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The Finance 202: Wall Street just gave Trump two thumbs down on handling the coronavirus
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The Finance 202
Your economic policy briefing
Wall Street just gave Trump two thumbs down on handling the coronavirus
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BY TORY NEWMYER
with Brent D. Griffiths
THE TICKER
The stock market, President Trump’s favorite barometer of his performance, just gave him two decisive thumbs-down on his handling of the coronavirus crisis.
Investors panned his Wednesday night Oval Office address aimed at reassuring a jittery nation, selling off U.S. stock futures in its wake. Futures, which had been flat before Trump spoke, dove about 2 percent after his 11-minute speech. They fell further overnight and are now down 5 percent.
That added insult to a milestone injury. The Dow Jones industrial average on Wednesday officially entered a bear market by closing the trading session down 20 percent from highs it set just last month, the fastest such tumble in history. The S&P 500 briefly dipped under that line before recovering somewhat at the close, and market analysts expect the end of that index’s 11-year bull run is also nigh.
The economic havoc the coronavirus is wreaking remains the prime culprit. But investment managers say the buck stops with Trump for the S&P 500's roughly 5 percent nosedive on Wednesday. He inflated expectations for a swift, potent emergency package to cushion the incoming blow then failed to deliver a plan.
“The selloff was a reaction to an unfulfilled promise,” Brian Battle, director of trading at Performance Trust Capital Partners in Chicago, tells me. “The administration said, ‘Yes, we’ll have this big stimulus package,’ and they didn’t do anything. There was definitely disappointment that nothing was delivered.”
Trump in his address announced a 30-day ban on travel from Europe to the U.S., excluding the U.K. And he rolled out a number of moves to provide economic relief, directing the Small Business Administration to offer low-interest loans to squeezed small businesses; calling on Congress to approve payroll tax cuts; and directing the Treasury Department to defer tax payments penalty-free for “certain individuals and businesses negatively impacted.”
In an apparent slip that may have contributed to spooking investors, he also said the travel restrictions “will not only apply to the tremendous amount of trade and cargo, but various other things as we get approval.” He later walked the comment back in a tweet:
There were other apparent problems with the speech. From Politico's Sarah Owermohle:
But investors are also impatient for a much more aggressive fiscal response from Washington. And economists across the ideological spectrum largely agree such action is warranted to meet the impending economic shock.
House Democrats are rushing into the breach, introducing a multibillion-dollar package they are aiming to pass today.
The measure would cover paid sick leave, expanded unemployment insurance, and food security assistance, according to The Post’s Erica Werner, Mike DeBonis and Seung Min Kim. The bill also includes “free coronavirus testing, up to three months of emergency paid leave benefits to all workers affected by the coronavirus, and could also include an 8 percentage point increase in the federal share of Medicaid payments to states, lawmakers and aides said.”
It does not include targeted help to industries, a step the administration has been eyeing for the travel, cruise and hotel sectors while fending off criticism it would amount to a corporate bailout.
Time is short. Lawmakers are set to quit town at the end of the week for a week-long recess back in their districts.
But there is a chance the package advances in the shrinking window before then, as “a number of Republican senators indicated openness Wednesday to at least some elements of the House plan and said it was important to act quickly,” per my colleagues.
And Speaker Nancy Pelosi (D-Calif.) has coordinated development of the package with Treasury Secretary Steven Mnuchin, with whom she has forged a productive working relationship.
Outside pressure is building on policymakers. The World Health Organization just declared the coronavirus a pandemic. “German Chancellor Angela Merkel said 70 percent of Germany’s population could become infected,” my colleagues Joel Achenbach, William Wan and Lena Sun report. “On Capitol Hill, at a tense House of Representatives hearing, the nation’s leading doctors did nothing to dispel the atmosphere of gloom and anxiety. ‘Bottom line, it’s going to get worse,’ Anthony Fauci, the long-standing director of the National Institute of Allergy and Infectious Diseases, testified.”
And economists are raising alarms about the economic devastation ahead if Washington doesn’t deploy emergency measures now to mitigate it.. “At this stage, a recession is very likely, and the only question is how long and how severe it is, some of which depends on how long and severe the pandemic is,” Jason Furman, who chaired President Obama’s Council of Economic Advisers, tells me.
Jason Furman, former Obama administration economist and professor at Harvard University's John F. Kennedy School of Government. (Sarah Silbiger/Bloomberg)
Jason Furman, former Obama administration economist and professor at Harvard University's John F. Kennedy School of Government. (Sarah Silbiger/Bloomberg)
Furman, who addressed the House Democratic Caucus in the Capitol on Wednesday, says the pain could be worse than what the U.S. experienced during the financial crisis unfolding as Obama took office. “The financial crisis was terrible, but most people kept their jobs and many of them kept up their spending,” he says. “Today, everyone is cutting back on their spending, financial markets are strained, and the disruption to the economy could be severe.”
Furman — and economists of other stripes, including Michael Strain, of the right-leaning American Enterprise Institute — is recommending the federal government skip cutting payroll taxes and instead deliver direct payments to Americans to help them meet immediate needs and prop up spending that accounts for 70 percent of economic activity. And if policymakers err on the amount they commit to the project, they should aim to do so by spending too much, he says: “I’d be thrilled if history judges the response to the pandemic as an overreaction.”
Others share his dire assessment of the growing recession risk. David Kelly, chief global strategist at JPMorgan Funds, told CNN Business: ”If we do not see a substantial drop in the spread of the virus or its mortality rate within the next few weeks, the U.S. economy will go into recession.” And Former Treasury Secretary Larry Summers now puts the odds of a recession at 80 percent.
In the meantime, consumers and investors alike will be looking to Washington and, especially, the president himself, for a “very methodical response, to keep calmness about the environment and set expectations,” Shannon Saccocia, chief investment officer for Boston Private, tells me. “A big part of it is acknowledging the potential severity of the economic shock we could feel. Pushing through a major spending package would do that.”
Traders work on the floor at the New York Stock Exchange. (Bryan R. Smith / AFP)
Coronavirus response in the United States:
Wall Street leaders pledge to help: “As U.S. markets took a historic plunge Wednesday, Trump met with a dozen banking industry leaders, several of whom said they are already taking steps to help people and businesses affected by the outbreak of the novel coronavirus,” my colleague Renae Merle reports.
What kind of stimulus they want to see:
- Whatever gets money to the most people: “if we keep the broad group of American people with cash flow and money to buy goods and do things, the economy will be strong and those individuals will have other people we should take care of,” Bank of America CEO Brian Moynihan said during a brief press availability during the otherwise private meeting. Moynihan added that addressing “the health care problem” through expanded testing and more money for hospitals will generate broader confidence in the economy.
- Assistance for small business and gig workers: “If you work for IBM, life is going to be fine. If you work for Goldman Sachs, life is going to be fine. And if you are a part-time or gig worker, this is a moment of real trial, and this is where fiscal accommodation can be quite powerful,” Citadel CEO Ken Griffin said.
Meanwhile, around the U.S.:
Layoffs are here. The outbreak has caused 'hundreds of layoffs over the past week alone,' my colleagues Abha Bhattarai, Heather Long and Rachel Siegel report, adding the crisis is spilling over from the tourism industry into a wider circle of jobs.
Multiple states and cities are implementing restrictions: “All 12 of Florida’s state universities are closing their dormitories and presenting classes online. Health officials in Wisconsin are warning residents not to engage in nonessential travel. In Seattle, officials told people not to stand or sit shoulder to shoulder in the city’s bars,” my colleagues Katie Zezima, Tim Craig, William Wan and Felicia Sonmez report.
NBA suspends seasons indefinitely: The decision was made after one player, Utah Jazz center Rudy Gobert, tested positive for the coronavirus, my colleague Ben Golliver reports. The NHL said it will update the public today on its plans going forward, while a number of other professional leagues have been forced to make changes. And the NCAA's March Madness basketball tournament will be closed off to fans.
Trump cancels trip to influential Jewish coalition event: The president canceled a three-day trip to Nevada and Colorado, including a speech to the Republican Jewish Coalition in Las Vegas, due to ‘an abundance of caution’ over the virus, my colleagues David Nakamura, Anne Gearan and Seung Min Kim report.
Corporate fallout:
Travel ban is another blow to airlines: “The measures are set to further roil the travel industry, particularly airlines that are already scrambling to cut costs by reducing flights, offering employees unpaid, voluntary leave and freezing hiring, as the virus spreads and new travel restrictions are implemented, sapping demand,” CNBC's Leslie Josephs reports of Trump's ban on foreigners entering from most of Europe.
Corporations are in a cash grab. 'A swath of the nation’s biggest names is maxing out credit lines, grabbing cash before it can disappear,' Bloomberg's Sridhar Natarajan and Yalman Onaran report. 'Behind the scenes, some CEOs and their finance chiefs are calling bankers this week to ask for liquidity. And throughout the day Wednesday, word leaked out on company after company pulling from existing facilities.' Blackstone Group and the Carlyle Group are telling their companies to do whatever they can to avoid a credit crunch.
Twitter mandates all employees work remotely: The social media giant “has more than 35 offices around the world, with its Hong Kong, Japan and South Korea locations already put on mandatory remote work due in part to government restrictions,” Bloomberg's Vlad Savov reports.
International fallout:
The current case load worldwide:
Italy ramps up lock down: The country ordered 'a halt to nearly all commercial activity aside from supermarkets and pharmacies, while bringing [it] to a near-total economic standstill,' my colleagues Chico Harlan and Loveday Morris report from Rome. “The health crisis is escalating so quickly that the country has found itself willing to upend normal life and take an economic cliff dive — all in a bid to keep people indoors, reduce infections and stave off an even deeper emergency in its hospitals.”
Australia unveils massive stimulus plan: Australian Prime Minister Scott Morrison announced a $11.4 billion stimulus package to try to mitigate the impact of the virus, my colleague Anna Fifield reports.
Ukraine closes schools nationwide: Kiev announced that the country's schools will be closed for three-weeks. The government also banned gatherings of 200 people or more until April. So far, there has only been one documented case of coronavirus in Ukraine, my colleague Robyn Dixon reports.
TRUMP TRACKER
President Donald Trump speaks in an address to the nation from the Oval Office at the White House about the coronavirus Wednesday, March, 11, 2020, in Washington. (Doug Mills/The New York Times via AP, Pool)
President Donald Trump speaks in an address to the nation from the Oval Office at the White House about the coronavirus Wednesday, March, 11, 2020, in Washington. (Doug Mills/The New York Times via AP, Pool)
— Trump erupted at Mnuchin to pressure Powell. The Post's Bob Costa, Josh Dawsey, Jeff Stein, and Ashley Parker: 'Trump, in an explosive tirade Monday, urged [Mnuchin] to encourage Federal Reserve Chair Jerome H. Powell to do more to stimulate the economy, three officials familiar with the exchange said, revealing the president’s mounting fury as his administration struggles to corral economic fallout from the novel coronavirus…
“During that tense Monday meeting in the Oval Office, Trump fumed that Powell never should have been appointed and is damaging the nation and his presidency. He then told Mnuchin, who had encouraged Trump to nominate Powell in 2017, to engage with the chair and ask him to take more dramatic steps to arrest the stock market’s plummet… The Oval Office meeting struck some of his advisers because it showed how furious he had become.”
POCKET CHANGE
PepsiCo Inc. delivery trucks. (Luke Sharrett/Bloomberg)
PepsiCo Inc. delivery trucks. (Luke Sharrett/Bloomberg)
— PepsiCo agrees to buy Rockstar energy: “PepsiCo is to pay $3.85 billion for closely held Rockstar, the companies said … confirming an earlier Wall Street Journal report,” WSJ's Cara Lombardo reports of the beverage giant's move into the fast growing energy drink category.
“PepsiCo and rivals including Coca-Cola Co. have been working for years to shift their beverage sales away from sugary sodas and toward lower-calorie offerings including water and tea as well as coffee drinks. Energy drinks are a weak spot for both Coca-Cola and PepsiCo, and neither owns a major brand in the category. Coke, which owns a stake in Monster Beverage Corp. and distributes its products, recently launched an energy drink in the U.S. over Monster Beverage’s objections.”
— eBay continues fight with activist investor: “EBay Inc. is facing a renewed challenge from activist investor Starboard Value LP, which has nominated a slate of directors to the board of the online marketplace, according to people familiar with the matter,” WSJ's Corrie Driebusch and Cara Lombardo reports.
“Starboard, which last year won the right to help fill one seat on eBay’s board, privately nominated an additional minority slate of directors recently, the people said. Assuming there isn’t some sort of settlement by then, the nominees would be up for election at the San Jose, Calif., company’s annual meeting in June. Starboard has publicly expressed frustration that eBay hasn’t moved quickly enough to sell its online-classified-ads business or make changes to its board. Ebay recently closed the roughly $4 billion sale of its StubHub ticketing business.'
— Boeing plans to use all of its nearly $14 billion loan: “Boeing Co. is planning to draw down the full amount of a $13.8 billion loan as early as Friday as the planemaker grapples with worldwide travel disruptions from the coronavirus, people familiar with the matter said,” Bloomberg's Paula Seligson reports.
“Boeing obtained the loan from a group of banks last month to help it deal with its cash burn while it prepares to return its 737 Max plane to the skies. It initially tapped about $7.5 billion of the debt, and is now expected to draw the rest, said the people, asking not to be named discussing private information. Boeing plans to draw the remainder of the loan as a precaution due to market turmoil, one of the people said.”
Another big U.S. bank is being accused of opening fake accounts
Fifth Third employees sometimes moved money from authorized accounts to unauthorized ones and then closed the fake account once they received credit for reaching their sales goals, according to the civil complaint filed by the Consumer Financial Protection Bureau.
Renae Merle
Read more »
CHART TOPPER
RIP, bull market. Here's what the Dow Jones industrial average's record 11-year bull run, which ended yesterday, looked like. Via the WSJ:
DAYBOOK
Today:
Dollar General, Gap, Tupperware, Slack Technologies, Broadcom and Adobe are among the notable companies to report their earnings
Friday:
The University of Michigan releases a preliminary report on consumer sentiment for March
THE FUNNIES
From The Post's Tom Toles:
BULL SESSION
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