US stocks finished lower on Wednesday, with the Dow logging its worst day since the start of the month.
Dire words from Federal Reserve Chairman Jerome Powell at an event this morning weighed on the market all day. The central banker said negative interest rates are not on the table and that significant risks in the economy remain. Powell added that the unemployment rate would likely peak in the coming month before declining.
Stocks are on track to end the day deep in the red, with the Dow on track for its worst day since April 21.
The index was last down 2.5%, or 590 points.
The S&P 500, which is 2.1% lower, is bracing for its worst performance since May 1.
Even the Nasdaq Composite, which has fared better than its peers thanks to a rally in tech stocks, is down 2%.
Although stocks are deep in the red today, the major US indexes have rebounded from their recent lows. But whether this rally can stick remains to be seen.
“Now we’re worried about the second wave [of coronavirus infections],” said Brian Belski, chief investment strategist at BMO Capital Markets. “Let’s get through this first wave first and get people back to work.”
The real economy and the stock market are not very correlated, Belski warned. So people shouldn’t assume the pace of a recovery will match any rebound in the stock market.
The recent rally is simply discounting what will happen in six months, he added. The true test of whether the rally can stick is still ahead. The first quarter of this year showed only some of the pandemic’s impact. The second quarter will likely be far worse.
Economists predict a snap-back in the third quarter, but it’s unclear by how much. After all, economic data for the second quarter won’t be available until well into the fall, making it difficult to assess the conditions at hand, Belski cautioned.
“That’s why investors should take a long-term view,” he added.
Restaurants have been hit hard by the coronavirus crisis. Yet shares of Chipotle (CMG) hit an all time high this week.
The fast-casual chain has invested heavily in digital in recent years, and with customers staying home that investment is paying off, said CEO Brian Niccol. Some 70% of its business comes digital access points, said CEO Brian Niccol.
In addition, “ll the restaurant operations are run by Chipotle” and which is why the company could pivot so quickly, Niccol told Alison Kosik on the digital live show Markets Now.
Chipotle’s approach to its supply chain and operations, as well as a bolstered liquidity cushion, also put the business in a better position, Niccol said. The company has a strong balance sheet, he said, with nearly $1 billion in cash and it recently added a line of credit “to the tune of $600 million,” he added.
The US economy is in a really bad recession, according to Mark Zandi, chief economist at Moody’s analytics.
There is just too much uncertainty about a vaccine or the possibility of renewed waves of outbreak, Zandi said.
On top of that, many businesses will fail because they don’t have enough of a cash cushion or access to the government’s epidemic stimulus programs.
“So even when businesses reopen many won’t,” he added.
US stocks have fallen further after starting the day in the red.
All three major US indexes are around 2% lower, with stocks in the energy and financials sectors leading losses.
The Dow was 2.2%, or 525 points, lower, while the S&P 500 fell 2%.
The tech-heavy Nasdaq Composite fell 1.9%.
Although that feels like a lot, the Dow has actually fallen by more than 1% twice this month already (not including today) and seven times in April.
Even as stocks have soared over the past month, they remain quite volatile. The VIX volatility index spiked 7% today.
More dour jobs news is expected tomorrow.
Economists polled by Refinitiv expect Thursday’s initial jobless claims release to show 2.5 million Americans filed for first-time unemployment benefits last week.
This would bring the total number of first-time claims filed since mid-March to 36 million – and it would mark the eighth consecutive week of claims in the millions.
Though the figures have been falling every week since they peaked at 6.9 million initial claims in the last week of March, these high levels mean that the economy and its people are still hurting.
According to the Bureau of Labor Statistics’ monthly jobs report, America lost more than 20 million jobs in April alone, pushing the unemployment rate to 14.7%.
The weekly first-time unemployment claims don’t equal lost jobs, but they are the closest to a real-time measure of the economy and the labor market. Overall, the message seems to be that things aren’t getting worse, but we’re still in an unprecedented downturn.
In February, the US unemployment rate was near a 50-year low of 3.5%. In April, it skyrocketed to 14.7%, the highest level ever recorded since 1948 when the government began tracking the monthly data.
The road back to a healthier labor market will be painful, said Federal Reserve Chairman Jerome Powell during a virtual event at the Peterson Institute for International Economics.
It will be particularly painful because recently hired and lower-paid workers are the ones bearing the brunt of the pain, Powell said.
The unemployment rate will probably peak “over the course of the next month or so,” he added, and it’s reasonable to expect a decline in the unemployment rate after. This decline might even be sharp, but US unemployment will likely remain well above the lows seen at the start of the year.
Federal Reserve Chairman Jerome Powell is a buzzkill today.
He said the US economy probably needs more stimulus – but he pooh-poohed negative rates again. Powell also said significant risks remain in the economy, and the recovery isn’t here yet. Certainly not for jobs.
Investors weren’t pleased.
The Fed is saying no to subzero rates.
When the Federal Reserve slashed interest rates to near zero in March, investors began to wonder whether the United States could see negative benchmark rates.
After all, other central banks around the world have had to resort to them. But the Fed has long held a stance against subzero rates – and its chief says the coronavirus crisis hasn’t altered that thinking.
“The [Federal Open Market] Committee’s view on negative rates has not changed,” Fed Chairman Jerome Powell said during a virtual event at the Peterson Institute of International Economics. “That’s not something we’re looking at.”
The Federal Reserve has reached deep into its monetary policy toolbox – but the emergency programs deployed by the central bank won’t stick around forever.
“When this crisis is behind us, we will put these emergency tools away,” Fed Chairman Jerome Powell said during a virtual event at the Peterson Institute of International Economics.
Powell also stressed that the central bank has only lending power, not spending power, which means fiscal policy to stimulate spending might be required in the future.
Those fiscal tools might be costly, he noted. But they’re also necessary.
Dow futures were up only a few points just ahead of the open after Federal Reserve Chairman Jerome Powell said that the US economy continues to face significant risks and may need more action to help stimulate it.
Stock futures had been much higher before Powell began speaking at 9 am ET.
S&P 500 and Nasdaq futures were still pointing higher but gave up most of their gains.
The coronavirus crisis has devastated the US economy over the past weeks – and the “scope and speed of this downturn are without modern precedent,” according to Federal Reserve Chairman Jerome Powell.
It’s “significantly worse than any recession since World War II,” the Fed chief said in prepared remarks at a virtual event hosted by the Peterson Institute of International Economics.
Powell noted the country has already erased the job gains of the last decade, and the labor woes are hurting low-income families in particular.
Almost 40% of households earning less than $40,000 a year as of February lost their jobs in March, he added, citing a forthcoming Fed survey.
Producer prices dropped sharply in April, falling 1.3% on a seasonally adjusted basis. It was the largest drop in the index since the Bureau of Labor Statistics began tracking it in 2009.
The lion’s share of this decline – more than 80% – was due to a 3.3% drop in prices for goods, which in turn was driven by a 19% collapse in demand for energy.
The oil market crisis, driven by a global demand rout and storage limitations, pushed one oil futures contract to trade in negative territory last month. This pushed down energy prices across the board. Two-thirds of the April demand decrease for goods is linked to a 56.6% fall in gasoline prices, according to the BLS.
Excluding food, energy and trade services, the index still fell 0.9% in April, which was its largest decline in the series.
On an unadjusted basis, producer prices have fallen 1.3% over the past twelve months, their largest decline since November 2015.
This follows yesterday’s drop in consumer prices, which fell at the fastest level since 2008. The drop was largely driven by energy prices, but also pushed down by lower prices on apparel and vacation spending.
The unemployment rate in the United States will peak at 25%, rivaling the worst period of the Great Depression, Goldman Sachs warned.
The unemployment rate spiked to 14.7% in April as the economy lost more than 20 million jobs during the self-imposed shutdown to fight the coronavirus pandemic.
Economists at Goldman Sachs downgraded their labor market forecast “to assume that more workers will lose their jobs and a larger share of them will be classified as unemployed,” the Wall Street bank wrote in a report to clients.
Federal Reserve Chairman Jerome Powell will speak at the Peterson Institute for International Economics at 9 am ET, and investors are already getting their 🍿 ready.
Powell, who has orchestrated the most extraordinary economic rescue plan in the history of the Federal Reserve, could to discuss the Fed’s future stimulus plans.
To boost the economy, Powell’s Fed has taken rates to zero, bought hundreds of billions of dollars of government debt and Tuesday began to shore up the consumer lending market by buying up $100 billion of asset-backed securities.
The Fed did all of that during the last financial crisis starting in 2008. But Powell’s Fed has gone beyond what Ben Bernanke’s Fed did, buying up debt from small towns and cities and buying corporate bonds to keep companies afloat.
Powell may hint at more stimulus during his speech Wednesday.
Stock futures are rising higher after two straight days of declines.
Investors are eagerly awaiting Federal Reserve Chairman Jerome Powell’s speech at the Peterson Institute for International Economics at 9 am ET, in which he could to discuss future stimulus measures the Fed may take to boost the economy.
Investors had been giddy about the US economy beginning to reopen. But epidemiologists, including Dr. Anthony Fauci, have cautioned against overzealous lifting of stay-at-home orders. Fauci, the nation’s top infectious disease expert, said Tuesday that the “consequences could be really serious” if states reopen ahead of the guidelines issued by the White House.
