Wall Street Week Ahead: Investors look to coronavirus data to support stabilizing markets

NEW YORK (Reuters) – Investors are parsing a broad range of signals, from infection counts to more traditional indicators, for clues on the trajectory markets may take in coming weeks as the pandemic caused by the novel coronavirus continues to spread.

Some point to signs that the worst of a vicious sell-off that took the S&P 500 .SPX down as much as 34% from its record closing high may be fading, though markets remain turbulent and far off their highs.

Volatility has eased from its March peaks. Fewer U.S. stocks are hitting new 52-week lows. Liquidity in fixed-income markets has improved, and credit spreads, while still wide, have come in from their March highs.

“Most of the damaging, indiscriminate selling was reached in mid-March,” said Keith Lerner, chief market strategist at Truist/SunTrust Advisory Services in Atlanta.

Economic indicators like employment data are only beginning to factor in the scale of economic damage wrought by the pandemic, leaving investors looking to various corners of the markets and information on the virus’ spread to gauge the direction asset prices are likely to take.

Investor sentiment, often seen as a contrarian indicator, is one signal pointing to an eventual turnaround in U.S. stocks. Bank of America Global Research’s Sell Side Indicator in March dropped to 54.9%. At that level or lower, U.S. stock returns over the following 12 months have been positive 94% of the time, the bank’s analysts wrote.

Contrarian indicator means bearish investors may presage a bullish market – and vice-versa.

Some investors have also noticed parallels between the spread of COVID-19, the disease caused by the novel coronavirus, and movements in the Cboe Volatility Index , known as Wall Street’s fear gauge.

The VIX, which climbed to its highest levels since 2008 amid the market sell-off, has closely tracked the number of countries where the daily growth of coronavirus cases exceeds 10%, according to Jason Hunter, head of global fixed income and U.S. equity technical strategy at J.P. Morgan.

The index has fallen as the number of countries with a sharp rise in cases has abated.

“Any improvements in that trajectory have the potential to limit the severity of an equity index retest this spring,” Hunter wrote in a research note. “More importantly, how the outbreak story evolves over the summer and into the fall will likely dictate the overall duration and magnitude of the bear market.”

Tracking the number of U.S. states with 10% or higher daily growth in confirmed cases reveals a similar pattern, Hunter found. The index on Friday stood at 48.43, below its all-time closing high of 82.69 on Mar. 16.

For now, the overall numbers look grim. Confirmed U.S. cases surpassed 256,000 on Friday. More than 6,500 Americans have died, according to a Reuters tally of official data, and more than a quarter of those deaths have been in New York City.

(For an interactive graphic tracking the spread of the novel coronavirus in the United, click here: here)

Economic data have been just as dour. On Friday, the Labor Department’s monthly payrolls report showed the U.S. economy shed 701,000 jobs in March, ending a record 113 straight months of job growth. The previous day, the Labor Department reported that weekly U.S. jobless claims hit a record 6.6. million.

That scale of market disruption has made some market participants more doubtful. Investors may be overly optimistic in their expectations for a sharp market rebound even if the number of U.S. coronavirus cases flatlines earlier than expected, said Nancy Perez, senior portfolio manager at Boston Private.

“The market has discounted a V-shaped recovery,” she said. “I don’t know if it’s discounted a U-shaped recovery. When people figure out it’s going to be more U-shaped, we may start giving some of (these gains) back.”

(This story removes extraneous word from headline.)

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Trump says Bank of America, others doing 'great job' on small-business loans

WASHINGTON (Reuters) – President Donald Trump hailed one of the country’s largest banks, as well as many small lenders, for making small business emergency loans on the first day of a new U.S. coronavirus economic relief program.

“Great job being done by Bank of America and many community banks throughout the country. Small businesses appreciate your work!” Trump wrote in a tweet

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Congress should wait to see whether more coronavirus action needed: McConnell

WASHINGTON (Reuters) – U.S. Senate Majority Leader Mitch McConnell on Tuesday said U.S. lawmakers should “wait and see” whether a fourth congressional effort was needed to respond to the nation’s coronavirus outbreak and its impact.

McConnell, speaking on syndicated Hugh Hewitt radio program, said policy makers should wait to see how the crisis unfolded before jumping on another bill. He also said the idea of pandemic-related U.S. Treasury bonds was interesting.

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On Oklahoma plains, an island of near normality in a pandemic

GUYMON, Okla., March 28 (Reuters) – On red cobbled Main Street in Guymon, the biggest town in Oklahoma’s panhandle, Jesus Ruiz gives “high and tight” hair cuts as a red, white and blue barber’s pole turns lazily outside.

About half the customers in the barber shop work at the busy pork processing plant in Guymon, a majority Hispanic/Latino community which rises like an island in a sea of corn and grass. Ruiz hopes this remoteness protects it from the coronavirus encroaching on all sides.

“I love it that nobody knows we’re here,” says Ruiz, 33, a Mexican-American who said the crime rate in Riverside, California, prompted him to quit the city near Los Angeles two years ago and move to this close-knit town of 11,500, where people often leave their doors unlocked when they go out.

In contrast to shuttered businesses and tens of millions of people confined to their homes across America, life seems fairly normal in Guymon, the closest case of coronavirus still more than 100 miles (160 km) away. There is nevertheless fear that COVID-19 may already be here, or will find its way in as workers from Texas, Kansas and other areas of the state commute to jobs in meat processing, feedlots and farms.

Guymon has not been spared the panic buying seen elsewhere and its library and recreation center are closed. All Oklahoma schools are shut for the remainder of their year.

But locally-owned small businesses and restaurants remain open, albeit limiting customers, many owners more fearful of the economic impact of the virus than the virus itself.

Unlike in neighboring New Mexico and Colorado, most Oklahomans do not face a stay-at-home order, but adults over 65 and people with underlying conditions are asked not to go out.

City Manager Joe Dunham said, under an order by Oklahoma Governor Kevin Stitt, it will take just one COVID-19 case in Guymon’s Texas County for non-essential businesses to close.

“I was hoping to keep restaurants open as long as possible just to create a sense of normalcy and not have panic,” said Dunham, who is still getting used to not shaking hands with visitors to city hall. “It’s a little bit quieter, the highway still seems pretty busy though.”

CRITICAL FOOD BUSINESS

There is nothing quiet about the Seaboard Foods SEB.A pork processing plant three miles up U.S. Highway 64. It is operating at full capacity with nearly 2,600 workers, more than 80 percent of whom live in Guymon or the county.

People from at least four continents speaking about 19 languages and dialects process more than 20,000 hogs a day. This “critical” food operation, by far Guymon’s biggest employer, has been ordered to stay open.

As hundreds of workers change shifts, four Spanish speaking employees pile out of a Chevy Caprice after car-pooling the 40-miles from Liberal, Kansas. One has worked at the plant for a week, another several months, two of them for years.

“Of course we’re scared of coronavirus,” said a 61-year-old woman from Mexico, who asked that her name not be used. “It’s really cold in there and there are a lot of people with flu.”

Plant employees are asked to stay home if they feel sick and Seaboard is offering two weeks paid leave to any worker told to self-quarantine or isolate due to COVID-19, said spokesman David Eaheart. The company is giving extra pay to employees who meet attendance requirements in the busy weeks ahead.

Thirteen coronavirus tests have come back negative in the county, with zero positive and 10 results pending, Texas County Memorial Hospital reported.

‘DETACHED FROM REALITY’

Back on Main Street, Kalye Griffin, 42, arranges shirts at her Top Hand western store and trusts in God to safeguard families in this county where eight in ten voters backed President Donald Trump in 2016.

Services have not stopped at Griffin’s Victory Center Church and other houses of worship.

“We are very grounded in our faith and know we are protected,” said Griffin, who has seen sales dwindle as rodeos and dances are canceled. “The fear is doing more damage than the virus.”

A few blocks north, hairdresser Rick French, 66, is skeptical about shutting businesses to fight a virus he believes may only be as deadly as the flu.

At the same time, he says there is some denial in Guymon that anything as nasty as coronavirus could ever come to town.

“It’s almost like we’re detached from reality. Nobody can believe it is going to happen here,” said French, who plans to vote for Trump again this year. He said his business has dropped off as older female customers stay home. “We watch it on TV and just hope it doesn’t come here.”

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Wall Street drops after three-day surge as virus threat intensifies

(Reuters) – Wall Street fell more than 3% on Friday, following the S&P 500 and the Dow’s best three-day run in nearly a century, as fears about the economic damage from the coronavirus pandemic returned to the forefront.

The United States on Thursday surpassed China as the country with the most number of coronavirus cases and is expected to become the epicenter of the outbreak.

“We’re not out of the woods yet on the health or economic crisis,” said Eddie Perkin, chief equity investment officer at Eaton Vance in Boston.

“It would seem odd to me if the markets fully stabilize before we get more clarity on the health front.”

Unprecedented stimulus measures by the Federal Reserve and the White House have set the S&P 500 .SPX for its best week in over a decade, but it is still down 14% in March and on course for its worst month since the height of the financial crisis.

The Dow Jones .DJI, briefly establishing a bull market with its gains on Thursday, is on course for its biggest weekly gain since 1938, largely helped by a stunning four-day rally for Boeing Co (BA.N).

But with growing fears of a deep global recession, traders expect more wild swings in financial markets until there are signs of new virus cases peaking and sweeping restrictions placed on entire countries being lifted.

A record 3 million surge in U.S. weekly jobless claims offered the first glimpse of the extent of the economic hit from the outbreak, which has forced several companies to shutter operations and announce layoffs.

“Big questions are starting to be answered, like how bad is the spread of infections (and) how bad is the economic damage,” said Neil Wilson, chief market analyst for Markets.com in London.

“That is a recovery narrative, not panic, but if a recovery is not as swift as hoped, equity markets will suffer another hit.”

The U.S. House of Representatives is widely expected to clear a $2 trillion bill, aimed at flooding the country with cash to support businesses and families affected by the outbreak, after the Senate passed the proposal on Thursday.

At 10:29 a.m. ET the Dow Jones Industrial Average .DJI was down 916.19 points, or 4.06%, at 21,635.98, the S&P 500 .SPX was down 96.72 points, or 3.68%, at 2,533.35 and the Nasdaq Composite .IXIC was down 278.50 points, or 3.57%, at 7,519.04.

Delta Airlines (DAL.N), United Airlines (UAL.O) and American Airlines (AAL.O) fell between 6% and 9% as U.S. Treasury Secretary Steve Mnuchin said the aid designated for airlines in the package was not a bailout and that taxpayers would need to be compensated.

Boeing shed 11% after gaining as much as 90% this week, as Mnuchin said the planemaker had no intention of participating in the package.

The banking index .SPXBK fell 5.4%, tracking U.S. Treasury yields, while oil majors Exxon Mobil (XOM.N) and Chevron Corp (CVX.N) fell about 6%, tracking a drop in Brent crude LCOc1 prices.

Declining issues outnumbered advancers more than 8-to-1 on the NYSE and 5-to-1 on the Nasdaq.

The S&P index recorded no new 52-week high and one new lows, while the Nasdaq recorded three new highs and 15 new lows.

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U.S. Senate votes to grants struggling aviation sector big bailout

WASHINGTON/CHICAGO (Reuters) – The U.S. Senate voted late Wednesday 96-0 to give the U.S. aviation industry $58 billion in aid, half in the form of grants earmarked to cover some 750,000 employees’ paychecks, in a badly needed lifeline for an industry facing the worst travel downturn in history.

The $2 trillion economic rescue package awards passenger airlines $25 billion in grants and $25 billion in loans, cargo carriers another $8 billion divided between loans and grants, and airport contractors like caterers up to $3 billion in grants. The U.S. House of Representatives is expected to vote to approve the measure Friday and President Donald Trump has promised to sign it into law.

Senate Republicans had fought what they called a give away to airlines and initially offered only loans, while airlines had threatened to start laying off tens of thousands within days if they did not get cash.

“This is not a corporate bailout; it’s a rescue package for workers,” said Association of Flight Attendants Sara Nelson, who spearheaded the idea of direct payroll grants for employees ranging from janitorial staff and gate agents to mechanics and pilots.

Reuters reported Chao worked the phones late into the night talking to air carriers about what they needed to ensure they could maintain payrolls, a person briefed on call on Tuesday that lawmakers were nearing agreement on a deal for cash grants for payroll and other employee costs, after airlines made a last-minute effort to convince lawmakers they needed the cash to prevent furloughing tens of thousands of workers.

U.S. airline shares extended a Tuesday rally on hopes for cash relief and under the bill airlines are set to get cash assistance in as little as two weeks.

Republican Senator Pat Toomey, whose party had proposed $58 billion in loans, said on Wednesday the grants were a key sticking point. He said Democrats insisted “we give away money to airlines and never get it back.”

In a win for labor, companies receiving funds cannot lay off employees before Sept. 30 or change collective bargaining agreements.

The draft bill has restrictions on stock buybacks, dividends and executive compensation, and allows the government to take equity, warrants or other compensation as part of the rescue package, but does not require it.

Airlines would also receive tax relief on fuel purchases and, in a move that may bring down passenger fares, a temporary suspension on ticket taxes.

As the coronavirus has spread around the world, travel demand has plummeted, with airlines drastically reducing flights and warning of more cuts to come.

Airlines keep canceling flights, borrowing money and slashing costs as demand falls.

Alaska Airlines said Wednesday it would cut its flights by 70% in April and May, while United Airlines said Wednesday would now cut 52% of U.S. flights and overall capacity by 68%. On Tuesday, 279,018 people were screened at all U.S. airport checkpoints, down 87% over last year.

Airlines accepting loans may have to ensure certain air services in order to maintain health care and pharmaceutical supply chains, including to remote communities, but other consumer and environmental protections sought by many Democrats did not make it into the draft bill.

Airlines and unions won crucial support for the grants from U.S. Transportation Secretary Elaine Chao, who worked the phones late into the night, telling lawmakers and others in the administration she was concerned about the impact of job losses and a decline in the U.S. aviation sector on competition, people briefed on the matter said.

“Without grants, airlines may be forced to choose bankruptcy over federal loans, if loan conditions are too inflexible,” Chao warned in a memo seen by Reuters.

Airlines have argued that they are key to restarting the economy once the coronavirus outbreak subsides.

U.S. airports, whose concourses have been nearly empty, are set to receive $10 billion in grants.

The government will also provide $25 billion in grants for U.S. transit systems and $1 billion for U.S. passenger railroad Amtrak, that have seen ridership fall dramatically as states ordered tens of millions of Americans to stay home and avoid non-essential travel.

Boeing Co could receive government loans under a $17 billion fund set aside for direct national security-related loans, Toomey said, adding that many companies could qualify. Boeing could also qualify under the broader $454 billion loan program.

“It is not meant to be exclusively for Boeing… You should not think of it as a Boeing allocation,” Toomey said.

Boeing had sought at least $60 billion in government loan guarantees for itself and the entire aerospace manufacturing sector. Boeing did not comment on Wednesday.

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U.S. senators make progress toward voting on $2 trillion coronavirus bill

WASHINGTON (Reuters) – A last-minute obstacle to passage of a $2 trillion coronavirus economic stimulus bill in the U.S. Senate was in the process of being resolved and would likely clear the way for prompt approval of the measure, Senator Lindsey Graham said on Wednesday.

Graham is one of a handful of Republican senators who raised objections to an unemployment compensation provision in the bill. The Senate will vote on the Republicans’ amendment to change the provision — a vote that likely will fail, Graham said, allowing a vote on passage of the legislation as written.

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U.S. core capital goods orders point to worsening business investment downturn

WASHINGTON (Reuters) – New orders for key U.S.-made capital goods fell sharply in February as demand for machinery and other products slumped, suggesting a deepening contraction in business investment that analysts said signaled the economy was already in recession.

The coronavirus pandemic has further darkened the outlook for business investment as measures to contain the highly contagious virus have brought the country to a sudden stop. The Federal Reserve has taken extraordinary steps to soften the hit on the economy. U.S. senators were set to vote on Wednesday on a record $2 trillion fiscal stimulus package.

“Business investment is the key swing factor in every recession, and right now the pendulum is swinging the wrong way with declining orders likely to drag the economy over the cliff and down into recession in March,” said Chris Rupkey, chief economist at MUFG in New York.

Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.8% in February after rising by a slightly downwardly revised 1.0% in January, the Commerce Department said on Wednesday.

These so-called core capital goods orders were previously reported to have increased 1.1% in January.

Economists polled by Reuters had forecast core capital goods orders would drop 0.4% in February. There were decreases in orders for machinery, primary metals and computers and electronics products last month. But demand for electrical equipment, appliances and components increased 1.3% last month.

Shipments of core capital goods fell 0.7% last month. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement. They increased 1.1% in January.

Business investment has contracted for three straight quarters, the longest such stretch since 2009. Economists have blamed the business investment rot on the Trump administration’s 20-month-old trade war with China. The weakness in business investment comes at a time when corporate profits are weakening.

“Given that profits are likely now declining, financial market conditions have tightened and the economy is contracting, business investment will take it on the chin,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Business investment in equipment will drop sharply in the second quarter.”

Stocks on Wall Street were trading mostly higher, with investors comforted by the huge stimulus package. The dollar .DXY fell against a basket of currencies. U.S. Treasury prices were mostly trading higher.

ABRUPT HALT

The coronavirus, which causes a respiratory illness called COVID-19, has brought the economy to a abrupt halt, with governors in at least 18 states, accounting for nearly half the country’s population, ordering residents to stay mostly indoors.

“Non-essential” businesses have also been ordered closed, leading to massive unemployment and a rush to apply for jobless benefits. A survey by data firm IHS Markit on Tuesday showed its gauge of U.S. business activity dropped to a record low in March. Some analysts say the economy slipped into recession in March.

Recessions in the United States are called by the National Bureau of Economic Research. The NBER’s business cycle dating committee does not define a recession as two consecutive quarters of decline in real gross domestic product, as is the rule of thumb in many countries.

Instead, it looks for a drop in economic activity, spread across the economy and lasting more than a few months. Measures taken by the U.S. central bank to stem the slide include slashing interest rates to zero, promising bottomless dollar funding and implementing an array of programs to help keep companies afloat.

Business investment is taking a hit from a collapse in crude prices, thanks to the coronavirus and an oil price war between Russia and Saudi Arabia. A survey from the Dallas Fed on Wednesday showed a significant decline in activity in the oil and gas sector in the first quarter.

The survey’s measure of capital expenditures among exploration and production firms dropped to a reading of -49.0 in the first quarter from 9.1 in the October-December period. Its measure of the expected level of capital expenditures next year plummeted to -61.9 from 0.9 in the fourth quarter, as firms also cut expectations for capital spending in 2021.

“Prior to the global COVID-19 outbreak, the combination of muted global growth, persistent trade policy uncertainty and tariffs, the strong dollar and weak corporate profitability made for a very challenging backdrop for U.S. businesses,” said Lydia Boussour, a senior U.S. economist at Oxford Economics in New York. “We now believe the additional headwind posed by the coronavirus will lead to one of the largest pullbacks in capital spending in history.”

Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, accelerated 1.2% last month after gaining 0.1% in January. They were boosted by a 4.6% rebound in orders for transportation equipment, which followed a 0.9% decline in January.

Orders for civilian aircraft slipped 0.3% last month after soaring 356.7% in January. Motor vehicles and parts orders accelerated 1.8% in February after falling 0.5%.

But orders for transportation equipment are set to weaken. Boeing (BA.N) has temporarily closed some its plants in Washington state, one of the states hardest hit by the coronavirus, and auto makers have shuttered factories to protect their workers from COVID-19.

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U.S. Senate to pass massive coronavirus bill on Wednesday: McConnell

WASHINGTON (Reuters) – The U.S. Senate will move to pass a massive coronavirus bill on Wednesday aimed at providing economic relief for individuals and companies amid the ongoing outbreak, U.S. Senate Majority Leader Mitch McConnell said.

“Today the Senate will act to help the people of this country weather this storm,” McConnell said in remarks on the chamber floor. “This is not even a stimulus package. It is emergency relief.”

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U.S. Senate to pass massive coronavirus bill on Wednesday: McConnell

WASHINGTON (Reuters) – The U.S. Senate will move to pass a massive coronavirus bill on Wednesday aimed at providing economic relief for individuals and companies amid the ongoing outbreak, U.S. Senate Majority Leader Mitch McConnell said.

“Today the Senate will act to help the people of this country weather this storm,” McConnell said in remarks on the chamber floor. “This is not even a stimulus package. It is emergency relief.”

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