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US stocks ended at session lows on Tuesday, with major indexes snapping their three-day winning streaks.
Investors spent the day glued to the testimony of Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin before the Senate Banking Committee. But in the end, the hearing didn’t have a big impact on markets.
Social distancing likely peaked across the United States in April, but this new way of life will continue for the foreseeable future, according to the latest economic projections from the Congressional Budget Office.
“To account for the chances of the pandemic persisting or reemerging, CBO projects that social distancing will continue, but to a declining degree,” according to today’s report.
Social distancing will drop sharply in the second half of the year, and continue to decrease through the third quarter of 2021, according to the report.
As for the current quarter, the CBO projections are in line with those from Wall Street: it will be ugly.
America’s gross domestic product will contract by 11% on a real, inflation-adjusted basis, and by a whopping annualized 38% between April and June, the CBO forecasts. Nearly 26 million people who were employed at the end of 2019 will have lost their jobs during that period, the CBO projects.
Both the labor market and the overall economy are expected to begin a recovery in the second half of this year, but it will be a long road back to where the country started 2020. By the final quarter of 2021, real GDP is expected to be 1.6% lower and the unemployment rate 5.1 percentage points higher when compared with the final three months of 2019.
The testimony from Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin came and went today without having a big effect on the stock market.
The major US indexes remain mixed in mid-afternoon.
The Nasdaq Composite is leading the field with a 0.8% gain, while the S&P 500 is up 0.2%.
The Dow is 0.2%, or 47 points, in the red.
If you were wondering when the shares of scandal-ridden Chinese coffee company Luckin (LK) would trade again, it looks like the answer is never.
Nasdaq informed the company of its plans to delist the shares in a May 15 notice, Luckin said in a regulatory filing late Monday.
In early April, Luckin revealed it had uncovered fabricated transactions as part of an internal investigation into accounting regularities. Shares plunged more than 75% before being halted on April 6.
On May 12, Luckin announced it had fired its CEO as well as chief operating officer Jian Lu – the latter of whom had already been suspended for misconduct, along with several of his direct reports.
Luckin said in Monday’s filing that it plans to request a hearing with Nasdaq about the delisting notice. The stock will remain on Nasdaq until the hearing date, which Luckin said should take place within the next 30 to 45 days.
But it’s not looking promising for Luckin, which went public in May 2019 and initially soared on hopes that it was stealing market share from Starbucks (SBUX) in China. As of late last year the company had 3,680 stores. However, bankruptcy rumors have been swirling in light of the scandal.
Unlike the 2008 recession, the coronavirus economic downturn is not linked to a housing crisis. But there are still risks in that sector, said Federal Reserve Chairman Jerome Powell during hist testimony before the Senate Banking Committee.
For example, mortgage forbearance programs, which allow home owners to delay their monthly payments if they are affected by the pandemic, might not work as intended and people could wind up losing their homes, Powell warned.
“You also see the housing industry come under great pressure,” Powell said.
This morning, the US Census Bureau reported April figures for housing starts and building permits. Permits plunged more than 20% from March while housing starts plummeted more than 30%.
Arizona Senator Martha McSally criticized the Fed for hiring BlackRock to manage some of the asset-purchasing facilities the Fed built to shore up the US economy.
She falsely claimed China “unleashed this virus on America.” And although she correctly noted BlackRock holds many investments in Chinese companies, McSally incorrectly called BlackRock an “investment bank.”
In reality, BlackRock is a global asset manager, which allows investors to buy into funds that hold various assets.
McSally, a Republican who is facing a tough re-election fight against retired astronaut Mark Kelly, said the Fed needed to ensure China wasn’t profiting from “unleashing this calamity on the world.”
Federal Reserve Chairman Jerome Powell dismissed McSally’s concerns as it pertains to the Fed. He said the Fed hired BlackRock for its expertise in the markets it’s trying to buy assets from. He also noted that BlackRock, like all asset managers, holds securities from across the world – and that its Chinese holdings are irrelevant to what the Fed hired BlackRock to do.
Federal Reserve Chairman Jerome Powell defended the central banks’ program to buy junk bonds during his testimony before the Senate Banking Committee.
He flagged that the Fed allowed for buying bonds from so-called “fallen angels” – companies that have been recently downgraded from investment grade to junk – to ensure there is “no cliff” between the two lending markets, Powell said.
“We’re not buying junk bonds generally across the board at all,” he added. “We maybe have to lend money to these companies, but even better, they can borrow themselves now.”
Federal Reserve Chairman Jerome Powell said the central bank’s new Municipal Lending Facility is about two week’s away from being operational.
The program is designed to lend up to $500 billion in loans and $35 billion in credit protection to help states and local governments through the coronavirus recession.
Wall Street just got the six words it was waiting to hear from Federal Reserve Chairman Jerome Powell: “We may have to do more.”
Stocks rallied Monday after Powell told CBS’ “60 Minutes” that the Fed would continue to act to stimulate the economy if it needed to. Again, today, Powell reiterated that the Federal Reserve will take more action if the economy isn’t rebounding as well as it would like.
“We have to take a step ask, ‘Is it enough?’ and we need to be prepared to act further, and we are if the need is there,” Powell testified before the Senate Banking Committee.
Powell said further Fed action will depends on the path of the economy, how the reopening goes and “which path we finds ourselves on.”
Senator Elizabeth Warren wants to know why some businesses that are getting federal funding are not required to keep their workers employed.
Congress gave Treasury the authority to dole out $500 billion to shore up mid-sized and large corporations. But unlike the Payroll Protection Program and other small-business lending facilities, which forgive loans when businesses keep employees on their payroll, Treasury did not stipulate anything about big businesses having to do the same.
Elizabeth Warren was displeased, to say the least.
Mnuchin called that a “very unfair characterization” and noted “different facilities have different requirements.” Warren argued Mnuchin has the “specific authority” to determine the terms of the loans for mid-sized and big corporations.
Although Mnuchin said the Trump administration’s No. 1 priority is keeping people working – and he noted certain restrictions on employee compensation, dividends and buybacks for companies receiving loans – he wouldn’t commit to any specific payroll protections associated with big-business loans.
“We expect people to use their best efforts to support jobs,” Mnuchin said.
Warren noted that’s far from a requirement.
The Federal Reserve’s balance sheet is ballooning at the moment because the central bank is buying up lots of securities to support the economy.
But Fed Chairman Powell isn’t too concerned about that.
“I would expect that over time […] the assets that we have on our balance sheet from this era will mature and roll off,” Powell said during today’s Senate Banking Committee hearing.
The shrinking of the balance sheet will be gradual, and “it will be some years down the road,” he added.
What matters more, Powell noted, is the size of the balance sheet relative to the economy. And in the meantime, the enlarged balance sheet doesn’t raise concerns about inflation or financial stability, he said.
Remember all that talk about Treasury issuing 50-year bonds? Treasury Secretary Steven Mnuchin had floated the idea as a way to find lenders to support American’s mounting debt pile, which supports massive economic bailouts, tax cuts, health care, safety nets and other programs.
Well, Mnuchin said demand just doesn’t exist for 50-year bonds. Here’s the good news: Investors can’t get enough of America’s shorter-term debt. Interest rates are super low because people keep buying bonds like they’re panic-shopping at Walmart.
And Treasury is still thinking about medium-term bonds, including 20-year Treasuries. People are still fearful about the long-term future, but compared to the rest of the world, America’s looking pretty good … for now.
The US government is trying to broaden the criteria for its business lending – but some companies are unable to secure loans for one reason or another.
Outrage bubbled over when large businesses like Shake Shack received small business loans, yet many others were unable to receive them or even to qualify for those loans.
Among those that don’t qualify for various government lending facilities are life insurance companies. That’s because they sell debt with credit ratings that are analyzed by insurers’ own industry group, but not by traditional credit ratings agencies. And some have employees in excess of the 10,000-worker cap.
Both Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell testified before the Senate Banking Committee that they are working on that problem.
“If there are companies that slipped through, [Powell] and I will work together to make sure they have funding,” Mnuchin said.
Powell noted that some of the lending facilities have only just come online, so the amount that has gone out to support some businesses is “pretty limited.”
State and local governments have laid off about 1 million workers because of the coronavirus crisis, which will likely weigh on the nation’s economic recovery, said Federal Reserve Chairman Jerome Powell in response to a question from Senator Bob Menendez.
Evidence from the 2008 financial crisis shows that hiring freezes by local governments may have lengthened and deepened the resulting recession, Powell said.
On April 9, the Fed announced the creation of a Municipal Liquidity Facility, which will provide up to $500 billion in loans and $35 billion in credit protection to “help state and local governments manage cash flow stresses caused by the coronavirus pandemic.”
The Federal Reserve is buying up hundreds of billions of dollars in loans, asset-backed securities and other securities no one wants right now as the economy plunges.
That worked out pretty well 10 years ago – taxpayers made a profit! – and Federal Reserve Chairman Jerome Powell said that he’s confident it will work again this time.
Powell noted that the Fed is taking measures to ensure taxpayers, who will be left holding the bag, are protected: The Fed is only buying AAA-rated loans with a “good-sized” haircut (i.e. on the cheap).
“The credit risk is very low,” Powell testified before the Senate Banking Committee.
The Federal Reserve’s highly anticipated Main Street Lending Facility will be up and running by the end of May, Fed Chairman Jerome Powell told the Senate Banking Committee on Tuesday.
The funds from this facility will begin providing loans directly to small- and medium-sized businesses right after, Powell said.
Powell stressed in his prepared remarks how important public input was in designing these unprecedented programs.
State and local governments tend to have balanced budget provisions built into their constitutions. Although that sounds great (no deficits!), it can spell disaster during economic downturns.
Responding to a question from Senator Jack Reed of Rhode Island during a Senate Banking Committee hearing, Federal Reserve Chairman Jerome Powell acknowledged that huge job losses across the country are possible as state and local governments are forced to make their books come out even.
“13% of the workforce is in state and local government,” Powell replied to Reed, a Democrat. “Critical services are at state and local level, and balanced budget amendments mean that when revenue goes down, it can mean job cuts.”
Millions more jobs could be lost later this year – even as the economy begins to reopen. Funding states’ budget gaps has become a political football during the pandemic.
“Long periods of unemployment can really affect people’s ability to go back to work,” Powell noted.
Federal Reserve Chairman Jerome Powell reiterated that the central bank “may need to do more, and Congress may as well,” to get the US economy through the coronavirus recession.
Powell previously made this point during an interview Sunday with CBS’s “60 Minutes.”
All of the stimulus efforts are aimed at helping the workers most affected by the crisis — which are mostly in the services sector — he said.
The Federal Reserve will also always be willing to lend to states so that money may trickle down to local governments, Powell said during his testimony.
“We’ve been gradually expanding the scope of borrowers,” Powell added.
In a testy exchange between Ranking Member Sherrod Brown of Ohio and Treasury Secretary Steven Mnuchin, Brown asked why the Trump administration is so eager to send employees back to work during uncertain times.
“How many workers should give their lives to increase the GDP … or the Dow by 1,000 points?” Brown, a Democrat, asked.
“No workers should give their lives to do that, Senator, and I think your characterization is unfair,” Mnuchin said.
Mnuchin, however, said the US economy risks “permanent damage” if it does not reopen soon, and businesses must bring people back to work “in a safe way.”
The debate about when to reopen the economy is central in US policy, and it’s being laid bare in today’s hearing.
