FRIDAY, March 29, 2024
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U.S. stocks plunge amid steep fall in bank earnings, retail sales

U.S. stocks plunge amid steep fall in bank earnings, retail sales

U.S. stocks sank at the open Wednesday, dragged down by dismal earnings and retail data that offered new snapshots into the pandemic's grip on the American economy.


The Dow Jones industrial average fell 660 points, or 2.7%, shortly before noon and the Standard & Poor's 500 index and Nasdaq composite also fell sharply. The sell-off followed a blistering report on March retail sales, which plunged 8.7% for the worst monthly decline ever.

That figure stands in stark contrast to February's revised 0.4% decline. The drop blew past economist expectations of about 8% as the outbreak gutted consumer spending, yanked millions out of the workforce and forced people to stay home.

Markets were also bruised after weak earnings reports from major banks. Bank of America said its first-quarter profit dropped 45%, and Goldman Sachs said it suffered a 46% decline. Citigroup reported a similarly bleak drop.

Chris Brightman, chief investment officer of Research Affiliates, an institutional investor, said the S&P 500 right now is right about where it stood going into the fourth quarter of 2019, when the market staged a big rally.

"You might want to ask yourself if the earnings capacity and the fundamentals of the S&P look as good today as they did in September of 2019," Brightman said. "While we are now approaching the peak in daily deaths and new cases from the coronavirus, we haven't seen the peak from the economic fallout. The numbers we see today for the retail sales are for March, and the month of April will be far worse. As a result, expect market volatility to persist for quite some time."

U.S. crude oil prices fell to an 18-year-low Wednesday on a falloff in demand. West Texas Intermediate the U.S. benchmark, was trading just above $19 per barrel, a price so low that almost no oil producer, either nation or private company, can make a profit.

The cataclysmic drop across the board in fossil fuel usage as a result of the coronavirus shutdown is rippling throughout the oil, gas and pipeline industry and cramping national and local governments that rely on oil income or taxes on gasoline for revenue. Oil and natural gas pipelines, oil drillers and oil equipment service companies also are suffering.

"There is just a harsh global economic reality that is resulting in an epic crash in demand of fuel of all types," said John Kilduff of Again Capital.

American consumers drive 70% of the country's economy. But now, spending at restaurants, retail stores, malls and the like has essentially hollowed out.

"The stock market can discount the slowing of the spread of the coronavirus, but it can't ignore the sharpest one-month drop in retail sales on record," said Chris Rupkey, chief financial economist at MUFG Union Bank. "Retail sales say this is a depression, not a recession, and who knows when corporations will make money again?"

Across the country, grocery shelves are picked clean of eggs and flour, toilet paper and disinfectant wipes. Delivery workers risk their lives to bring packages to people's doorsteps. Wednesday's figures from the Commerce Department show sales at food and beverage stores were up 28% compared with March 2019.

But those dynamics don't capture the full picture of just how abruptly spending has faltered. Sales at clothing stores fell by 50.7% compared with last year. Car sales dropped off between February and March and could decline even more by April. On Wednesday, Best Buy said it would furlough 51,000 store employees in the United States, or about 40% of its total workforce.

"Outside of grocery stores, the story was nearly universally negative," said Jim Baird, chief investment officer at Plante Moran Financial Advisors. "Higher-ticket and non-discretionary sectors were hit especially hard. Auto and furniture sales plummeted more than 25%. Far and away, the greatest impact was felt in apparel retailers."

The repercussions from the coronavirus outbreak have been swift and stinging. More than 17 million Americans have filed for unemployment benefits. The federal government has responded with trillions of dollars in emergency relief to households, small businesses and entire industries. About 80 million people will receive stimulus checks by Wednesday. But even a boost of $1,200 - which people are mostly spending on food - is unlikely to save a retail sector in free fall.

The industry was struggling well before the pandemic took hold. More than 60,000 stores have closed in recent weeks, according to Coresight Research, and retailers have canceled millions of dollars' worth of orders. By the start of April, nearly 1 million retail workers were furloughed as giants including Macy's, Gap, Kohl's, L Brands and J.C. Penney sent most of their employees home without pay.

For comparison, at the peak of the Great Recession, retailers eliminated 2.6 million jobs.

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The Washington Post's Abha Bhattarai contributed to this report.

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