The Washington Post - 19.03.2020

A20 eZ SU THE WASHINGTON POST.THURSDAy, MARCH 19 , 2020

by slashing interest rates to near

zero and reviving a financial cri-

sis-era “quantitative easing pro-

gram,” and on Tuesday the central

bank announced plans for a spe-

cial fund to keep credit flowing

during the coronavirus outbreak.

“The longer the economy is in a

deep freeze, the strain is only go-

ing to increase,” said Heppenstall.

“There’s just so much uncertainty

surrounding the coronavirus. It

makes it hard f or anyone t o plan.”

European markets also tanked

Wednesday as governments i ntro-

duced sweeping, blank-check

stimulus moves to prop up their

economies, with the benchmark

Stoxx 600 index closing down

more than 4 percent a s oil and gas

stocks plunged. Germany, Spain

and the United Kingdom have

hurled h undreds o f billions in res-

cue package funding at the virus.

French President Emmanuel Ma-

cron went so far as t o promise that

no French company will be al-

lowed to fail because of the coro-

navirus impact, saying t he govern-

ment would provide assistance

through loans or delayed tax pay-

ments a nd even n ationalize indus-

tries to keep them afloat.

Yields on I talian debt rose to 2.

percent, roughly twice what they

were less t han o ne week ago.

“People are panicked,” said

Nancy Te ngler of Te ngler Wealth

Management. “If there’s too much

stimulus, then the market take is

things must be really bad. And if

there’s n ot enough, then t here’s n o

leadership. People are worst-case-

scenario-ing it.”

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about the effect on voters’ invest-

ment accounts.

As late as Feb. 24, the president

took to Twitter to talk up stock

prices, tweeting: “Stock market

starting t o look very good to me.”

The Dow has lost more than

8,000 p oints since then.

Shares of Boeing, once the

showcase of the bull market,

closed just below $102, less than

one-quarter of its March 2 019

peak. Trump has pledged federal

aid for the wheezing aerospace

giant.

“If 2008 was the Great Finan-

cial Crisis, this is the Great Virus

Crisis,” said Ed Yardeni, president

of Yardeni Research. “It’s all at

once a health crisis, financial crisis

and e conomic crisis. We n eed to fix

the h ealth part o f it before we have

it solved, but w e can t ake financial

and f iscal s teps to blunt its effects.

We a re starting to do that n ow.”

All t hree m ajor U.S. stock index-

es are in a correction, having de-

clined beyond 20 percent from

their highs.

The Dow marked its eighth

straight d ay o f 1,000-point swings,

which was considered unthink-

able until recently. Stocks are

moving on e very news conference,

financial proposal, headline and

medical utterance. The blue chips

closed up more than 1,000 points

Tuesday off news of a $1 trillion

stimulus proposal from the White

House.

But that gain was wiped out

Wednesday, as investors sold

stocks despite extreme govern-

ment intervention aimed at cush-

ioning the economy against a cor-

onavirus-fueled recession. The

Federal Reserve began the week

jumped.

Some analysts said concern

over Washington’s u nprecedented

spending plans, which will bal-

loon the already swollen federal

budget deficit and debt, were be-

hind the l atest moves.

“Global fixed income markets

this morning have lost confidence

in the ability of the governments

of the world to finance the fiscal

stimulus they are proposing,” Carl

Weinberg, chief international

economist for High Frequency

Economics, wrote in a note to

clients. “Traders, investors and

speculators h ave looked at t he size

and cost of the fiscal stimulus

proposed b y the United S tates and

other governments — especially

Italy — and decided to sell sover-

eign debt of all kinds.”

Investors said corporate debt

markets also are n ot yet operating

smoothly. Companies have taken

advantage of record-low interest

rates in recent years to load up on

debt. That s trategy worked well s o

long as short-term borrowings

could b e periodically r efinanced.

Now, some cash-strapped com-

panies that are not earning

enough to make their loan pay-

ments may struggle to roll over

their debt, said Anne Van Praagh,

head of global credit strategy for

Moody’s Investors S ervice.

Like most investors, Moody’s

anticipates a wave of credit down-

grades and corporate debt de-

faults. Energy companies hit by

the abrupt oil price decline and

businesses that are most exposed

to the evaporation of consumer

spending — such as airlines, ho-

tels, cruises and automakers —

face the g reatest risk.

BY DAVID J. LYNCH,

THOMAS HEATH

AND TAYLOR TELFORD

Mounting signs of an unprece-
dented global economic contrac-
tion sent financial markets tum-
bling Wednesday, w ith stocks c los-
ing at their lowest point since
President Trump’s second week in
the White House.
The Dow Jones industrial aver-
age sank n early 1,339 points, o r 6.
percent, to finish at 19,898.92.
Both the broader Standard &
Poor’s 5 00 i ndex and t he technolo-
gy-laden Nasdaq lost about 5 per-
cent. Trading at one point was
halted for the fourth time in six
sessions when stocks tripped a
circuit-breaker designed to pre-
vent p anic selling.
Bond prices also fell, sending
yields higher, and oil prices
plunged to an 18-year low amid
continued uncertainty over the
duration of the coronavirus shut-
down.
Even the prospect o f roughly $
trillion in emergency federal aid,
including $1,000 checks for tax-
payers and an airline industry
bailout, was n ot enough to halt the
retreat. D ire predictions about t he
global pandemic’s spread and its
likely economic toll discouraged
traders.
After growing without inter-
ruption since mid-2009, the U.S.
economy probably will shrink in
the second quarter at an annual
rate of 14 percent — a staggering
decline that exceeds the worst of
the global financial crisis, accord-
ing to economists at JPMorgan
Chase. A sudden stop that began
in China, where t he v irus o riginat-
ed, is now rippling through the
United States, Europe and vulner-
able emerging markets, likely
shrinking global output for the
entire year.
Thursday’s Labor Department
report of initial jobless claims is
expected to show evidence of the
first layoffs triggered by the pan-
demic. Ian Shepherdson, chief
economist for Pantheon Macro-
economics, said he expects claims
to reach 250,000 this week, up
from 211,000 last week, and to top
1 million next week.
“The thing that has me the m ost
concerned is t he s peed and severi-
ty of what’s playing out here,” said
Gibson Smith, a prominent bond
fund manager with Denver-based
Smith Capital Investors. “There’s
just a lot of s tress in t he system.”
Indeed, markets for U.S. gov-
ernment and corporate debt
strained to handle a flood of sell
orders. Investors sold 1 0-year
Treasury securities to raise cash,
sending p rices down a nd yields u p
to 1.2 percent. The 10-year yield
has more than doubled since
March 9, when stocks and bonds
began plunging in tandem. Bond
prices and yields m ove i n opposite
directions.
Treasurys have been whip-
sawed during the coronavirus
pandemic as investors seeking a
haven initially drove bond prices
up and yields down, said Mark
Heppenstall, chief investment of-
ficer of Penn Mutual Asset Man-
agement. In the past week, as in-
stitutional investors sought to
raise cash by selling Treasurys,
prices sagged while yields

Economy & Business

HoUSINg

Fannie, Freddie to

suspend foreclosures

Fannie Mae and Freddie Mac
will suspend f oreclosures on
mortgages they guarantee for 6 0
days, adding to the federal
government’s a ggressive response
to aid Americans hit hard by the
economic p ain o f the novel
coronavirus.
The mortgage giants, which
backstop about $ 5 trillion o f
home loans, will also s uspend
evictions on rental properties,
their regulator, the Federal
Housing Finance Agency, s aid in a
statement Wednesday. The two-
month pause o n foreclosures and
evictions is meant t o help
struggling c onsumers who are
facing the r isk of job cuts and lost
income.
“This foreclosure and e viction
suspension allows homeowners
with an Enterprise-backed
mortgage to stay i n their homes
during this national emergency,”
FHFA Director Mark C alabria

said in the s tatement.

Calabria urged borrowers

affected by t he coronavirus to

reach o ut to their mortgage

servicers as soon a s possible,

adding that Fannie a nd Freddie

are working with such c ompanies

to provide assistance.

— B loomberg News

wALL STReeT

Money managers

amass cash in buyouts

Alternative m oney m anagers

have amassed s ome $2.1 trillion of

cash, w ith a bout $ 700 b illion o f

that concentrated in b uyout

strategies, Morgan Stanley said i n

a report published Wednesday.

Shares of t he m oney managers

are trading a t attractive levels,

according to Morgan S tanley.

The firm r eiterated its b uy-

equivalent rating on Blackstone

Group, Hamilton Lane and

Partners G roup and said i t is

becoming more positive on h old-

rated Apollo Global Management.

Coronavirus f ears have ravaged

the b roader market, and money

managers are no exception,

underperforming the Standard &

Poor’s 5 00-stock index since Feb.

19.

But t he group stands t o gain

once the v olatility w anes and i t

can look for o pportunity in t he

wreckage.

That s aid, private equity f irms

will experience “high short-term

pain” u ntil the d ust settles and

opportunities e merge t o snap up

distressed companies and

distressed debt, said Steven

Kaplan, c o-founder of t he

entrepreneurship program at t he

University of Chicago Booth

School o f Business.

— Bloomberg N ews

eNeRgY

Lease sale draws

lowest bids since 2016

A major sale o f oil a nd gas

leases in the U.S. Gulf of Mexico

on Wednesday generated

$93 m illion i n high bids, the

lowest total for any U.S. o ffshore

auction s ince 2016, reflecting

caution i n the d rilling industry

amid a steep slide in oil p rices.

“While bidding did take a

tough hit, i t could have been

substantially w orse,” s aid Erik

Milito, p resident of t he National

Ocean Industries Association,

which represents the offshore oil

and g as drilling industry.

The more t han 78 million-acre

sale attracted b ids on 397,

acres, o r 0.5 percent of the total,

according to the U.S. Bureau of

Ocean Energy Management,

which a dministered the auction.

It w as the l owest n umber of

acres receiving bids during a lease

sale since the agency started

holding regionwide auctions in

2017.

— B loomberg News

ALSo IN BUSINeSS

Volvo is recalling more than

736,000 v ehicles worldwide

because the a utomatic e mergency

braking system may not d etect

obstacles and stop the vehicles as

designed. The recall covers

certain 2019 and 2020 S 60, V60,

S90L and V 90 models. Volvo says

in government d ocuments that a

software-hardware

incompatibility g litch c auses the

problem.Volvo says i t has n o

reports o f crashes or injuries.

— F rom news services

ComINg ToDAY

10 a.m.: Freddie Mac releases

weekly mortgage rates.

DIgeST

AntHonY WALLACe/AGenCe fRAnCe-PReSSe/GettY ImAGeS

A staff member sorts vegetables at Mapopo Community Farm in

Hong Kong on Wednesday. The farm was established in 2010 as part

of a protest against plans to develop rural areas.

Markets fall sharply amid unrelenting volatility

Nearly every asset class — stocks, bonds, oil — again come under siege, with the Dow industrials plunging more than 1,300 points

JUStIn LAne/ePA-efe/SHUtteRStoCK

Traders watch prices Wednesday at the opening bell of the New York Stock Exchange. All three major U.S. indexes are in a correction.

○

Dow 19,898.

DoWn 1,338.46, 6.3% ○

NASDAQ 6,989.

DoWn 344.94, 4.7% ○

S&P 500 2,398.

DoWn 131.09, 5.2% ○

goLD $1,477.

DoWn $47.90, 3.1% ○

CRUDe oIL $20.

DoWn $6.58, 24.4% ○

10-YeAR TReASURY

DoWn $8.10 PeR $1,000; 1.17% YIeLD

CURReNCIeS

$1= 108.08 Y en, 0.92 eURoS

BY CHRISTOPHER INGRAHAM

Financial experts warned

President Trump against taking

credit for Wall Street’s extraordi-

nary bull run since the beginning

of his administration. The fore-

most reason is that commanders

in chief have little actual control

over what happens in the mar-

kets.

From a purely political stand-

point, presidents have tended to

avoid claiming too much credit

for the markets because stocks

that go u p inevitably come down.

That’s a lesson Trump may be

learning this week: On Wednes-

day, the Dow Jones industrial

average came within 75 points of

his Inauguration Day close.

Nearly all of the Trump-era

gains, in other words, have been

erased.

On Jan. 20, 2 017, the Dow

closed at 19,827. It soared over

the next three years, peaking at

29,551 on Feb. 12 of this year.

Within a span of weeks, the Dow

plummeted roughly 10,

points — nearly one-third of its

value — as the coronavirus crisis

has played out. On Wednesday, it

shed another 1 ,334 points to

settle at 19,899.

By comparison, according to

investment research platform

Macrotrends, the Dow was up

65 percent at the same point in

President Barack Obama’s first

term. Under President Bill Clin-

ton, it had climbed 69 percent.

The only president since Ronald

Reagan to see worse market

performance at a comparable

point was George W. Bush, who

was leading the nation through

the aftermath of the Sept. 11,

2001, terrorist attacks.

Nearly all of these shifts are

due to factors outside a presi-

dent’s control. There are well-

documented cases in which a

market move can be unequivo-

cally tied to the commander in

chief’s actions. One of the most

recent happened last Wednesday

night, when Trump’s address to

the nation caused Dow futures to

drop in real time.

However, it is worth noting

that the stock market is a highly

imperfect metric for the econo-

my overall.

Fully half of Americans own

no stocks whatsoever, not even

through retirement accounts

such as a 401(k). Recent research

has shown the media’s stock

market obsession creates a por-

trait of the economy skewed

toward the interests of the rich,

leaving us with a poor under-

standing of how middle-class

Americans actually are doing.

christopher.ingraham

@washpost.com

ANALYSIS

As stocks go

south, how

will Trump

respond?

For better or for worse,

presidents have little

control over markets

“We’re going to go into a period

of severe and extensive credit

shock across many regions, sec-

tors and asset classes,” Van Praagh

said. “This is unprecedented.”

Amid unpredictable day-to-day

changes in m arket conditions, for-

mer Fed chairs Janet L. Yellen and

Ben Bernanke called for the cen-

tral bank to begin purchasing

high-quality corporate debt as

part of its economic rescue efforts

— something it has never before

done.

“The Fed’s intervention could

help restart that part of the c orpo-

rate debt market, which is under

significant stress,” the pair wrote

in the F inancial T imes.

Meanwhile, the Dow’s plunge

from its all-time high of 29,551 on

Feb. 12 has eliminated one of the

president’s favorite campaign ar-

guments. As stocks soared since

the 2016 election, Trump repeat-

edly took credit at campaign ral-

lies and in White House remarks.

He drew attention to the market

setting all-time highs and boasted

“The longer the

economy is in a deep

freeze, the strain is only

going to increase.

There’s just so much

uncertainty.”

mark Heppenstall, Penn mutual

Asset management