in the United States.
Britain has the challenge of getting out of a much deeper hole because of the length of the lockdown imposed to restrict the spread of the coronavirus. The Office for National Statistics said lockdown measures were in place in Britain for a larger part of this three-month period than they were for other economies. Britain was relatively slow in introducing a national lockdown compared with most of its European neighbors. It started in earnest in late March and the government didn’t begin lifting the broadest restrictions until mid-June. Its lockdowns also affected a greater share of the population for a longer period of time than the state-by-state shutdowns in the United States.
A monthly breakdown showed the British economy did pick up in June, climbing 8.7 percent from May as construction activity resumed and consumer spending rebounded. Still, the Bank of England said last week it didn’t expect the recovery to be complete until the end of 2021.
In an effort to keep the recovery from stalling, the government is encouraging people to return to work in offices and it is planning for schools to reopen next month. The Treasury also spent more than 53 million pounds ($69 million) last week as part of a stimulus plan paying for discounts for meals eaten in restaurants and pubs on Mondays, Tuesdays and Wednesdays this month.
The cost of Britain’s late and long lockdown in response to the pandemic is an economic recession deeper than any other reported by a European and North American country in the second quarter.
The British economy contracted by a fifth in the second quarter, compared with the first three months of the year. It’s the deepest recession since the government started keeping such records, in 1955.
Some of the severity of Britain’s recession can be explained by the economy’s high dependence on consumer spending, which was brought to a near-standstill by the closure of shops, restaurants, and places like movie theaters and hotels, according to Samuel Tombs, an economist at Pantheon Macroeconomics.
But it was the government’s slow response to the pandemic in March which led to a longer lockdown in the second quarter, that was “at the root of the economy’s underperformance,” he wrote in a research note.
The nationwide lockdown began in late March and only started to be lifted in mid-June.
By starting later — Britain’s pubs and restaurants were open a week or more longer than those in other European countries — the virus had more time to spread around the country, and so the lockdown needed to be tighter and last longer. An Oxford University index on the strictness of government responses, including school and workplace closures and travel bans, showed that Britain’s lockdown was more strict in the second quarter than in Italy, Germany, Spain and the United States.
A venture backed by the owner of Barneys New York has won a bid to buy Brooks Brothers, America’s oldest apparel company, for $325 million.
Sparc Group, a venture including Authentic Brands, the new owner of Barneys, and Simon Property, the biggest mall operator in the United States, will save at least 125 Brooks Brothers stores as part of the agreement. Brooks Brothers, a 200-year-old men’s wear retailer, filed for bankruptcy protection last month. It has struggled with declining sales in recent years as many in the corporate world have opted for a more casual look.
The brand was among several high-profile retailers, including J.C. Penney, Neiman Marcus and J. Crew, whose businesses were unable to weather the sales slump resulting from the coronavirus pandemic.
A court hearing to approve the sale is scheduled for Friday, Brooks Brothers in a statement on Tuesday, and the deal is expected to be completed by the end of this month.
Authentic and Simon initially made a “stalking horse” offer of $305 million, setting a price floor for bids in the bankruptcy auction.
Tesla rose Wednesday after the company announced that its board had approved a five-for-one split in its soaring stock. The company’s share price has shot up more than 500 percent over the last year, making Tesla one of the most highly valued car companies in the world, even though it sells far fewer vehicles than its industry peers.
The corporate restructuring at WarnerMedia continued with layoffs in its DC Entertainment division, home of DC Comics and the DC Universe streaming platform, part of an overhaul that will reduce head count by 600. Nearly 50 people at DC Comics were laid off, said two people with knowledge of the decision who spoke on condition of anonymity because it had not been announced publicly. DC Direct, the company’s division devoted to collectibles, will be shuttered in November, these people said. The move comes after the ouster of three top executives on Friday in a shake-up by WarnerMedia’s new chief executive, Jason Kilar, who is realigning the company to put a greater focus on HBO Max, its new streaming service. WarnerMedia, a division of AT&T, began a significant round of layoffs on Monday.
Sumner M. Redstone, the billionaire entrepreneur who saw business as combat and his advancing years as no obstacle in building a media empire that encompassed CBS and Viacom, died on Tuesday. He was 97.
His death was announced in a statement from National Amusements, the private theater chain company founded by his father.
Mr. Redstone had vowed never to give up the reins of his sprawling conglomerate, but in February 2016 he stepped away from managing it, and his daughter, Shari E. Redstone, with whom he had a contentious relationship, took control of day-to-day affairs.
Beginning with a modest chain of drive-in movie theaters, Mr. Redstone negotiated, sued and otherwise fought to amass holdings that over time included CBS, the Paramount film and television studios, the publisher Simon & Schuster, the video retail giant Blockbuster and a host of cable channels, including MTV, Comedy Central and Nickelodeon. At their peak, the businesses he controlled were worth more than $80 billion.
Toward the end of his life, he controlled about 80 percent of the voting stock in Viacom and CBS, presiding over both through National Amusements. And almost to the end, his grip was tight and his enthusiasm undiminished.
In the heart of Manhattan, national chains including J.C. Penney, Kate Spade, Subway and Le Pain Quotidien have shuttered branches for good. Many other large brands, like Victoria’s Secret and the Gap, have kept their high-profile locations closed in Manhattan, while reopening in other states.
Even as the city has contained the virus and slowly reopens, there are ominous signs that some national brands are starting to abandon New York. The city is home to many flagship stores, chains and high-profile restaurants that tolerated astronomical rents and other costs because of New York’s global cachet and the reliable onslaught of tourists and commuters.
For four months, the Victoria’s Secret flagship store at Herald Square in Manhattan has been closed and not paying its $937,000 monthly rent. “It will be years before retail has even a chance of returning to New York City in its pre-Covid form,” the retailer’s parent company recently told its landlord in a legal document.
Some popular chains, like Shake Shack and Chipotle, report that their stores in New York were performing worse than others elsewhere, investment analysts said.
Michael Weinstein, the chief executive of Ark Restaurants, who owns Bryant Park Grill & Cafe and 19 other restaurants, said he will never open another restaurant in New York.
“There’s no reason to do business in New York,” Mr. Weinstein said. “I can do the same volume in Florida in the same square feet as I would have in New York, with my expenses being much less. The idea was that branding and locations were important, but the expense of being in this city has overtaken the marketing group that says you have to be there.”