The S&P 500-stock index, which closed down 1.2 percent on the day, has shed 8.4 percent of its value since hitting a new high two weeks ago. It has erased six weeks of gains over that period. And despite a strong rally into the close Monday, the slide was broad-based, with nearly every company in the Dow Jones industrial average losing ground, as Hamza Shaban and Hannah Denham report.
There were multiple culprits on top of Washington dysfunction.
Investors started the day spooked by BuzzFeed’s investigation, based on a trove of leaked documents, that found global banks have enabled trillions of dollars worth of transactions by corrupt officials, criminals and terrorists. Two of the biggest names implicated — Deutsche Bank and JPMorgan Chase — saw their stocks dive at the open, dropping 7 percent and 4 percent, respectively, by midday, before recovering somewhat.
“Investors said they were also unnerved by continuing tensions between the U.S. and China and the threat of renewed lockdowns in many places because of higher coronavirus infections,” the Wall Street Journal’s Ben Eisen and Anna Isaac report.
But Brian Battle, director of trading at Performance Trust Capital Partners in Chicago, says fading hope for a new emergency relief package was the most powerful factor — and probably will remain so in the days ahead.
“The mood was already declining because of the passing of Justice Ginsburg,” and the battle over her replacement over the weekend, Battle said. Then came the news “that we might not even be open past September 30th.”
He said some investors will cling to the possibility of a grand bargain that joins new relief spending to an extension of government funding. “But we can’t even get one thing done, when it’s giving away $1 trillion,” he says. And now, with a shutdown looming, negotiators on Capitol Hill and the administration need to focus on keeping the government open.
An extension of government funding that looked to be on a glide path last week is now snarled.
House Democrats unveiled a proposal Monday that would keep the government operating through Dec. 11 that Senate Majority Leader Mitch McConnell (R-Ky.) dismissed immediately. The reason: The bill did not include $30 billion in fresh relief for farmers sought by President Trump and Senate Republicans.
Talks between House Speaker Nancy Pelosi (D-Calif.) and Treasury Secretary Steven Mnuchin aimed at resolving that dispute “unexpectedly broke down Friday,” Erica Werner reports. They had appeared to reach a tentative agreement to extend the agricultural assistance in return for new funding to feed schoolchildren, “but that agreement never materialized.”
House Democrats are forging ahead with their bill anyway. “Senate Republicans could block the bill, or seek to amend it and send it back to the House,” Werner writes. “Either way, the path forward is unclear -- and what both sides expected to be a straightforward extension of government funding could turn into a high-stakes showdown just ahead of the election, and in the midst of a fight over a Supreme Court vacancy.”
Some holdouts on Wall Street still predict a new stimulus deal. Many now think it won’t happen.
Count Morgan Stanley analysts among those still bullish for a deal. Its “public policy strategists still have a stimulus package in their base case, but see the end of September as the realistic deadline,” the bank’s global macro strategists wrote in a Monday morning note.
They further predict over the next two weeks, markets will "move as expectations for US fiscal stimulus rise into its eventual delivery before pre-election campaigning begins in October.”
Two weeks ago, as many in Washington perceived the likelihood of a new package disintegrating, we noted here that Goldman Sachs analysts still concluded lawmakers were slightly more likely than not to approve a deal by the end of the month.
By Friday, even before Ginsburg’s death, the team had significantly downgraded that outlook. “At this point, a major stimulus package before the election looks like a long shot and we expect Congress to leave at the end of September without extending the extra unemployment insurance payment, approving another round of stimulus payments, or providing additional support to small businesses or state and local governments,” they wrote in a note.
Look for Mnuchin and Federal Reserve chairman Jerome Powell to offer fresh insights into the economy’s need for more help from Washington when they testify before the House Financial Services Committee at 10:30 a.m. this morning.
Jay Powell will cast the recovery as improving.
But the Fed chair will also tell lawmakers today the path remains uncertain: “Economic activity — from household spending to the housing market — has picked up since the economy bottomed out in the second quarter, according to Powell’s prepared remarks before the House Financial Services Committee. The testimony notes that household spending looks to have recovered about 75 percent of its earlier decline, thanks in part to federal stimulus payments and expanded unemployment benefits,” Rachel Siegel reports.
“Still, with about half of the 22 million payroll jobs lost in March and April still off the books, Powell’s statement suggests the rise in joblessness has been especially severe for low-wage workers, women and people of color.”
New CBO projections show economic growth will slow: “The agency released new projections showing weaker growth and significantly more red ink over the next 30 years than it had previously forecast,” the Wall Street Journal's Kate Davidson reports.
“The agency now anticipates average annual GDP growth of 1.6 percent from 2020 to 2050, roughly a full quarter percentage point less than it expected in June 2019, the last time it released long-term economic projections and before the pandemic swept across the U.S., triggering a deep recession. Growth averaged 2.5 percent from 1990 to 2019.”
- We're going to need a bigger clock: “Debt as a share of gross domestic product is forecast to hit 195 percent by 2050, 45 percentage points higher than the CBO projected in June 2019. The increase is due in large part to surging outlays to combat the pandemic, followed in later years by rising interest costs and higher spending on safety-net programs such as Social Security and Medicare.”
Futures show today might be better for traders: “Futures on the Dow Jones Industrial Average pointed to an opening loss of less than 20 points. The S&P 500 futures and the Nasdaq 100 futures, which were both in positive territory earlier, were mixed,” CNBC's Yun Li reports.
From the U.S.:
- Household net worth hits highest level ever: “The net worth of American households and nonprofit organizations jumped 6.8 percent in the second quarter from the first, to $118.96 trillion. That is about $380 billion more than at the end of 2019, before the pandemic wiped out more than $7 trillion of household wealth,” WSJ's Paul Kiernan reports.
- GAO: Millions at risk of missing $1,200 federal payouts. The Government Accountability Office blamed incomplete records for the problem. The office said “possibly 8.7 million or more individuals who are eligible for the economic impact payments have yet to receive those payments because of inadequate IRS and Treasury Department records,” the Associated Press reports.
- Medicare wouldn't cover costs of administering vaccine: "Trump administration officials recently came to the conclusion that Medicare’s exclusion of emergency-use drug costs could leave millions of people paying out-of-pocket for vaccines the government intends to make free," WSJ's Stephanie Armour reports. “The Department of Health and Human Services is exploring coverage options for a vaccine approved under an emergency-use authorization."
- CDC reverses itself and says airborne transmissions guidelines were wrong: “On Monday morning, the Centers for Disease Control and Prevention edited its Web page describing how the novel coronavirus spreads, removing recently added language saying it was ‘possible’ that it spreads via airborne transmission. It was the third major revision to CDC information or guidelines published since May,” Tim Elfrink, Ben Guarino and Chris Mooney report.
- The N95 shortage continues: “As the weather cools and the death toll climbs, America’s health-care workers fear that when winter comes, they still won’t have enough respirators. And the longer the shortage lasts, the longer N95s will remain largely out of reach for millions of others who could be protected by them — teachers and day-care workers, factory employees and flight attendants, restaurant servers and grocery store clerks,” Jessica Contrera reports.
- Pentagon spent taxpayer funds meant for pandemic gear on body armor and jet parts. “A $1 billion fund Congress gave the Pentagon in March to build up the country’s supplies of medical equipment has instead been mostly funneled to defense contractors and used for making things such as jet engine parts, body armor and dress uniforms,” Aaron Gregg and Yeganeh Torbati report. “The change illustrates how one taxpayer-backed effort to battle the novel coronavirus, which has killed roughly 200,000 Americans, was instead diverted toward patching up long-standing perceived gaps in military supplies.”
From the corporate front:
- The fitness industry is trying to lure gym members back: “A top fitness industry trade association and some of its member gyms are promoting the message that health clubs nationwide are ‘safe and are not contributing to the spread of covid-19’ based on the conclusions of a study that experts in public health and research methods say was methodologically flawed and open to conflicts of interest,” Allyson Chiu reports.
- Landlords are caught in the middle of rent struggles: “Mom-and-pop landlords are in a worse financial position relative to their higher-earning peers as unemployment remains elevated and Americans continue to struggle to pay rent, according to a new analysis," CNBC's Greg Iacurci reports. "Roughly a third of individual landlords who own residential property are from low- to moderate-income households (those with incomes of less than $90,000 a year), according to researchers at the Hamilton Project, an economic policy arm of the Brookings Institution, a left-leaning think tank.”
When superpowers collide
TikTok deal remains uncertain.
Oracle and TikTok continue to tussle over the details: “Trump, software company Oracle and TikTok‘s Chinese parent company, ByteDance, are publicly presenting different versions of a deal that the president over the weekend described as nearing the finish line,” Rachel Lerman and Jeanne Whalen report.
“ByteDance said in a blog post earlier Monday that it would keep control of TikTok Global. If the current deal is finalized, it said, ByteDance would still own 80 percent after Walmart and Oracle invest and the company enters the U.S. public markets. Oracle seemed to directly contradict that statement with its own Monday, saying ByteDance would not be an owner.”
- Despite Trump's blessing, there are still national security concerns: “The agencies that sit on the CFIUS still had concerns as of Friday that Oracle had not yet addressed, regarding data, source code and some disclosure of TikTok’s algorithm. … The Treasury Department, which chairs the CFIUS, said Saturday that approval of the transaction would be ‘subject to a closing with Oracle and Walmart and necessary documentation and conditions to be approved by CFIUS.’”
- And some Republican lawmakers have concerns: “Last week, Sen. Marco Rubio (R-Fla.), Sen. Thom Tillis (R-N.C.) and four other Republicans said they wanted to see TikTok’s U.S. operations completely severed from ByteDance‘s control and opposed any deal in which Oracle would take ‘only a stake’ in the U.S. business.”
The dispute over the deal points to ongoing economic decoupling between the U.S. and China. “The extraordinary trans-Pacific tussle — China’s foreign ministry groused that it showcased Washington’s ‘hideous agenda of robbery and economic bullying’ — is hardly an isolated occurrence for the fast-souring U.S.-China relationship," David Lynch reports. “This month alone, the Chinese government unveiled new global data security standards designed to outflank a rival U.S. initiative. The American ambassador to China quit his post in Beijing, preferring to help Trump’s reelection bid. And the president vowed publicly ‘to end our reliance on China once and for all.’ …
“Recent developments in both capitals make clear that more than four decades of ever-closer economic ties have reached an end. The two largest economies on the planet now are moving apart, headed toward a world divided into separate Internets, technology regimes, industrial networks — perhaps even financial systems.”
Apple's entry into 5G might not be the splash you expected.
An AT&T executive tries to tamp down the hype: “Apple plans to launch its 5G iPhones in October. … Some users will want to upgrade to 5G wireless service, which will have ‘home broadband-like speeds,’ immediately, according to AT&T Communications CEO Jeff McElfresh,” CNBC's Alex Sherman reports.
“But others won’t want to pay additional fees for the service and may be content with AT&T’s current 4G LTE technology, McElfresh said. … While 5G technology has been touted as the future of Internet connectivity, paving the way for autonomous vehicles and smart appliances, initial reception could be muted because many of the groundbreaking applications of faster speeds either don’t broadly exist yet or are beneficial to large businesses rather than consumers."
Goldman is shaping its next generation: “In one of the highest-profile steps, the firm picked Stephan Feldgoise and Mark Sorrell to co-lead the global M&A practice. In equity-capital markets, David Ludwig will become global head and Gabe Gelman and Simon Watson will co-lead the business in the Americas,” Bloomberg News's Elaine Chen, Ed Hammond and Crystal Tse report.
“The firm is shuffling the top ranks as it prepares to announce the next class of partners later this year. Included in the promotions was Kim Posnett, 43, who was named co-head of the investment-banking services unit. Posnett is the first woman to lead the operation and the youngest person to ever hold the role. The firm is shuffling the top ranks as it prepares to announce the next class of partners later this year.”
Southern Bancorp CEO finds success with CDFIs: “Darrin Williams is one of only a handful of Black CEOs at financial institutions with more than $1 billion in assets," Bloomberg News's Jeff Green and Peter Robison report. Williams argued to the White House that small lenders like Southern Bancorp, community development financial institutions, were best equipped to distribute PPP money.
"Largely ignored for years, Southern Bancorp and other CDFIs are experiencing something of a rebirth, attracting hundreds of millions of dollars from technology and finance companies that have been some of the country’s biggest economic winners.
Leaked Treasury docs prompt call to do more about money laundering.
The “FinCEN” files are reverberating across Washington: “Government and industry officials, concerned that existing laws fail to address the evolution of the financial system, have been gaining political traction for an overhaul of regulations meant to fight terror finance and money-laundering used by drug traffickers, arms proliferators and a host of other bad actors,” WSJ's Ian Talley and Dylan Tokar report.
“Many former top Treasury officials have joined banks in saying that existing regulations don’t give them the tools they need to better surveil the trillions of currency transactions they handle every day. Rather, they report so much data — many with unnecessary red-flagged transactions — that the information flow often obscures illicit activities.”
The Fed is aiming to revamp laws ensuring access to credit for low- and moderate-income families: “The move comes as the Fed is under urgent pressure to craft policies that lift all Americans, and in particular, reduce the long-standing racial gaps that are only widening in the current recession. Apart from setting monetary policy, the Fed could go further in building a more fair economy through its supervision of banks, which includes the Community Reinvestment Act, economists and lawmakers say,” Rachel Siegel reports.
“Changes to the CRA laws are considered long overdue among banking experts, especially given the rise of online banking. The banking industry has argued that the CRA hasn’t been revised since more customers have shifted to mobile or Internet banking and the number of physical bank branches has been cut back.”
McConnell's campaign faces new scrutiny from the Federal Election Commission, per Business Insider's Dave Levinthal:
Manhattan D.A. says Trump could be investigated for tax fraud.
The district attorney made the suggestion for the first time in a court filing Monday. “The filing by the office of the district attorney, Cyrus R. Vance Jr., offered rare insight into the office’s investigation of the president and his business dealings, which began more than two years ago,” the NYT's Benjamin Weiser and William K. Rashbaum report. “Mr. Vance, a Democrat, has never revealed the scope of his office’s criminal inquiry, citing grand jury secrecy. The investigation has been stalled by the fight over a subpoena that the office issued in August 2019 for eight years of the president’s tax returns.”
“Lawyers for Mr. Trump have said the subpoena should be blocked, calling it ‘wildly overbroad’ and politically motivated. Mr. Vance responded to that argument in a carefully worded new filing that did not directly accuse Mr. Trump or any of his businesses or associates of wrongdoing and took pains to avoid disclosing details about the inquiry.”
- Treasury Secretary Steven Mnuchin and Fed Chair Jerome H. Powell testify before the House Financial Services Committee about their respective pandemic responses.
- The National Association of Realtors releases data on existing-home sales for August.
- The Joint Economic Committee holds a hearing on the economic impact “on the failure to contain the coronavirus."
- Nike, AutoZone, KB Home and Stitch Fix are among the notable companies reporting their earnings, per Kiplinger.
- Powell is set to testify before the House coronavirus select subcommittee.
- The Senate Budget Committee holds a hearing on the CBO's outlook.
- Anthony S. Fauci, FDA Commissioner Stephen Hahn and CDC Director Robert Redfield testify before the Senate Health, Education, Labor and Pensions Committee.
- General Mills and Cintas are among the notable companies reporting their earnings.
- Mnuchin and Powell testify before the Senate Banking Committee for the quarterly Cares Act update.
- The Labor Department reports the latest weekly jobless claims.
- A House small business subcommittee holds a hearing on PPP.
- Costco, Darden Restaurants, CarMax, Rite Aid and BlackBerry are among the notable companies reporting their earnings.
- A House Ways and Means subcommittee holds a hearing on restaurants during the pandemic.