President Trump is considering whether to bring the economy out of its government-induced coma in the next week or two, insisting the pain of the restrictions should not outweigh that from the coronavirus itself.
But investors, portfolio managers and economists with a front-row seat to the ongoing carnage on Wall Street and beyond aren’t so sure that scaling back social distancing is the right move. Many say the economy — and still-sliding stock market along with it — won’t begin to recover until the United States definitively turns the tide against the disease.
“You may get a [market] bounce on the headline,” Quincy Krosby, chief market strategist at Prudential Financial Inc., tells me. “Or the market could down even more if the community of investors and traders believe this is the opposite of what is needed. Above all else it will be the empirical data that suggests the virus is receding.”
Adam Sarhan, CEO of investment firm 50 Park Investments, says the market will only stop plumbing new lows once new infections level off. “What the world, and the market, needs to see is that number stop going up,” he says.
“Think of it as a trade: What’s the risk of reopening early?” Sarhan said. “The risk is the number of cases continues to skyrocket, and longer term, you’re just digging a much deeper hole.”
Trump said the White House will reevaluate the matter at the end of the month, which could involve lifting restrictions in regions with lower numbers of infections. “America will again — and soon — be open for business,” he told reporters at his daily news conference. “Very soon, a lot sooner than three or four months that somebody was suggesting. A lot sooner. We cannot let the cure be worse than the problem itself.”
The question is also dividing Trump’s own administration.
Top public health officials warn that prematurely lifting measures aimed at separating people to slow transmission of the virus could allow it to surge, which would overwhelm the medical system, prolong the crisis and deepen the toll on human life and the economy.
But internally, “National Economic Council Director Larry Kudlow, Treasury Secretary Steven Mnuchin, and officials from the Office of Management and Budget are pushing to get the economy back on track as quickly as possible,” my colleagues Josh Dawsey, Yasmeen Abutaleb, Jeff Stein and John Wagner report.
Those advisers are getting backup from conservative economists such as Art Laffer and Steven Moore, who have been “lobbying the White House for more than a week to consider scaling back the recommendation that restaurants, stores and other gathering spots be closed,” per my colleagues.
And some big Wall Street names, including a pair of top Goldman Sachs alums, are making similar points.
From Trump’s former top economic adviser and former Goldman president Gary Cohn:
Is it time to start discussing the need for a date when the economy can turn back on? Policymakers have taken bold public health & economic actions to address the #coronavirus, but businesses need clarity. Otherwise they will assume the worst and make decisions to survive.— Gary Cohn (@Gary_D_Cohn) March 22, 2020
From former Goldman CEO Lloyd Blankfein:
Extreme measures to flatten the virus “curve” is sensible-for a time-to stretch out the strain on health infrastructure. But crushing the economy, jobs and morale is also a health issue-and beyond. Within a very few weeks let those with a lower risk to the disease return to work.— Lloyd Blankfein (@lloydblankfein) March 23, 2020
Hedge fund billionaire Bill Ackman responded, urging a more aggressive focus on the disease:
The virus can’t survive without a host. With a coordinated national shutdown for all but essential services, manufacturing, retail, etc for 30 days, the virus is largely obliterated. When the economy reopens, we test widely so that we can quarantine outbreaks when they reappear.— Bill Ackman (@BillAckman) March 23, 2020
There’s no question leaders at the federal level on down face a buffet of bad options. The head of the World Health Organization warned the pandemic is “accelerating,” as it takes a heavier toll in the U.S.. It has now claimed more than 500 lives here, including 100 in the last day. More than 41,000 Americans have been infected.
Stay-at-home orders will soon apply to 158 million Americans, nearly half the population. A new estimate from Northwestern University economists projects the measures are working and could prevent 600,000 deaths.
But the economic havoc is also growing. “Private-sector economists project the toll of the crisis will include 5 million lost jobs and $1.5 trillion in lost economic output,” per the Wall Street Journal's Jon Hilsenrath and Stephanie Armour. "U.S. stocks have already lost $12 trillion in value since mid-February, and globally losses have shredded $26 trillion from investor portfolios.
The stock market continues its record-setting nosedive, with the S&P 500 and the Dow Jones industrial average each dropping another 3 percent. The latest selloff, which keeps the Dow on pace for its worst month since 1931, came after the Senate failed to reach agreement on a $2 trillion emergency relief package. Investors took little comfort in the announcement by the Federal Reserve of an unprecedented push to backstop the economy.
But market professionals say a major fiscal response from Congress alone is unlikely reverse the collapse in share prices. “Investors have to be convinced that the US economy is going through a v-shaped recovery before capital markets recover,” Mellon chief economist Vincent Reinhart tells me in an email. “The evidence of policy progress will get some initial traction, but money does not get significantly in motion until the real risk is seen as on a more favorable trajectory.”
From RSM chief economist Joe Brusuelas:
US on way to 63k cases. You want to re-open the economy around acceptable trade-offs? That involves mandatory compulsory universal testing. We don’t even have enough tests for those that want one. What about a second or third wave & having to shut economy again? pic.twitter.com/kfh98V6AJp— Joseph Brusuelas (@joebrusuelas) March 24, 2020
Trump said he will consider the counsel of Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, and other public health officials. But aides say Trump is losing his patience with Fauci, per the New York Times's Maggie Haberman. And at his Monday news conference, the president said, “If it was up to the doctors, they might say, ‘Shut down the entire world.’”
Sarhan’s view: “Who are we to tell the doctors what to do when they’re just trying to grasp of what this is and how to deal with it?”
Some Trump allies share that perspective. From Sen. Lindsey Graham (R-S.C.):
There is no functioning economy unless we control the virus.— Lindsey Graham (@LindseyGrahamSC) March 23, 2020
From Scott Gottlieb, who served as Trump's first commissioner of the Food and Drug Administration:
But there's no functioning healthcare with hospitals overwhelmed, no return to work with people terrified of a virus raging uncontrolled. There are two ways to end this. Let a vast swath of people catch covid which is unthinkable, or break the epidemic. We must choose the latter— Scott Gottlieb, MD (@ScottGottliebMD) March 24, 2020
MONEY ON THE HILL
— Still no deal on the Hill, but they say they're closer: “Senate leaders and the Trump administration neared bipartisan agreement on a massive stimulus bill that could inject $2 trillion into the economy to blunt the impacts of the coronavirus,” my colleagues Erica Werner, Paul Kane, Rachael Bade and Mike DeBonis report.
“After a day of partisan rancor and posturing on Capitol Hill, the outlook grew markedly more positive later in the afternoon, when offers and counteroffers were exchanged. Senate Minority Leader Charles E. Schumer (D-N.Y.) convened Democrats on a conference call and told them he was hopeful about striking a deal by the end of the day... Some senators encouraged Schumer to announce a deal in principle Monday evening, but several issues remained unresolved.”
- Airlines consider shutting down U.S. passenger flights. The industry is eyeing a voluntary shutdown, as federal agencies decide whether to impose one, the WSJ's Andy Pasztor and Alison Sider report.
- Boeing to shut down all Puget Sound operations for two weeks: The move follows the reported death of an employee due to covid-19; it “affects up to 70,000 employees in the Puget Sound region who the company said would receive paid leave during the halt,” my colleagues Aaron Gregg and Christian Davenport report.
- Biggest retailers launch hiring spree. “Walmart Inc., Amazon.com Inc. and CVS Health Corp. are among about a dozen large companies looking to hire nearly 500,000 Americans in coming weeks, a spree that would mark a major shift of the U.S. workforce from smaller businesses and others that have cut staff to survive the coronavirus,” per the WSJ.
- Auto industry urges lawmakers to ensure liquidity: “Trade groups representing the companies including General Motors Co., Volkswagen AG and Toyota Motor Corp., said in a letter … that Congress should set up facilities ‘to provide loans and loan guarantees to large employers, medium-size manufacturers and small businesses,’” Reuters's David Shepardson reports.
- Grocers struggle to meet demand: “The run has exposed the downside of the food industry’s push to hold less stock in warehouses and operate fewer, fuller trucks to increase profit margins,” the WSJ's Annie Gasparro, Jennifer Smith and Jaewon Kang report of the abrupt shift in strategy underway. Just one stat of where there are: “Retail sales of paper towels, black beans and tuna rose roughly 150 percent in the week ended March 14 vs. the year-earlier week, according to market-research firm Nielsen.”
- GM looks at building ventilators at Indiana plant: “GM said … that work at its Indiana plant, which makes small electronic components for cars, is part of the effort to expand ventilator production,” Reuters's Ben Klayman reports.
- Retailers try to juice sales with online deals: But experts are skeptical that it will work. “You can discount in a demand-weak environment, but it doesn’t matter,” Neil Saunders, managing director of GlobalData retail, CNBC's Sarah Whitten reports.
- Six of Trump's clubs have been shuttered: The move potentially deprives Trump’s company of millions of dollars in revenue, my colleagues David A. Fahrenthold, Joshua Partlow and Jonathan O'Connell report.
— Stock futures rally. Bloomberg News's Sam Potter: "U.S. index futures and European stocks rallied alongside Asian shares on Tuesday as investors rediscovered some appetite for risk after global equities hit their lowest level since 2016. The dollar slumped following a 10-day winning streak, and Treasuries slipped.
"Contracts on the S&P 500, Nasdaq 100 and Dow Jones Industrial Average all jumped more than 5% to hit their upper trading curbs… The Stoxx Europe 600 Index also surged, led by insurers and energy companies, even as data began to show the extent of economic damage to the region from the coronavirus pandemic. Benchmarks in Tokyo, Hong Kong and Sydney all climbed at least 3% while Korean shares soared almost 9% as the government announced measures to stabilize financial markets.”
— Brent crude edged higher: “Oil prices inched higher … while U.S. gasoline prices plunged more than 30 percent to a record low as global restrictions on travel to slow the spread of coronavirus destroyed demand for fuel,” Reuters's Devika Krishna Kumar reports.
— The Fed deploys even more weapons. The Post's Heather Long: "With restaurants, airlines, hotels, auto manufacturers and so many other parts of the economy at a standstill, there’s a massive need for short-term loans to help businesses survive until people can go out again. But just as demand for loans is growing, investors are showing little appetite to buy up all this debt, preferring instead to hold on to cash.
“The Fed is attempting to resolve this by buying unlimited amounts of U.S. Treasurys and mortgage-backed securities, an extraordinary backstop for lending markets that goes much further than what the central bank did in the 2008-2009 crisis. Back then, the Fed injected nearly $4 trillion into the financial system over several years. Analysts say the Fed’s effort now could dwarf that in a matter of weeks, a testament to how much pain the coronavirus is causing the economy.”
- Unlimited purchases. Via the WSJ's Nick Timiraos: “Among the actions announced Monday, the Fed said that the purchases of Treasury and mortgage securities that it approved one week ago are essentially unlimited and that it would buy $375 billion in Treasury securities and $250 billion in mortgage securities this week.”
- Three new lending facilities: “The Fed announced three new lending facilities to unclog credit markets with $30 billion in support from the Treasury, which officials said would enable $300 billion in financing… The Fed will lend money to investors to buy securities backed by credit-card loans and other consumer debt. Two new facilities will support lending for large companies, an unprecedented step for the Fed."
- New support for small and medium-sized businesses: “The Fed said it would soon roll out a Main Street Business Lending Program that will support lending to eligible small and midsize businesses. Such a program is likely to depend on additional money from the Treasury Department, and the Fed didn’t provide details about it Monday.”
Trump says he called Federal Reserve Chair Jerome Powell to thank him. The president offered rare praise for the central bank chief at his news conference: “I really think he’s caught up. He’s really stepped up over the last week. I called him today and I said ‘Jerome, good job.’”
— U.S., Chinese officials talk about sharing medical equipment. NYT's Keith Bradsher and Ana Swanson: "American front-line medical personnel are running desperately short of masks and protective equipment as they battle the coronavirus outbreak. China, already the world’s largest producer of such gear by far, has ramped up factory output and is now signaling that it wants to help.
“Reaching deals won’t be easy. Increasingly acrimonious relations between Washington and Beijing are complicating efforts to get Chinese-made masks to American clinics and hospitals. A breakdown over the last few days in the global business of moving goods by air around the world will make it costly and difficult as well.”
Chinese diplomats split over Trump: “An unusual public spat between two top Chinese diplomats points to an internal split in Beijing over how to handle rising tensions with a combative U.S. president,” Bloomberg News reports.
“The differences spilled into public view Monday after China’s ambassador to the U.S. reaffirmed his opposition to promoting theories that the virus that causes Covid-19 originated in an American military lab …Cui’s comments represent a sharp public rebuke to foreign ministry spokesman Zhao Lijian, who has publicly questioned whether the virus originated in China and even touted the idea that it may have been introduced by U.S. Army athletes.”
— Apple scores tariff exemptions for Apple Watches: “The iPhone maker had requested for an exclusion in October, seeking relief from U.S. tariffs of 15 percent that took effect on Sept. 1,” Reuters's Munsif Vengattil and Stephen Nellis report.
“Apple’s wearables and accessories business, which includes Apple Watch, AirPods and HomePod, raked in revenue of $24.5 billion in its fiscal year ended Sept. 2019, accounting for about 9.4 percent of its total sales.”
— Softbank sells $41 billion in assets: “The plan marks a remarkable comedown for SoftBank Chief Executive Masayoshi Son and his company, which until recently was one of the boldest providers of capital to the world’s billion-dollar unicorns,” WSJ's Phred Dvorak reports.
“It earmarks up to $18 billion for share buybacks and another $23 billion to redeem debt and build up cash reserves. The share buybacks come after a roughly $4.5 billion share repurchase plan announced almost two weeks ago. The cash will come from the sale of as much as $41 billion of SoftBank’s assets, chief among them a stake in Chinese e-commerce giant Alibaba Group Holding Ltd. BABA -2.74% that is worth between $104 billion and $109 billion.”
— PG&E to plead guilty to 84 involuntary manslaughter counts: “The plea by California’s largest utility was announced … by its parent PG&E Corp, three days after the utility accepted tighter oversight and pledged billions of dollars to improve safety and help wildfire victims, under an agreement California Governor Gavin Newsom,” Reuters's Jonathan Stempel reports.
“That agreement ended a major roadblock to PG&E’s planned emergence from Chapter 11 bankruptcy, as Newsom devotes his attention to the coronavirus outbreak in his state.”
Some potentially encouraging news out of Italy, which U.S. investors are watching closely for signs of an ebb in new coronavirus cases. Via Pantheon Macroeconomics:
- Nike and Carnival are among the notable companies reporting their earnings, per Kiplinger
- The Labor Department releases its weekly jobless-claims report
- Lululemon Athletica, GameStop, KB Home and Movado Group are among the notable companies reporting their earnings
- U.S. consumer spending data for February is released
- The University of Michigan’s releases its consumer sentiment survey for March
From The Post's Tom Toles: