Stocks fell sharply on Monday as U.S. lawmakers failed to push through massive fiscal stimulus to curtail the economic blow from the coronavirus.
The Dow Jones Industrial Average traded more than 600 points lower, or down 3.4%, after clinching its lowest level in three years earlier in the session. The S&P 500 slid about 3.3% while the Nasdaq Composite was down more than 1%.
For a second time in less than 24 hours, a bill that would authorize giant fiscal spending to stimulate the economy failed to clear a key procedural hurdle. The vote failed even after Senate Minority Leader Chuck Schumer, D-NY, said he expects the Senate to on Monday reach a deal on a massive fiscal stimulus package.
Earlier on Monday, Treasury Secretary Steven Mnuchin told CNBC’s Jim Cramer that Congress was “very close” to getting a fiscal package done, noting it must be pushed forward “today.”
“We’re using some of the funds we have, but we need Congress to approve additional funds today so that we can move forward and support American workers and the American economy,” Mnuchin said.
The failed votes in the U.S. Senate were enough to pressure Wall Street once again even after the Federal Reserve announced a series of aggressive monetary measures to sustain the economy.
One of those measures taken by the Fed was an open-ended asset purchase program, which the central bank will run in the “amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”
“While the Fed’s actions are an enormous help, the only way the markets are going to find sustainable improvement is when the economy is allowed to come back to life, or at least there is a real path in place for how that is going to happen,” said Paul Hickey of Bespoke Investment Group, in a note.
National Economic Council Director Larry Kudlow said Saturday an economic stimulus package will total more than $2 trillion, noting it will be equal to roughly 10% of U.S. economic output. Last week, President Donald Trump signed a $100 billion bill that expanded paid leave in the U.S.
However, investors were worried after Trump sent a series of tweets that may signal he is considering sending workers back to work before the pandemic is under control. Trump also retweeted an account saying: “Flatten the curve NOT the Economy.”
Boeing shares rose 13%, outperforming the market, as Goldman Sachs made a bold call Sunday evening, telling clients the company had enough cash to survive the coronavirus downturn and that air travel would eventually return. The stock also jumped after Boeing announce it will close Seattle-area factories due to the outbreak. The shares are off 66% this year.
David Kostin, chief U.S. equity strategist at Goldman Sachs, said the difference between a fast or a prolonged recovery in the stock market will come down to three factors: How quickly the virus is contained, whether businesses will have ” access to enough capital and liquidity to last the 90 to 180 days,” and whether fiscal stimulus can stabilize growth forecasts.
“If short-term shutdowns lead to business defaults, closures, and permanent layoffs, the damage to corporate earnings growth could persist well after the virus is contained,” Kostin said in a note.
Wall Street has been clamoring for fiscal economic relief as the number of coronavirus cases keeps surging. The number of confirmed global cases surpassed 350,000 as deaths now total over 15,000, according to data from Johns Hopkins University.
In the U.S., more than 35,000 cases have now been confirmed. New York Gov. Andrew Cuomo said Sunday cases in the state soared to 15,168 over the weekend, more than the total number of cases in France or South Korea.
Economists at Goldman Sachs wrote Friday they expect a 24% contraction for the second quarter after a 6% drop in the first quarter. Morgan Stanley economist Ellen Zentner said in a note Sunday she expects a historic 30% contraction in the second quarter.
“Suffice to say that the economy entered a unique, sudden-stop recession in March,” wrote Prajakta Bhide, strategist at MRB Partners. “If there is no concrete evidence of meaningful progress toward controlling the epidemic in the next eight weeks, there will be no basis for people and businesses to feel safe to begin to normalize economic activity.”
The outbreak has led the New York Stock Exchange to close its trading floor and temporarily move to all-electronic trading beginning Monday. NYSE expects trading to proceed as normal.
Last week, stocks suffered their biggest one-week decline since the financial crisis in 2008, with the S&P 500 dropping more than 13%. Those losses, coupled with Monday’s decline, put the broader market average more than 34% below its record set on Feb. 19.
“Things will get worse before they get better and the markets will continue to reflect that reality,” said Marc Chaikin, CEO of Chaikin Analytics, in a note. “This means that a bottoming process will take more time and probably inflict more damage to equities.”
— CNBC’s Thomas Franck contributed to this report.
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