Wall Street struggled to hold on to its gains Friday, and a rebound that had lifted the S&P 500 by as much as 3 percent faded, as investors were confronted with more warnings about the pace of economic recovery.
The S&P 500 was wavering between gains and losses by the afternoon, a day after the index recorded a 5.8 percent plunge, its sharpest drop since mid-March. Oil futures also dipped, adding to its losses from the day before.
Financial markets are suffering from a shift in sentiment this week, as investors have seemed to acknowledge the risks to the economy from pandemic-related shutdowns earlier this year and the prospect of a second-wave of coronavirus infections as government’s lift restrictions on activity, The New York Times’s Matt Phillips reports.
Confidence in a quick recovery and return to normal was rattled after the Federal Reserve chair, Jerome H. Powell, warned that the depth of the downturn and pace of the recovery remained “extraordinarily uncertain.”
The central bank repeated that warning on Friday. In a semiannual monetary policy report to Congress, its first since the pandemic took hold, the Fed said the nation’s gross domestic product would probably contract “at a rapid pace” in the second quarter after “tumbling” in the first.
“Chairman Powell threw a bucket of cold water on the thought that the economy is going to go back to where it was in 2019 any time soon,” said Matt Maley, chief market strategist at Miller Tabak, an asset management firm.
Analysts like Mr. Maley have also noted that the market was overdue a pullback, after a staggering rally — a gain of as much as 45 percent for the S&P 500 from March lows — had left stock prices somewhat disconnected from reality.
It was the fastest recovery off a market low for the benchmark index since 1933, and came even as tens of millions of Americans applied for unemployment benefits and the national unemployment rate surged to its highest level since the Great Depression.
Also worrying investors is data from some states that have eased quarantine restrictions, such as Texas and Arizona that shows a resurgence of the virus in those states.
“The idea that Covid is fully behind us, or that a V-shaped recovery is in front of us, were put on hold” said Steve Sosnick, chief strategist at Interactive Brokers in Greenwich, Conn.
Even if the rise in cases doesn’t lead to another large-scale lockdown, analysts say it does dash hopes for a return to a more normal environment over the summer and makes a full rebound in particularly exposed industries less likely.
The Fed describes a grim and risky pandemic-era economy.
The Federal Reserve painted a sober picture of the economy in its semiannual monetary policy report to Congress, highlighting risks to the financial system and emphasizing that pandemic-induced job losses were hitting lower-income workers and minorities especially hard.
“Real gross domestic product will contract at a rapid pace in the second quarter after tumbling at an annual rate of 5 percent in the first quarter of 2020,” the Fed said in its report, released Friday. It noted that the most “severe” job losses had been sustained by workers with lower incomes, and said that borrowing conditions remained tight for households and businesses with weaker credit histories.
The Fed also suggested that the pandemic was probably costing workers more than their jobs: Those who were still in the labor market were seeing weak pay growth.
“In the months ahead, labor market prospects for the unemployed and underemployed — both overall and for particularly hard-hit groups of workers — will largely depend on the course of the Covid-19 outbreak itself and on actions taken to halt its spread,” according to the report to Congress.
Jerome H. Powell, the Fed chair, will testify before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.
The British economy shrank by 20.3 percent in April compared with the month before, a record contraction that indicated devastation in many parts of the economy.
The data reflects the first full month of Britain’s lockdown to reduce the spread of the coronavirus, and is likely to increase pressure to relax those rules more quickly.
Manufacturing fell by 24.3 percent, led by a 90 percent fall in the sector that includes motor vehicles, according to the Office of National Statistics.
In March, British economic output contracted by 5.8 percent.
The drop in the G.D.P. in April was the biggest Britain had ever seen and nearly 10 times worse than the steepest pre-coronavirus fall, said Jonathan Athow, the government’s deputy national statistician.
“Virtually all areas of the economy were hit, with pubs, education, health and car sales all giving the biggest contributions to this historic fall,” he said in a news release.
Earlier this week, the Organization for Economic Cooperation and Development projected that the British economy would contract by 12.5 percent in 2020, worsening to 14 percent if there were a second wave of infections.
Hertz is bankrupt — and selling stock.
Hertz filed for bankruptcy protection last month. But as investors improbably piled into its shares this week, the car rental pioneer is trying to take advantage, the DealBook newsletter notes.
The company wants to sell up to $1 billion in new stock. “The recent market prices of and the trading volumes in Hertz’s common stock potentially present a unique opportunity,” lawyers for the company said in a bankruptcy court hearing on Thursday. Even after falling on Thursday, the company’s shares are still well above the level they traded at after its Chapter 11 filing.
The move is exceedingly rare for a bankrupt company, because most bankruptcy restructurings result in stockholders — who are last in line to recover financial assets — being wiped out. There are also precedents for investors coming out ahead. The hedge fund mogul William A. Ackman made a fortune from owning stock in the bankrupt real estate business General Growth Properties nearly a decade ago.
But in a sign of Hertz’s dire financial straits, the company has asked for permission to end leases for more than 144,000 vehicles that it says it can no longer afford.
Twitter said on Thursday that China has stepped up its effort to spread misinformation on the platform by creating tens of thousands of fake accounts that discussed the Communist Party’s response to the virus and the Hong Kong protests.
Twitter said it had discovered and removed 23,750 accounts that were “highly engaged” in a coordinated effort to spread misinformation, and 150,000 others that were dedicated to amplifying China’s messages through likes and retweets. Those findings are consistent with a recent New York Times analysis that detected hundreds of similar accounts.
The Trump administration has sparred with Beijing over the pandemic, saying that China mishandled the outbreak, which is believed to have started in the city of Wuhan. Chinese officials on Twitter have fought back, suggesting without evidence that the virus originated in the United States.
Twitter announced its finding on the same day that Zoom, a video-chat company based in San Jose, Calif., that rose to fame during the outbreak, acknowledged that it had briefly blocked the account of a U.S.-based Chinese human-rights leader at the Chinese government’s request. The activist, Zhou Fengsuo, had used the platform to organize a commemoration of the 1989 Tiananmen Square crackdown between activists in the United States and China.
Zoom restored Mr. Zhou’s account on Wednesday, but the suspension highlights the company’s delicate balancing act between free-speech principles and the power of China’s huge censorship machine.
Treasury Secretary Steven Mnuchin said on Thursday that he was “very seriously considering” backing another round of economic stimulus payments to Americans as part of another relief package.
The Trump administration is considering a range of measures to inject more money into the economy, which is facing its deepest downturn since the Great Depression as a result of the coronavirus pandemic. The House of Representatives passed a $3 trillion pandemic relief bill last month, but Senate Republicans and the White House have dismissed that as dead on arrival.
Negotiations between the White House and lawmakers are expected to get underway next month. Mr. Mnuchin has said he would prefer additional stimulus to focus on specific industries that have been hit hardest by the pandemic, but direct payments to individuals would have the benefit of raising consumer spending more broadly.
“It’s a very efficient way for us to deliver money into the economy,” Mr. Mnuchin said in a briefing with reporters on Thursday, noting that for people who still have jobs, the money is akin to a tax cut.
Mr. Mnuchin said he remained optimistic that the economy would rebound during the second half of the year and he played down gloomy projections from the Federal Reserve this week that predicted that the unemployment rate could be close to 10 percent at the end of the year. The Treasury secretary said that traditional economic models are poorly equipped to predict the impact of a pandemic.
The Treasury secretary said he believed that it was unlikely that the economy would be shut down again if there was a second wave of the virus, but he acknowledged that there was more work to be done to get businesses back on track. He pointed to the need for additional incentives such as tax credits to get firms to hire workers and tax deductions that would entice workers to eat out at restaurants.
“High unemployment is unacceptable,” Mr. Mnuchin said. “We have more work to do.”
In Europe, ‘corona cycleways’ are becoming the new post-confinement commute.
As France eased its coronavirus lockdowns last month, a small army of street workers fanned out across Paris in the dark of night. They dropped traffic barriers along car lanes and painted yellow bicycle symbols onto the asphalt. By morning, miles of pop-up “corona cycleways” had been laid, teeming with people heading back to work.
As European cities emerge from quarantines, bicycles are playing a central role in getting the work force moving again. Governments are trying to revive their economies from a deep recession, but cannot fully rely on public transportation to get workers to their jobs because of the need for social distancing. In urban areas at least, bicycles are suddenly an unlikely component to restarting economic growth.
In Europe, where many cities have integrated cycling as a mode of transportation, the pandemic is speeding up an ecological transition to limit car traffic and cut pollution, especially as new research draws links between dirty air and coronavirus death rates.
Britain, France, Italy and their neighbors are accelerating hundreds of millions of euros in investments on new biking infrastructure and schemes to get people pedaling.
“This crisis has made clear that we need to change the way we live, work and move,” said Morten Kabell, chief executive of the European Cyclists’ Federation. “In the era of social distancing, people are wary of using public transportation, and cities can’t take more cars. So they are looking to the bike as a natural mode of mobility for the future.”
Three of the largest airlines operating from Britain have filed a legal challenge to the 14-day quarantine imposed by the British government on Monday on many travelers arriving in the country. According to a statement, British Airways, easyJet and Ryanair want a “judicial review” of the measures, which are intended to reduce importation of the coronavirus into Britain, as soon as possible.
The airlines said that the quarantine, which carries heavy fines for those who break the rules, would “have a devastating effect on British tourism and the wider economy and destroy thousands of jobs.” The airlines also said that the government had provided no scientific evidence that such a severe policy was warranted.
As in many countries, Britain’s lockdown has severely curtailed air travel, putting huge financial pressure on airlines, some of which have estimated that air travel won’t return to previous levels for two to three years. The quarantine has been imposed as the government is beginning to ease other parts of the lockdown, including rules on which shops can open.
The government has argued that as the virus comes under control, a quarantine will help stem imported cases.
Airline executives have become increasingly vocal in their criticism of the British government. Ryanair’s chief, Michael O’Leary, rejected the government’s recommendations that passengers check as much baggage as possible to help prevent transmission of the virus.
In an interview with the news outlet The Independent, Mr. O’Leary termed the advice “more rubbish,” and said it was much safer for passengers to keep their bags rather than turn them over to baggage handlers.
Catch up: Here’s what else is happening.
Lululemon, the premium athleisure brand, said on Thursday that its sales in the first quarter fell 17 percent to $652 million, showing that not even makers of comfortable, stretchy clothing have been spared during the pandemic. The company said that as of June 10, 295 of its 489 stores had reopened, and that e-commerce sales made up more than half of its first quarter revenue, compared with 27 percent in the same period last year. Still, unlike most other retailers, it managed to post a profit of $28.6 million.
Boeing has asked a major supplier of parts for its troubled 737 Max jet to stop work on four Max fuselages and not to start work on 16 more, which were planned for delivery this year, according to the supplier, Spirit AeroSystems. Based on that request and further correspondence with Boeing, Spirit said it expected to cut back work it had planned on 125 of the jets and would furlough some employees on the project for three weeks starting Monday.
Reporting was contributed by Stanley Reed, Mohammed Hadi, Michael J. de la Merced, Alan Rappeport, Kevin Granville, Sapna Maheshwari, Liz Alderman, Kate Conger, Paul Mozur, Carlos Tejada, Michael Ives and Niraj Chokshi.