Wednesday, June 03, 2020

Wall Street falls despite latest Fed action to shore up economy

Mar 23. 2020
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By The Washington Post · Rachel Siegel, Thomas Heath 

Fresh off Wall Street's worst week since the 2008 financial crisis, U.S. markets swung wildly as the Senate failed to advance a $1.8 trillion coronavirus rescue package and the Federal Reserve announced unlimited bond purchases in its latest, unprecedented move to lift the U.S. economy.

The Dow fell more than 300 points after futures trading signaled a more than 500-point pop at the open. The Standard & Poor's 500 and Nasdaq futures also were in steep decline.

The volatility came after the Fed said it would purchase Treasurys and mortgage-backed securities "in the amounts needed to support smooth market functioning," showing the central bank is willing to go far beyond the $700 billion in new purchases announced last week.

Investors had also been looking for the enormous stimulus bill to be pushed through the Senate by Monday. But on Sunday evening, Senate Democrats said the legislation did not offer enough help for individuals. Senators from both parties, as well as White House officials, said they would continue negotiations, overnight if necessary, to respond to the flood of layoffs affecting millions of Americans and the economic pillage felt by businesses in nearly every sector.

The bill would steer payments of $1,200 to most adults and include $500 for each child. It would also allocate $350 billion to small businesses to address layoffs and send billions more to hospitals and the unemployment insurance system. The measure also would create a $500 billion program for businesses, states, and localities.

On Friday, the blue-chip index capped an especially turbulent week by shaving off more than 900 points, erasing all Trump-era gains. All three indexes are well into a bear-market - which marks at least a 20% reversal from their highs. Oil prices have plummeted as demand has evaporated and governments around the world urge people to stay in their homes to contain the spread of coronavirus.

Ed Yardeni, president of Yardeni Research, said in his morning note that the U.S. must slow the spread of the virus immediately, outlining three possible economic scenarios: "the Good, the Bad and the Ugly."

Any "good" prospect - a growth recession with a stock market correction - was wishful thinking, Yardeni wrote.

"That leaves only the Bad and the Ugly for now," he wrote. "The former is underway, with the global economy falling into a severe recession, the stock market in a bear market . . . and the Fed having lowered the federal funds rate to zero and restarted credit easing programs. The only question now is how bad will Bad be."

Global markets entered the week on equally shaky footing. Stocks flashed red across Europe, with Britain's FTSE 100 down 3.8%. Germany's DAX shed roughly 6%, and the pan-European Stoxx 4%. In Asia, Hong Kong's Hang Seng plunged 4.86%, and the Shanghai composite dropped 3.1%.

Japan's Nikkei 225 popped slightly and was 2% in the green after SoftBank - which is headquartered in Tokyo and controls a $100 billion tech investment fund - announced it would sell $41 billion in assets and buy its own dropping shares. Stocks of tech companies, many of which employ low-wage gig workers, have fallen precipitously as the pandemic forces consumers to travel and commute less.

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