Stocks plunge as grim forecasts and new virus cases pierce Wall Street’s bubble.
Stocks suffered their sharpest daily decline in three months on Thursday, as grim economic forecasts and a worrisome uptick in new coronavirus cases rattled investors’ confidence.
The S&P 500 fell nearly 6 percent, and the Dow Jones industrial average fell by nearly 7 percent. Oil prices also cratered, reflecting the sudden unease that swept across financial markets.
Stocks had been on an upward trajectory for weeks, a rally that stood in stark contrast to a collapse in economic activity but showed that investors had been betting on a quick recovery as businesses reopened and states lifted stay-at-home restrictions. By Monday, the S&P 500 had climbed about 45 percent from its lows in late March and recouped all of its losses for the year.
After such a fast rally — the gains had been the quickest rebound from a low since 1933 — a reversal was to be expected, and a dour reading on the state of the economy from the Federal Reserve on Wednesday seemed to provide the trigger. The central bank forecast that the unemployment rate could stay above 9 percent this year and would be high for the next several years.
At the news conference that followed that announcement, the Federal Reserve chair, Jerome H. Powell, warned that the depth of the downturn and pace of the recovery remained “extraordinarily uncertain.”
Other economic updates continue to confirm that the economy remains in dire shape. On Thursday, the U.S. government reported that another 1.5 million people filed for state unemployment claims last week.
“The market was very overbought and ripe for a pull back,” wrote Matt Maley, chief market strategist at Miller Tabak, an asset management firm on Thursday. “Powell’s comments yesterday and concerns over a second wave have caused the decline to take place more quickly than we thought.”
Wall Street analysts have long cautioned that another wave of coronavirus cases that lead to a new round of stay-at-home restrictions and more layoffs could startle investors, who have recently seemed unconcerned that prices for stocks have grown untethered from the bleak economic fundamentals facing consumers and companies.
Public health officials have warned that despite efforts to loosen virus-related restrictions that have curtailed economic activity, the pandemic is far from finished. Coronavirus infections were rising in 21 states on Thursday, as cases in the United States topped two million.
“This market rebounded so far, so fast — as if all the issues related to the pandemic were behind us,” wrote Doug Rivelli, president of institutional brokerage firm Abel Noser in New York. “So any data to counter that view was bound to hit the markets.”
Nearly every stock in the S&P 500 was lower Thursday, with energy companies, airlines and retailers all faring poorly — trading that highlighted the sudden shift in sentiment among investors. Here are the standouts:
Cruise ship operators and airlines have something of a barometer of optimism about a return to normal, rising sharply in recent weeks as travel began to tick higher. On Thursday, Norwegian Cruise Line, Carnival, United Airlines and American Airlines all fell sharply. Aircraft maker Boeing, which has an outsize influence on the Dow Jones industrial average, also plunged.
The mall operator Simon Property Group was also down. Simon Property’s shares had rallied recently as state governments allowed stores to reopen, and some retailers said they were seeing a quick bounce-back in demand.
With crude oil falling more than 8 percent, reflecting a resurgence of concerns about the economy, energy companies — like Halliburton and Occidental Petroleum — were sharply lower.
Target, Walmart, and Netflix fared better, but were still slightly lower by Thursday afternoon. All three had done well during the first round of pandemic-related closures, with consumers shopping for staples online and signing up for streaming subscriptions as they stayed home.
The Russell 2000 fell more than 7 percent. The companies in the Russell 2000 are smaller and less global in nature, making the index especially sensitive to the outlook for the economy.
Another 1.5 million filed new state unemployment claims last week.
The Labor Department said Thursday that 1.5 million Americans filed new state unemployment claims last week — the lowest number since the coronavirus pandemic shut down much of the economy in March, but far above normal levels.
The weekly report on unemployment claims comes after the government reported that jobs rebounded last month and that the unemployment rate fell unexpectedly to 13.3 percent. Correcting for a classification error, the actual rate was closer to 16.4 percent — still lower than in April, but higher than at any other point since the Great Depression.
A further 700,000 workers who were self-employed or otherwise ineligible for state jobless benefits filed new claims for Pandemic Unemployment Assistance, a federal aid program.
The overall number of workers collecting state benefits fell slightly in the most recent seasonally adjusted tally, to 20.9 million in the week that ended May 30, from a revised 21.3 million the previous week.
Jerome H. Powell, the Federal Reserve chair, warned on Wednesday that the economic pain could last for years and that there would be “a significant chunk” — millions of workers — “who don’t get to go back to their old job, and there may not be a job in that industry for them for some time.”
Mr. Powell said that “it’s possible Congress will need to do more,” but a divide has arisen on Capitol Hill over whether to extend a $600 weekly supplement to state unemployment benefits beyond July 31, as Democrats advocate, or to pare or halt it, possibly replacing it with government incentives to return to work, as some Republicans have proposed.
Treasury Secretary Steven Mnuchin said on Thursday that he was “very seriously considering” backing another round of economic stimulus payments to Americans as part of another relief package.
The Trump administration is considering a range of measures to inject more money into the economy, which is facing its deepest downturn since the Great Depression as a result of the coronavirus pandemic. The House of Representatives passed a $3 trillion pandemic relief bill last month, but Senate Republicans and the White House have dismissed that as dead on arrival.
Negotiations between the White House and lawmakers are expected to get underway next month. Mr. Mnuchin has said he would prefer additional stimulus to focus on specific industries that have been hit hardest by the pandemic, but direct payments to individuals would have the benefit of raising consumer spending more broadly.
“It’s a very efficient way for us to deliver money into the economy,” Mr. Mnuchin said in a briefing with reporters on Thursday, noting that for people who still have jobs, the money is akin to a tax cut.
Mr. Mnuchin said he remained optimistic that the economy would rebound during the second half of the year and he played down gloomy projections from the Federal Reserve this week that predicted that the unemployment rate could be close to 10 percent at the end of the year. The Treasury secretary said that traditional economic models are poorly equipped to predict the impact of a pandemic.
The Treasury secretary said he believed that it was unlikely that the economy would be shut down again if there was a second wave of the virus, but he acknowledged that there was more work to be done to get businesses back on track. He pointed to the need for additional incentives such as tax credits to get firms to hire workers and tax deductions that would entice workers to eat out at restaurants.
“High unemployment is unacceptable,” Mr. Mnuchin said. “We have more work to do.”
Instacart, benefiting from pandemic demand, raises $225 million.
Instacart, a grocery delivery start-up based in San Francisco, on Thursday raised $225 million in new funding and nearly doubled its valuation to $13.7 billion, as it benefits from a surge in demand during the pandemic.
Apoorva Mehta, Instacart’s founder and chief executive, said in a statement that the virus had led to major changes in the way that people shopped for food.
“This pandemic has fundamentally reshaped the way people think about grocery and e-commerce,” he said.
Instacart’s new funding, led by DST Global and General Catalyst, reflects an overnight shift in the fortunes of delivery start-ups. Instacart, DoorDash and Postmates have faced skepticism over whether they could turn a profit and their business models, which rely on armies of contract workers, have been subject to regulatory scrutiny and worker complaints.
Instacart’s grocery shoppers have protested the company’s practices, including its lack of hazard pay and protective gear during the pandemic. Last year, the start-up laid off employees after a partnership with Whole Foods ended.
In March, when Americans began to quarantine at home, Instacart usage exploded. Order volume in the last three months increased fivefold compared with last year, the company said. Instacart hired 300,000 workers to meet the demand and thousands of new stores. It also added bonuses and paid sick leave for workers diagnosed with the virus.
Weathering the fallout: One bar, 12 weeks and 17 lives in lockdown.
The coronavirus is threatening countless places that people loved and that made their communities special — like the Hatch, in Oakland, Calif.
The night before the lockdown started in California, Times reporter Jack Nicas persuaded the staff of his local watering hole to share their finances and lives over the next two months.
Kenny Bloom, a bartender, was fairly zen as the staff served one last night of drinks. “Am I worried? Of course I’m worried. Is it the end of the world, though? No,” he said. “If society crashes, whatever. We’ll rebuild it.”
Antoine Towers, the bouncer, was more fatalistic. He forecast riots. “Three weeks of not making any money?” he said, standing outside the bar. “People are going to do what they have to do.”
Santos, a Guatemalan immigrant, pressed burgers to the grill. He and his six children in the Bay Area had all received word that day that they no longer had jobs. He planned to return to the three-bedroom house on the outskirts of Oakland that he shared with 11 family members and stay put.
“I want to respect the law,” he said in Spanish. “But my worry is my rent, food.”
By early April, weeks into joblessness, he was still optimistic. He had begun taking morning walks in the hills and leading nightly family prayer circles. “Almost every day, we are praying that God takes control,” said Santos, who asked to be identified only by his first name because of his family’s immigration status.
Standing in the driveway, amid scattered children’s toys and bags of empty cans collected from the Hatch, he said the family had just barely made their $2,860 rent for March, plus about $500 more for utilities. He and his children had applied for jobs at a recycling plant and a tortilla-chip factory, but were turned away. “We are OK right now, assuming this ends in a week or two,” he said. “But if this goes on longer, then it really worries me.”
The coronavirus pandemic has sent economies into recession and reduced government revenue, so some countries are taking a politically perilous path: removing restraints on electricity and petroleum prices.
Nigeria and Tunisia have lowered fuel subsidies in recent weeks, and India has raised taxes on gasoline and diesel fuel. Sudanese officials plan to replace some subsidies with direct cash payments to the poor. Venezuela, where the economy was collapsing before the pandemic, has partly reversed decades of gasoline subsidies. And the state-owned electric utility in Dubai is seeking to raise rates for the first time in a generation.
In contrast to the recent past, elected leaders are facing little political blowback for taking away subsidies and raising taxes. That’s because the prices of oil, natural gas and other fuels have collapsed in recent months. In addition, driving, flying and industrial activity have dropped off sharply.
But that could change once world energy prices shake off the pandemic’s effects. Energy subsidies are often taken for granted outside the halls of power. But they constitute vital policy choices that weigh on government budgets and economic development.
“Governments are caught in a dilemma,” said Jim Krane, an energy expert at Rice University who has studied subsidies. “Do they want to protect the poor who may have lost their jobs and incomes, or do they want to take action against the pernicious long-term cost to their budgets?”
Catch up: Here’s what else is happening.
Boeing has asked a major supplier of parts for its troubled 737 Max jet to stop work on four Max fuselages and not to start work on 16 more, which were planned for delivery this year, according to the supplier, Spirit AeroSystems. Based on that request and further correspondence with Boeing, Spirit said it expected to cut back work it had planned on 125 of the jets and would furlough some employees on the project for three weeks starting Monday.
Rose Marcario, the chief executive of Patagonia for 12 years, is stepping down effective June 12, the outdoors brand said on Wednesday evening. It did not give a reason for her departure. Patagonia’s sales have dropped 50 percent in North America because of the coronavirus pandemic. The company’s transition will be led by Doug Freeman, its chief operating officer.
Just Eat Takeaway said on Wednesday that it had agreed to buy Grubhub for $7.3 billion, a deal that would give the European company a foothold in the United States. Uber had been in talks to buy Grubhub, but those discussions foundered over price and regulatory concerns, said people with knowledge of the discussions, who were not authorized to speak publicly.
Reporting was contributed by Alan Rappeport, Niraj Chokshi, Tiffany Hsu, Clifford Krauss, Erin Griffith, Jack Nicas, Li Yuan, Mohammed Hadi, Kate Conger, Adam Satariano, Michael J. de la Merced, Brooks Barnes, Carlos Tejada and Nicole Sperling.