From Washington to Wall Street, the coronavirus is reshaping American life. The Supreme Court said it will postpone scheduled oral arguments through April, citing its stance during the 1918 Spanish flu epidemic and outbreaks of yellow fever in 1793 and 1798.
On Wall Street, investors fled stocks, despite the Federal Reserve’s move Sunday night to cut interest rates to near zero and to begin purchasing $700 billion worth of Treasury bonds and mortgage-backed securities in a bid to calm jittery markets.
The Dow Jones industrial average closed down nearly 13 percent in late trading before closing at 20,188, down more than 2,997 for the day. That marked the largest one-day point decline in U.S. history, though in percentage terms Monday’s 13 percent loss was topped by the nearly 23 percent decline on Oct. 19, 1987. All three of the Dow’s 2,000-point daily losses have occurred in the past week.
The broader Standard & Poor’s 500-stock index and the technology-rich Nasdaq suffered similar setbacks.
Trading was halted almost as soon as it began after stocks fell 7 percent, breaching a “circuit-breaker” designed to discourage panic selling. It was the third such halt in the past six sessions.
Investors welcomed the Fed’s actions, but said the central bank needed to do more and do it quickly. Clogged markets for commercial paper — a form of short-term corporate borrowing — threaten to spill over into the banking system and cause a run on money-market funds, according to analysts at Bank of America.
The Fed, joined by fellow banking regulators from the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, reiterated its call Sunday for banks to borrow from its “discount window.” The Fed has slashed the rate it charges banks for those short-term loans to just 0.25 percent, in hopes of spurring lending to cash-strapped businesses.
Frustration is building with Washington’s failure to find a way to quickly assemble an economic rescue. “The fiscal response should already have been done,” said David Kotok, chairman of Cumberland Advisors. “And the fiscal response, in my estimation, will eventually have to be more than $1 trillion or the country is going to have a raft of bankruptcies.”
With many governors ordering bars and restaurants to close, and numerous other businesses telling their employees to work from home, the $21 trillion U.S. economy is shuddering to a halt. At the White House, the president, who was slow to acknowledge the severity of the health scare, said the United States “may be” tipping into recession.
“It’s going to be incredibly negative for the economy. It looks almost inevitable that we’re heading for a recession,” said Jim O’Sullivan, chief U.S. macro strategist for TD Securities.
In consumer-oriented sectors, the economy is rapidly losing momentum. Already, movie theater box-office revenue has plummeted by 60 to 70 percent compared with the same period last year, according to economist Jesse Edgerton of JPMorgan Chase. And restaurant reservations nationally have fallen by one-half.
As companies retrench, layoffs will accelerate, driving up the historically low unemployment rate, O’Sullivan said. Kevin Hassett, Trump’s former top economic adviser, told Politico that job losses could reach “minus a million or so” by early April. For the economy, it is now a race between Washington’s ability to plug the hole with government spending and the accumulating effects of the virus-inspired shutdown.
Monday’s market plunge — continuing a month-long rout that has slashed more than 30 percent from the Dow’s value — reflected a growing realization that the economy faces a deep and protracted downturn, almost certainly its worst since the global financial recession.
Ian Shepherdson, chief economist of Pantheon Macroeconomics, said output could shrink in the second quarter at an annual rate of 10 percent, more than during the worst of the 2008-09 global financial crisis.
Disorderly trading in the market for U.S. Treasurys remained an issue. Normally, the $17 trillion market for those government securities operates without drama. But the volume of trading has roughly tripled since the financial crisis, outstripping the ability of market middlemen to keep pace. In recent days, sellers have vastly outnumbered buyers, leading to wide gaps between the prices demanded and offered.
“All of this selling of Treasurys is telling me that there’s a lot of financial institutions that are under stress and need to raise cash to meet [margin] calls and that’s not going away,” said Steven Blitz, chief U.S. economist for TS Lombard.
If investors were looking for a reason to sell on Monday, they found one in a key gauge of manufacturing activity, which posted its worst reading since March 2009.
The Federal Reserve Bank of New York’s Empire State survey’s “general business conditions” index plunged 34.4 points, its largest-ever monthly decline, to -21.5 in February. By a margin of more than two-to-one, manufacturers said business over the past month had gotten worse not better.
Several major retailers, including Apple, Patagonia and Abercrombie & Fitch, have or will shut their doors through March to contain the coronavirus. Though store closures could be crucial to slowing the speed of the disease, they also sap consumer spending, which powers 70 percent of the U.S. economy.
Everlane, Nike, Glossier, REI, Urban Outfitters and Lululemon also have announced closures, but say they will keep their online operations running. Some are warning of possible shipment delays while companies in the hardest-hit industries already have begun layoffs.
As the economic toll starts to come into focus, some major industries are petitioning the White House for help. Representatives of the airline industry on Monday circulated a request for a $50 billion bailout that would include loans, grants and tax relief.
“We’re going to back the airlines 100 percent. It’s not their fault,” the president said.
The sudden crisis took many companies by surprise. In a survey late last month of 90 large multinational companies, the British Standards Institution found that almost half (46 percent) lacked contingency plans that were specifically designed to deal with a possible disease outbreak.
Of those surveyed, 71 percent of supply-chain managers working in industries such as consumer products, pharmaceuticals and aerospace said the coronavirus had disrupted their global supply chains.
After weeks of minimizing the seriousness of the epidemic, the president struck a somber tone Monday. He said he had cautioned his 13-year-old son, Barron, about the disease, which he labeled “an invisible enemy that a month ago nobody ever thought about.”
“This is a bad one. This is a very bad one,” the president said. “It’s so contagious. It’s just so contagious — record-setting type contagion.”
Trump began his day with a video conference on the coronavirus with leaders of the Group of Seven nations. The group later issued a statement pledging “to doing whatever is necessary to ensure a strong global response through closer cooperation and enhanced coordination of our efforts.” But officials offered no details of any coordinated stimulus efforts.
On Capitol Hill, lawmakers are moving toward approval of legislation that would provide free coronavirus testing, extend paid sick leave to many workers and fund unemployment insurance payments.
National Economic Director Larry Kudlow told reporters Monday that those measures and actions already approved by the president would funnel $400 billion into the economy. A payroll tax cut backed by the president would double that figure, he said, but such a measure has received lukewarm interest on the Hill.
“Our government is prepared to do whatever it takes. Whatever it takes, that’s what we’re doing,” the president said at the White House.
With the central bank having cut interest rates and launched additional measures to smooth markets, the president and lawmakers now must act, said Megan Greene, an economist at Harvard University’s Kennedy School of Government.
“For the most part, it’s not up to the Fed anymore,” she said. “They’ve told the government they can borrow at zero percent. There’s no excuse for the government not to step up. And until we get some kind of fiscal response, or actual policy, I think the markets are going to continue to fall.”
Even as the president announced new steps to curb the outbreak, the number of cases and fatalities continued to climb. In the United States, 4,382 people have been infected as of 8 p.m. Monday, with 84 deaths.
Trump predicted that once the pandemic wanes, the stock market will regain lost ground and “you’re going to have a stock market like nobody has ever seen before.”
Thomas Heath and Taylor Telford contributed to this report.