Stocks fell sharply on Monday as U.S. lawmakers failed to push through massive fiscal stimulus to curtail the economic blow from the coronavirus. Talks are ongoing, but investors believe the longer Washington waits, the greater the damage to the economy.
The Dow Jones Industrial Average closed 582.05 points lower, or down 3.1%, at 18,591.93, its lowest closing level since November 2016. The S&P 500 slid 2.9% to 2,237.40. The Nasdaq Composite was down just 0.3% at 6,860.67 as investors began making small bets on technology stocks.
For a second time in less than 24 hours, a bill that would authorize giant fiscal spending to stimulate the economy failed to clear a key procedural hurdle. Earlier on Monday, Treasury Secretary Steven Mnuchin told CNBC's Jim Cramer that Congress was "very close" to getting a fiscal package done, noting it must be pushed forward "today."
"We're using some of the funds we have, but we need Congress to approve additional funds today so that we can move forward and support American workers and the American economy," Mnuchin said.
Senate Minority Leader Chuck Schumer, D-NY, said Monday afternoon after the second failure that he and Mnuchin would meet again to try and work out a deal.
The failed votes in the U.S. Senate were enough to pressure Wall Street once again even after the Federal Reserve announced an open-ended asset purchase program. The central bank said the program will run in the "amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy."
"While the Fed's actions are an enormous help, the only way the markets are going to find sustainable improvement is when the economy is allowed to come back to life, or at least there is a real path in place for how that is going to happen," said Paul Hickey of Bespoke Investment Group, in a note.
A series of Trump tweets were troubling the market, traders said, as they may signal he is considering sending workers back to work before the pandemic is under control. Trump also retweeted an account saying: "Flatten the curve NOT the Economy."
Boeing shares rose 11%, outperforming the market, as Goldman Sachs made a bold call Sunday evening, telling clients the company had enough cash to survive the coronavirus downturn and that air travel would eventually return. The shares are off 66% this year. The aerospace giant also suspended its dividend.
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 cases keeps surging. The number of confirmed global cases surpassed 350,000 as deaths now total over 15,000, according to data from Johns Hopkins University. In the U.S., more than 35,000 cases have now been confirmed.
Economists at Goldman Sachs wrote Friday they expect a 24% contraction for the second quarter after a 6% drop in the first quarter. Morgan Stanley economist Ellen Zentner said in a note Sunday she expects a historic 30% contraction in the second 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."
The outbreak led the New York Stock Exchange to close its trading floor and temporarily move to all-electronic trading, which began on Monday. No problems were reported and equity markets appeared to function normally.
Last week, stocks suffered their biggest one-week decline since the financial crisis in 2008, with the S&P 500 dropping more than 13%. Those losses, coupled with Monday's decline, put the broader market average more than 34% below its record set on Feb. 19.
"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."
— CNBC's Thomas Franck contributed to this report.
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