Category Archives: Finance News

Dow futures fall more than 200 points after market posts worst first quarter on record

U.S. stock futures moved lower in overnight trading and pointed to declines at the open on Wednesday, following the end of the worst first quarter on record for the Dow and S&P 500 spurred by the coronavirus sell-off.

Dow Jones Industrial Average futures fell more than 1.2%, indicating a loss of about 220 points. The S&P 500 and Nasdaq were also set to open lower, with losses of 25 points and 55 points, respectively.

President Donald Trump said Tuesday evening the U.S. should prepare for a “very, very painful two weeks” from the rampant coronavirus. 

“This is going to be a rough two-week period,” Trump said at a White House press conference. “When you look at night the kind of death that has been caused by this invisible enemy, it’s incredible.”

On Tuesday, the Dow fell 410 points or 1.8% to 21,917.16, weighed down by American Express, which dropped more than 5%. The S&P 500 fell 1.6% to 2,584.59 and Nasdaq Composite dropped nearly 1% to 7,700.10. At its session high, the Dow was up more than 150 points. 

The Dow secured its worst first-quarter performance ever, losing more than 23% of its value in the first three months of 2020. The 30-stock benchmark had its worst quarter since 1987. The S&P 500 fell 20% in the first quarter, its worst first quarter ever and its biggest quarterly loss since 2008. The Nasdaq fell more than 14% in the first quarter. 

DoubleLine Capital CEO Jeffrey Gundlach said that the coronavirus driven market rout will worsen again in April, taking out the March low. 

“The low we hit in the middle of March … I would bet that low will get taken out,” Gundlach said in an investor webcast on Tuesday. “The market has really made it back to a resistance zone. … Take out the low of march and then we’ll get a more enduring low.”

The coronavirus pandemic has caused a nationwide shutdown of the economy, halting business production and leaving millions of American workers unemployed. The unprecedented societal disruption has caused financial distress and volatility never seen before, ultimately causing the wort first quarter in history for both the Dow and the S&P 500. 

“The quarter will be remembered as the fastest and greatest drop in the stock Market for the start of any post-war bear market,” said Jim Paulsen, chief investment strategist at the Leuthold Group. “This reflects the fact that this Bear is the only one cause by a recession which was simply ‘proclaimed’ as leaders announced they were essential shutting down the economy. Since a recession was ensured, the Bear skipped all its normal foreplay and simply went right to the end fully reflecting a recession almost immediately.” 

U.S. oil experienced its worst month and quarter in history, losing more than 66% of its value in the first three months of the year. Demand has evaporated due to the coronavirus outbreak and a price war between Saudi Arabia and Russia. 

Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, told CNN that he is starting to see “glimmers” that social distancing is helping to lessen the spread of the coronavirus. Meanwhile, U.S. cases of the fast-spreading virus have topped 177,000, according to Johns Hopkins University. The death roll from the virus in America has surpassed 3,400. 

Wall Street also posted sharp losses for the month. The Dow and S&P 500 fell 13.7% and 12.5%, respectively, in March for their worst one-month declines since the 2008 financial crisis. 

However, stocks have managed to rally towards the end of month. Investors are hoping the market has bottomed, with many strategists expecting a “V” shaped recovery, a sharp drop in GDP in the second quarter and a swift snapback in the third quarter. The so-called bond king Gundlach called those estimates “highly, highly optimistic.” 

On Wednesday, private payroll data is expected to show an evaporation in job creation. Moody’s ADP Employment data for March will be released, with economists expecting a fall of 125,000 jobs, compared to April’s addition of 183,000 non-government jobs. Markit Manufacturing PMI and ISM manufacturing index for March will also be released on Wednesday. 

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Jeffrey Gundlach says the coronavirus sell-off will worsen again in April, taking out the March low

Jeffrey Gundlach speaking at the 2019 SOHN Conference in New York on May 6th, 2019.

Adam Jeffery | CNBC

DoubleLine Capital CEO Jeffrey Gundlach believes the coronavirus sell-off is not over yet and the market will hit a more “enduring” bottom after taking out the March low.

“The low we hit in the middle of March… I would bet that low will get taken out,” Gundlach said in an investor webcast on Tuesday. “The market has really made it back to a resistance zone … Take out the low of March and then we’ll get a more enduring low.”

The S&P 500 tumbled into a bear market in the fastest pace ever as the coronavirus pandemic caused unprecedented economic uncertainty. The equity benchmark hit a three-year closing low of 2,237.40 on March 23, more than 30% from its record high reached in February. 

The so-called bond king compared the current stock rout to the ones in 1929, 2000 and 2007. He said during 1929 sell-off, the market “went sideways” for almost a year and then the economy worsened again.

Gundlach said earlier this month that there’s a 90% chance the United States will enter a recession before the year is over due to the coronavirus pandemic.

DoubleLine had $148 billion in assets under management as of the end of 2019, according to its website.

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4 ways the coronavirus law pays small businesses to keep workers

A tattoo parlor is temporarily closed in the Brooklyn Borough of New York, U.S., on Friday, March 20, 2020. Photographer: Gabby Jones/Bloomberg via Getty Images

Bloomberg

The $2 trillion coronavirus relief law signed by President Trump last week has several incentives for struggling businesses to retain their employees instead of laying them off.

The financial help in the CARES Act includes forgivable loans for small businesses, tax credits and deferrals, and measures around unemployment. They come as employers are getting walloped by the economic fallout from COVID-19.

“I see an emphasis in a lot of the provisions of the bill as trying to keep people employed during this period,” said Susan Houseman, director of research at the W.E. Upjohn Institute for Employment Research. “Having people there, ready to work, ready to go, will speed a recovery” of the economy, she added.

Small business loans

The provision that may be most effective is a $350 billion loan program for sole proprietors, independent contractors, self-employed individuals, nonprofits and businesses with fewer than 500 employees, experts said.      

The low-interest loans, created under the Paycheck Protection Program, offer up to $10 million to fund certain business expenses incurred between Feb. 15 and June 30.

Business owners may qualify to have some or all of their loan forgiven, for the portion used to cover payroll costs (excluding wages over $100,000), rent, utilities and mortgage interest — over an eight-week period.

Having people there, ready to work, ready to go, will speed a recovery.

Susan Houseman

director of research at the W.E. Upjohn Institute for Employment Research

But the amount of canceled debt, which would occur via a grant, largely depends on how many workers the business retains and the extent to which it reduces their salaries.

“You have to keep your payroll intact,” said Jay Shambaugh, an economist at the Brookings Institution, a think tank. “The amount of loan forgiveness gets reduced if you reduce your payroll substantially.”

Borrowers who laid off workers can reinstate their jobs and salaries by June 30 to recover credit toward loan forgiveness, according to David Newman, a partner at the law firm Morrison & Foerster.

The loan forgiveness is also excluded from a business owner’s gross income for tax purposes, Newman said.  

Similarly, a separate $500 billion loan program — the Coronavirus Economic Stablization Act of 2020, which gives assistance to airlines and other industries — stipulates that some borrowers must keep at least 90% of their employees through Sept. 30, according to Newman.

The Small Business Administration website has more details on the Payroll Protection Program and other loan assistance programs. The agency is expected to provide additional PPP guidance in the coming days, experts said.

A sign alerts bar customers that it is closed due to the coronavirus outbreak in Washington, D.C., U.S., on Tuesday, March 17, 2020. Photographer: Andrew Harrer/Bloomberg via Getty Images

Bloomberg

Employee retention tax credit

Businesses and nonprofits that retain workers during the coronavirus health crisis can get a refundable payroll tax credit.

The credit, available through 2020 to ailing businesses, is equal to 50% of quarterly employee wages (up to $10,000 per worker). (It’s not available for businesses that also get a loan through the Paycheck Protection Program.)

The credit can be claimed against quarterly payroll taxes. The Treasury can make advance payments of the tax credit, and waive penalties for employers who don’t pay applicable payroll taxes in anticipation of receiving the credit.

Tax deferral

The CARES Act also allows small businesses to defer some payroll taxes this year.

Employers can defer their portion of the Social Security payroll tax — a 6.2% rate in 2020.

The measure won’t necessarily save firms money because they must pay the tax later. But it could help free up cash for struggling businesses, and firms only get the benefit to the extent they have workers on payroll, experts said.

Unemployment

The CARES Act gives federal money to states to pay unemployment benefits through “short-time compensation programs.”

These programs pay benefits to workers whose hours are reduced, typically by around 40% to 60%, depending on the state, Houseman said.

Short-time compensation programs are currently available in around half of states. Businesses offer them voluntarily.

But federal reimbursement gives an incentive for the remainder of states to quickly adopt these programs, and for employers to then offer them, Houseman said. That would prevent outright layoffs and give a financial backstop to supplement employees’ part-time income.

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Eligible furloughed workers and those who receive drastic cuts to work hours (more than 60%) can also expect bigger unemployment checks as a result of the new law.

Unemployment benefits replaced about 40% of wages for the average worker prior to the new law, according to the House Ways and Means Committee. The CARES Act aims for unemployment benefits to replace around 100% of the average worker’s salary.

“Now, furloughing employees doesn’t mean they’ll be taking this massive pay cut,” Shambaugh said.

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Stocks making the biggest moves midday: Dollar Tree, RH, Amarin, Conagra, Noble Energy & more

Check out the companies making headlines in midday trading. 

Dollar Tree — Shares of the discount retailer fell more than 7% after Dollar Tree withdrew its guidance for the year due to uncertainty around the fast-spreading coronavirus. 

Amarin — Shares of Amarin tanked 70% after the pharmaceutical company received an unfavorable ruling from a Nevada court in a patent case involving its fish oil drug Vascepa, used to treat patients with high triglyceride levels. The court ruled in favor of Hikma Pharmaceuticals and Dr. Reddy’s Laboratories, which want to make generic versions. Amarin said it would pursue all available legal remedies.

Noble Energy — Shares of the oil exploration and production company rose 16% on the back of a move higher in crude. Oil prices jumped on Tuesday – one day after falling to 18-year lows – following a phone call between President Donald Trump and Russian President Vladimir Putin in which declining oil prices were discussed. Other advancers in the oil patch included Devon Energy and Diamondback Energy, which were each up more than 14%.

Domino’s Pizza — Shares of the pizza chain Domino’s sunk more than 6% after it said it is withdrawing its 2020 financial guidance. “Due to the current uncertainty surrounding the global economy and the Company’s business operations considering COVID-19, the Company is withdrawing its fiscal 2020 guidance measures,” the company said. Domino’s has kept many U.S. locations open during the pandemic but many international stores remain closed.

Conagra Brands — Shares of the food company jumped more than 4.5% after Conagra said it expects to exceed its full year sales and profit guidance. The company’s announcement comes amid many other businesses lowering or eliminating their 2020 guidance due to the coronavirus. Despite the optimistic outlook, Conagra missed on the top and bottom lines of its quarterly earnings. 

Dollar General — Shares of Dollar General rose more than 4% after Wells Fargo upgraded the discount retailer to overweight from equal weight. Wells Fargo called Dollar General the “best stock in the consumer arsenal” if the coronavirus leads to more economic headwinds.

RH — The furniture company cratered more than 11% after it withdrew its full year guidance and said lower traffic hurt its quarterly revenue. RH reported revenue of $665 million, lower than the $709 million expected by analysts, according to Refinitiv. 

Cheesecake Factory — Shares of the chain restaurant company rose 5% Tuesday after the stock was upgraded to buy from hold at Gordon Haskett. The firm said in a note that the company has already announced the bad news — namely furloughs and issues paying rent — that will soon hit many restaurant companies, which has led to an “exaggerated sell-off.”

Carnival, Norwegian Cruise Line — Shares of Carnival jumped more than 9% after the company announced that it was issuing two sets of bonds and a secondary stock offering to raise $6 billion in cash. The company also announced that it was suspending its dividend. Rival Norwegian saw its shares rise 7.3%, after extending its voluntary suspension of cruises through May 10. 

American Airlines — Shares of American Airlines rose nearly 3% after Reuters reported the airline plans to apply for up to $12 billion in government assistance. That would mean no involuntary layoffs or pay cuts over the next six months.

Zoom Video — High-flying, stay-at-home stock Zoom Video sunk 3.5% after the New York Times reported that Zoom’s privacy practices are being investigated by the New York State Attorney General’s office. 

— With reporting from Jesse Pound, Yun Li and Pippa Stevens. 

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