AP — Stocks sank around the globe again Friday as investors braced for more economic pain from the coronavirus outbreak, hurling US markets to their worst weekly finish since the 2008 financial crisis.
The damage from the week of relentless selling was eye-popping: The Dow Jones Industrial Average fell 3,583 points, or 12.4 percent. Microsoft and Apple, the two most valuable companies in the S&P 500, lost a combined $300 billion. In a sign of the severity of the concern about the possible economic blow, the price of oil sank 16%.
The market’s losses moderated Friday after the Federal Reserve released a statement saying it stood ready to help the economy if needed. Investors increasingly expect the Fed to cut rates at its next policy meeting in mid-March.
The Dow swung back from an early slide of more than 1,000 points to close around 350 points lower. The S&P 500 fell 0.8% and is now down 13% since hitting a record high just 10 days ago. The Nasdaq reversed an early decline to finish flat.
Global financial markets have been rattled by the virus outbreak that has been shutting down industrial centers, emptying shops and severely crimping travel all over the world. More companies are warning investors that their finances will take a hit because of disruptions to supply chains and sales. Governments are taking increasingly drastic measures as they scramble to contain the virus.
The rout has knocked every major index into what market watchers call a “correction,” or a fall of 10% or more from a peak. The last time that occurred was in late 2018, as a tariff war with China was escalating. Market watchers have said for months that stocks were overpriced and long overdue for another pullback.
Bond prices soared again as investors sought safety and became more pessimistic about the economy’s prospects. That pushed yields to more record lows. The yield on the 10-year Treasury note fell sharply, to 1.14% from 1.30% late Thursday. That’s a record low, according to TradeWeb. That yield is a benchmark for home mortgages and many other kinds of loans.
Crude oil prices sank 4.9% over worries that global travel and shipping will be severely crimped and hurt demand for energy.
“All this says to us is that there are still a lot of worries in the market,” said Gene Goldman, chief investment officer at Cetera Financial Group. “We need the Fed to come out and say basically, guys, we got your back.”
Traders have been growing more certain that the Federal Reserve will be forced to cut interest rates to protect the economy, and soon. Goldman said the Fed’s current lack of action amounts to a tightening of rates compared with other nations and their actions to offset the impact of the coronavirus.
Investors now widely expect the Fed to cut interest rates by a half-point at its meeting that winds up March 18. According to data from the Chicago Mercantile Exchange’s Fedwatch tool, the expectations for a half-point cut jumped from 47% just before the Fed’s statement was released to 60% by the close of trading.
The latest losses have wiped out the S&P 500’s gains going back to October. The benchmark index is still up 6.1% over the past 12 months, not including dividends. Its weekly loss of 11.5% was the biggest since an 18.2% drop in the week ending October 10, 2008.
The sell-off follows months of uncertainty about the spread of the virus, which hit China in December and shut down large swaths of that nation by January. China is still the hardest hit country and has most of the 83,000 cases worldwide and related deaths.
Uncertainty turned into fear as the virus started jumping to places outside of the epicenter and dashed hopes for containment.
“Fear is a stronger emotion than hope,” said Ann Miletti, head of active equity at Wells Fargo Asset Management. “This is what we’re seeing today and this week and over the past seven days.”
Airlines have suffered some of the worst hits as flight routes are cancelled, along with travel plans. Big names like Apple and Budweiser brewer AB InBev are part of a growing list of companies expecting financial pain from the virus. Dell and athletic-wear company Columbia Sportswear are the latest companies expecting an impact to their bottom lines.
Cruise operators have also been hard hit, with shares sinking 30% or more as shipboard infections rose. But those companies were having a far better day Friday, with some on Wall Street believing that the sell-off was overdone. Shares of Royal Caribbean Cruises rose 4.4%, while Norwegian Cruise Line Holdings gained 7.3%. Carnival’s shares climbed 5.1%.
A big concern investors have is that the stock market rout could have a psychological effect on consumers, making them reluctant to spend money and go to crowded places like stores, restaurants and movie theaters.
The late-2018 stock market plunge, for instance, derailed holiday sales that year. Now, analysts are worried that the latest stock swoon could cause consumer spending — which makes up some 70% of the economy and has played a huge role in keeping the US expansion going — to contract again.
Craig Johnson, president of Customer Growth Partners, a consumer consultancy, says he had expected annual retail sales to be up 4.1%, but he now says it could increase just 2.2% if the impact of the new virus in China persists beyond April.
‘’This is a moving target right now,”’ he said. ‘’There is a lot of uncertainty.’’
Many companies face the prospect of crimped financial results with their stocks already trading at high levels relative to their earnings. Before the virus worries exploded, investors had been pushing stocks higher on expectations that strong profit growth was set to resume for companies after declining for most of 2019.
Bank of Canada keeps key interest rate target on hold – CTV News
The Bank of Canada kept its key interest rate target on hold as it said it believes the economy has avoided its worst-case scenario due to the pandemic.
The central bank said Wednesday its target for the overnight rate will remain at 0.25 per cent.
It said the impact of the pandemic on the global economy appears to have peaked, although uncertainty about how the recovery will unfold remains high.
The bank said it believes Canada has avoided the most severe economic scenario painted that it painted in April, updating its GDP figures for the second quarter of the year.
The central bank now expects GDP to decline between 10 and 20 per cent compared with the fourth quarter of 2019, down from the 15 to 30 per cent decline forecasted in April.
In a statement announcing the rate decision, the central bank said it still expects the economy to resume growth in the third quarter.
“Decisive and targeted fiscal actions, combined with lower interest rates, are buffering the impact of the shutdown on disposable income and helping to lay the foundation for economic recovery,” the statement said.
The announcement comes on the first day of Tiff Macklem’s tenure as governor, taking over from Stephen Poloz whose seven-year term ended Tuesday.
Macklem participated as an observer during deliberations by the bank’s governing council over the past few days, the statement says, adding that the new governor “endorses the rate decision and measures announced.”
The bank also announced it was reducing the frequency of its term repo operations and purchases of bankers’ acceptances citing improvements in short-term funding conditions.
Other programs to purchase federal, provincial, and corporate debt will continue unchanged, the bank says, but adds it could change tactics in response to economic conditions.
“As market function improves and containment restrictions ease, the Bank’s focus will shift to supporting the resumption of growth in output and employment,” the statement says. “The Bank maintains its commitment to continue large-scale asset purchases until the economic recovery is well underway.”
Economic reports continue this week with Statistics Canada’s look at the May jobs market scheduled for release Friday.
This report by The Canadian Press was first published June 3, 2020
Bank of Canada maintains target for the overnight rate, scales back some market operations as financial conditions improve – Bank of Canada
The Bank of Canada today maintained its target for the overnight rate at the effective lower bound of ¼ percent. The Bank Rate is correspondingly ½ percent and the deposit rate is ¼ percent.
Incoming data confirm the severe impact of the COVID-19 pandemic on the global economy. This impact appears to have peaked, although uncertainty about how the recovery will unfold remains high. Massive policy responses in advanced economies have helped to replace lost income and cushion the effect of economic shutdowns. Financial conditions have improved, and commodity prices have risen in recent weeks after falling sharply earlier this year. Because different countries’ containment measures will be lifted at different times, the global recovery likely will be protracted and uneven.
In Canada, the pandemic has led to historic losses in output and jobs. Still, the Canadian economy appears to have avoided the most severe scenario presented in the Bank’s April Monetary Policy Report (MPR). The level of real GDP in the first quarter was 2.1 percent lower than in the fourth quarter of 2019. This GDP reading is in the middle of the Bank’s April monitoring range and reflects the combined impact of falling oil prices and widespread shutdowns. The level of real GDP in the second quarter will likely show a further decline of 10-20 percent, as continued shutdowns and sharply lower investment in the energy sector take a further toll on output. Decisive and targeted fiscal actions, combined with lower interest rates, are buffering the impact of the shutdown on disposable income and helping to lay the foundation for economic recovery. While the outlook for the second half of 2020 and beyond remains heavily clouded, the Bank expects the economy to resume growth in the third quarter.
CPI inflation has decreased to near zero, as anticipated in the April MPR, mainly due to lower prices for gasoline. The Bank expects temporary factors to keep CPI inflation below the target band in the near term. The Bank’s core measures of inflation have drifted down, although by much less than the CPI, and are now between 1.6 and 2 percent.
The Bank’s programs to improve market function are having their intended effect. After significant strains in March, short-term funding conditions have improved. Therefore, the Bank is reducing the frequency of its term repo operations to once per week, and its program to purchase bankers’ acceptances to bi-weekly operations. The Bank stands ready to adjust these programs if market conditions warrant. Meanwhile, its other programs to purchase federal, provincial, and corporate debt are continuing at their present frequency and scope.
As market function improves and containment restrictions ease, the Bank’s focus will shift to supporting the resumption of growth in output and employment. The Bank maintains its commitment to continue large-scale asset purchases until the economic recovery is well underway. Any further policy actions would be calibrated to provide the necessary degree of monetary policy accommodation required to achieve the inflation target.
Tiff Macklem assumes his role as the Bank’s tenth Governor today. He participated as an observer in Governing Council’s deliberations for this policy interest rate decision and endorses the rate decision and measures announced in this press release.
The next scheduled date for announcing the overnight rate target is July 15, 2020. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR at the same time.
Zoom transforms hype into huge jump in sales, customers – BNNBloomberg.ca
Zoom Video Communications Inc. reported quarterly sales that leapfrogged estimates, showing that a surge in demand for its video-conference service during the coronavirus pandemic has translated into more paying customers. The company also about doubled its annual revenue forecast.
Revenue increased about 170 per cent to US$328.2 million in the period that ended April 30, the San Jose, California-based company said Tuesday in a statement. Analysts, on average, expected US$203 million, according to data compiled by Bloomberg. Profit, excluding some items, was 20 cents a share, compared with analysts’ average projection of 9 cents.
Zoom projected sales of as much as US$1.8 billion in the fiscal year, from a forecast of as much as US$915 million in early March. Analysts estimated US$930.8 million.
Chief Executive Officer Eric Yuan has tried to ensure that his virtual-meeting platform can cope with a swell of demand from people forced to remain home to prevent the spread of Covid-19. While security and privacy issues plagued the system early in the quarantine, Zoom has become an essential social network, attracting more than 300 million participants some days, up from 10 million in December. The software maker allows gatherings of as long as 40 minutes for no charge. While Zoom has attracted more buzz than corporate rivals, its ability to attract more paying customers will determine how well it’s faring against competition from Microsoft Corp., Cisco Systems Inc. and Alphabet Inc.’s Google.
Shares increased 4 per cent in extended trading after closing at a record US$208.08 in New York. The stock has more than tripled this year.
Zoom said it ended the quarter with about 265,400 customers with more than 10 employees, a more than fourfold increase from the same period a year earlier. The company now has 769 corporate clients that have spent more than US$100,000 on Zoom’s products over the last 12 months, about double from a year earlier.
The company said its expects adjusted profit in the fiscal year will be US$355 million to US$380 million, or US$1.21 to US$1.29 a share. Analysts had estimated 46 cents, just more than Zoom’s earlier forecast. The company has been spending to bolster its network capacity, including by buying cloud-computing services from Oracle Corp. during the pandemic. Zoom also continues to use Amazon.com Inc.’s cloud service.
With Zoom’s popularity has come controversy over the company’s security practices. Trolls have invaded myriad meetings, religious gatherings and other events, to share pornography and shout profanity or racial epithets, in a phenomenon known as “Zoombombing.” The company highlighted or created a raft of tools users can employ to prevent the virtual attacks, including passwords and waiting rooms.
There also were instances when Zoom calls were routed through servers in China even when no participant was based there and users were unwittingly sending metadata to Facebook Inc. when they signed in. Zoom put an end to both practices. The company pledged to commit to bolstering privacy over all other concerns for three months, purchasing a secure-messaging company, Keybase, to bring the highest standard of encryption to the platform, and hiring cybersecurity experts to guide safety efforts.
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