Traders work on the floor at the New York Stock Exchange, March 2, 2020.
Brendan McDermid | Reuters
U.S. stock futures opened sharply lower on Sunday night as Wall Street waits on Washington to agree to an economic stimulus and rescue plan to combat the giant economic blow from the coronavirus outbreak.
Dow Jones Industrial Average futures fell more than 900 points, or 5%, to hit their “limit down” level. S&P 500 and Nasdaq 100 futures were also down around 5%. Downside limits to futures contracts are implemented to ensure orderly market behavior.
U.S. crude futures also slid by more than 4%, adding to last week’s massive losses.
Futures could be highly volatile as headlines come out of a coronavirus task force news conference Sunday evening and as traders await news on a stimulus bill agreement (or lack of one).
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, House Speaker Nancy Pelosi, D-Calif., signaled she is not on board with the Republican-version of the stimulus plan, saying: “From my standpoint, we’re apart.” The bill proposed by Senate members failed to get enough votes to clear a procedural hurdle.
Treasury Secretary Steven Mnuchin said Sunday that financing programs to stimulate the economy could be worth $4 trillion, noting these efforts will include coordination with the Federal Reserve to provide businesses with necessary liquidity.
“When this started, this was a bit unique to the airline industry since we had shut down most of airline travel,” Mnuchin said. “This liquidity facility is a broad-based liquidity facility working with the Fed.”
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 keep surging. The number of confirmed global cases surpassed 300,000 over the weekend as deaths now total over 13,000, according to data from Johns Hopkins University.
In the U.S., more than 30,000 cases have now been confirmed. New York Gov. Andrew Cuomo said Sunday cases in the state soared to 15,168 over the weekend. That’s more than in France or South Korea.
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.
“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.”
Stocks suffered their biggest one-week decline since the financial crisis in 2008, with the S&P 500 dropping more than 13%. Those losses put the broad market average more than 32% below its record set on Feb. 19.
Last week ended with all 11 S&P 500 sectors closing more than 20% below their respective 52-week highs. The S&P 500 was also on pace for its worst monthly performance since 1940.
Expectations for the U.S. economy have also quickly deteriorated. Economists at Goldman Sachs wrote Friday they expect a 24% contraction for the second quarter after a 6% drop in the first 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.”
Investors have also been rattled by a sharp decline in crude prices. West Texas Intermediate futures fell 29.3% last week, their biggest weekly fall since January 1991. U.S. crude is also more than 66% below its most-recent 52-week high.
The steep losses in crude are forcing investors to sell other assets such as stocks or bonds to to cover the losses in their energy positions.
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