Gee, I wonder why. Despite the assured passage of last week’s coronavirus relief bill and a new emergency cut from the Fed, stock futures opened lower this morning — and got worse from there. The trading triggered the “limit down” halt after Dow Jones futures dropped more than 1,000 points:
Stock futures were down sharply on Monday even after the Federal Reserve embarked on a massive monetary stimulus campaign to curb slower economic growth amid the coronavirus outbreak.
Stock market futures hit “limit down” levels of 5% lower, a move made by the CME futures exchange to reduce panic in markets. No prices can trade below that threshold, only at higher prices than that down 5% limit.
Dow Jones Industrial Average futures were off by more than 1,000 points, triggering the limit down level. S&P 500 and Nasdaq 100 futures were also at their downside limits.
This led traders to look at the SPDR S&P 500 ETF Trust (SPY) — which tracks the S&P 500 — for a better indication of how the market will open. The SPY ETF plummeted 10% in the premarket, signaling that a “circuit breaker” will be triggered shortly after the regular session starts. ETFs that track the Dow and Nasdaq 100 — the SPDR Dow Jones Industrial Average ETF Trust (DIA) and Invesco QQQ Trust — were also down more than 8%.
And then it got worse when the markets first opened:
— ABC News (@ABC) March 16, 2020
Not long after, the New York Stock Exchange suspended trading to reset their “circuit breakers.” It’s possible that profit takers might restore some upward momentum, but it’s getting clear that we’re in a bear market, at least for the time being.
BREAKING: "The stock market just opened—and it just closed."
Markets temporarily halt trading as stocks plunge despite the Federal Reserve's emergency rate cut last night. @GStephanopoulos, @RebeccaJarvis, @CeciliaVega and @DrJAshton report: https://t.co/RAcsMBwMXD pic.twitter.com/SZFUHbf3Cv
— ABC News (@ABC) March 16, 2020
Friday’s big rebound looked like investors had figured that the valuations had turned attractive again. No such luck, apparently; declines spread across the board, and across other exchanges as well. The uncertainty over business and school closures has investors spooked, and the realization that the economy will take a big hit adds to the pessimism. Just how big of a hit will it be? Goldman Sachs predicts annualized Q2 GDP could contract by 5%, although it sees a wash by the end of the year:
Goldman Sachs on Sunday downgraded its outlook for the economy in the first two quarters of 2020 as the coronavirus zaps all growth from the U.S.
Jan Hatzius, Goldman’s chief economist, lowered his first-quarter GDP growth forecast to zero from 0.7%. The economist also sees a 5% contraction in the second quarter, followed by a sharp snapback for the remainder of the year.
“We expect US economic activity to contract sharply in the remainder of March and throughout April as virus fears lead consumers and businesses to continue to cut back on spending such as travel, entertainment, and restaurant meals,” Hatzius said in a note to clients Sunday.
With that prospect staring Washington DC in the face, small wonder that lawmakers want to move a stimulus package through Congress to shore up the economy. Only one problem — they still haven’t passed COVID Stimulus I:
The Senate returns to work Monday to take up the House-passed coronavirus relief package, but senators are already starting discussions about a second round of economic stimulus.
Lawmakers and aides expect an additional legislative package would include broader economic measures such as a tax rebate, a payroll tax cut, small business grants and loans, expanded unemployment insurance and relief for the airlines and other hard-hit industries.
Senate Majority Leader Mitch McConnell (R-Ky.) on Sunday said he had spoken to several GOP committee chairmen “about the next steps,” such as helping Americans with financial challenges, efforts to shore up the economy and small business and bolstering the healthcare system.
“It is clear that confronting this virus will take boldness, bipartisanship, and a comprehensive approach,” McConnell said in a statement. “Discussions are already underway on these key pillars. The Senate is eager to work with the Administration and the House to deliver the solutions our nation deserves.”
Eve during the House debate over COVID Stimulus I, Democrats and Republicans had argued how much to do in the first bill and how much to leave for a later follow-up. “Later” is suddenly now, and speed might be of the essence to bolster the markets. Along with speed, what matters most might be scope:
As the Senate prepares to vote on a coronavirus stimulus bill in the coming days, President Donald Trump’s administration is acknowledging the bipartisan package won’t be nearly enough to stem the pandemic’s potential economic impact.
Senior White House aides said Sunday they will be pressing Congress as early as this week on a plan to target relief to airlines, hotels and other travel-related industries expected to be hard hit by COVID-19. The president, meanwhile, has continued to push for a payroll tax cut that was jettisoned from a bill passed by the House early Saturday after bipartisan opposition emerged.
House Speaker Nancy Pelosi said in a letter Sunday that lawmakers had already started work on “a third emergency response package.” …
Trump administration officials have also indicated that the president is working toward additional unilateral efforts on the economy. The president is expected to sign an executive order as early as this week intended to ensure that more medical supplies used domestically are made in the United States rather than overseas.
That order, officials said, would require the government to purchase drugs and supplies from American companies in an effort to drive up demand for domestic products.
There will be no avoiding short-term economic damage. The prospects for Q2 look bad no matter how much money Congress throws at it, but there is plenty of time to plan for Q3 and beyond to get that quick “snapback” mentioned by CNBC. The trick will be to keep businesses in operation through the social-distancing period, which looks like it will extend into May. That might mean targeting relief at small businesses that face lease payments without much income, especially in the hospitality industry. It will also mean more coverage for unemployed people, especially those who had to leave jobs to stay at home with children locked out of schools for the next several weeks.
Expect to see lawmakers target all of these and more in Stimulus II, Pandemic Boogaloo. However, watch out for what happened last week, too — attempts to insert hobby-horse programs and issues into “emergency” spending while voters demand speedy action. The Obama administration passed a pork-riddled stimulus package in early 2009 that ended up doing little for economic health but cost taxpayers plenty anyway. It pays to remain vigilant, even in an emergency — and perhaps especially in an emergency.