Wednesday’s sell-off followed an ominous report on March retail sales, which plunged 8.7 percent for their worst monthly decline ever. The results stand in stark contrast to February’s revised 0.4 percent drop and blew past the 8 percent fall that analysts had projected from the pandemic, which has gutted consumer spending, yanked millions from their jobs and forced people to stay home.
Markets shuddered after the major banks reported steep declines in quarterly profits in anticipation consumers would stop paying mortgages and businesses would default on loans. On Wednesday, Bank of America, Goldman Sachs and Citigroup all said their first-quarter profits fell at least 40 percent compared with the same period last year. On Tuesday, JPMorgan Chase and Wells Fargo announced quarterly drops of 69 percent and 89 percent, respectively.
The banks, which have racked up record profits in recent years, say the dismal reports are largely driven by the billions they are setting aside to cover potential losses from the deepening coronavirus recession. Bank of America, the nation’s second-largest bank, said it earned $4 billion during the quarter, compared with $7 billion in the year-ago period. It is setting aside an additional $3.6 billion to cover loan losses.
“We have seen major disruption in the financial markets that affected every line of business as customers move to stay-at-home status through voluntary or involuntary measures,” Bank of America’s CEO, Brian Moynihan, said in a conference call with Wall Street analysts.
Chris Brightman, chief investment officer of Research Affiliates, an institutional investor with $125 billion under management, said the S&P 500 now is near the same place 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 prices fell to an 18-year low Wednesday on a falloff in demand that has reduced oil prices more than 60 percent in 2020. West Texas Intermediate, the U.S. benchmark, was trading just above $19 per barrel, a price so low that almost no oil producer can make a profit. Oil prices of $60 to $80 per barrel are considered a sweet spot that allows producers to make money without consumers feeling gouged.
The cataclysmic drop in fossil fuel usage due to the coronavirus shutdowns is having a devastating effect as it ripples through the oil, natural gas and pipeline industries. At least one oil producer has declared bankruptcy, and many others are expected to follow if prices stay low much longer. The price drop is also hurting nations that rely on direct income from oil, as well as national and local governments that earn revenue from gasoline taxes.
“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.
Bad news seemed to be everywhere Wednesday. The Federal Reserve reported that U.S. industrial production in March suffered its biggest decline since 1946. The central bank’s “beige book,” which reports anecdotes from economic and business leaders across the country, foresees more negative economic developments. The National Association of Home Builders reported a record drop in confidence in the housing industry.
The retail numbers were especially alarming, as consumers drive 70 percent of the U.S. economy. “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?”
Commerce Department data shows sales at food and beverage stores were up 28 percent compared with March 2019 as consumers stocked up on eggs, toilet paper, disinfectants and other essentials as the novel coronavirus spread through the country.
But the numbers don’t fully capture just how abruptly spending has faltered. Sales at clothing stores plunged 50.7 percent 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 percent 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 percent. Far and away, the greatest impact was felt in apparel retailers.”
The repercussions from the 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 were set to receive stimulus checks by Wednesday. But even that boost 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.
Abha Bhattarai and Renae Merle contributed to this report.