The New York Stock Exchange ended sharply lower Tuesday as fears of a new epidemic of Covid-19 are worrying investors because of the new cases discovered in China and the cautious remarks of Doctor Fauci, who advises the White House. For his part, Donald Trump continues to increase the encouragement for a reopening of the American economy.
The indices widened their losses during the last hour of trading, the Dow Jones index losing 1.89% to 23,764 points, while the broad S&P 500 index fell 2.05% to 2,870 points. The Nasdaq Composite lost 2.07% to 9,002 points, ending 6 sessions of consecutive increase.
After the day’s correction, the Nasdaq has gained 0.3% since the start of the year, while the DJIA has lost 16.7% and the S&P 500 has lost 11%.
During a hearing before the Senate by videoconference, Dr Fauci estimated on Tuesday that “the consequences could be very serious” if spread is too rapid in an American state, a city or a region. If the economy starts up again in places that “do not have the capacity to respond effectively (to the health crisis: note), I fear that we will see small outbreaks that could become epidemics” of coronavirus, he added.
“We don’t know everything about this virus, and we should really be very careful, especially about children,” he said. “You have to be careful when you think that children are completely immune to its harmful effects,” he insisted. He also warned that the death toll in the United States, the country most affected by the pandemic, was “probably higher” than the 80,000 official deaths, notably taking into account the cases of people who died at home.
On Monday, Dr Fauci issued an even darker warning, telling The New York Times that the United States would risk “unnecessary death and suffering” if it lifted the restrictions “prematurely”.
The caution of Dr. Fauci, a highly respected figure in the United States, contrasts with the impatience displayed in recent weeks by Donald Trump to “reopen the American economy”. On Tuesday morning, the American president again enthusiastically tweeted that “our testing capacity is the best in the world, by far. The numbers are falling in most regions of our country, which wants to reopen and restart. This is what is happening safely! “, he said.
The president has multiplied the tweets on a range of subjects, in particular once again calling for negative rates from the Fed. “As long as other countries enjoy the benefits of negative rates, the United States should also accept the ‘GIFT’
He also welcomed the recent rebound in oil prices. “Crude Oil prices are rising as Saudi Arabia cuts production levels. Our large Energy Companies, with millions of JOBS, are starting to look good again. At the same time, gas prices are at historically low levels (like a big tax cut). The BEST of worlds. ‘Transition to greatness’ “.
Finally, Donald Trump supported Elon Musk, the boss of Tesla, who intends to reopen his factory in Califonia, bypassing the ban by the authorities of this state. Trump therefore believed that “California should let Tesla & Elon Musk open the plant, NOW. It can be done Quickly & Safely!”
Experts are divided on the ability of the equity markets to continue their rebound, given the expected sharp decline in corporate profits in the coming quarters, and the likelihood of a severe recession in 2020, despite a rebound of activity expected in the second half.
For a week, many members of the Federal Reserve have multiplied the cautious speeches, evoking an economy very seriously weighed down, in particular by a historic unemployment rate, and a recovery which promises to be very gradual because of the uncertainties on the sanitary level. Fed chairman Jerome Powell will be eagerly awaited on all of these issues on Wednesday at a conference on the economic situation organized by videoconference by the Petersen Institute.
Among the latest statements, the chairman of the St. Louis Fed, James Bullard, said on Tuesday that an extension of the containment measures would lead to “large-scale business bankruptcies and create a risk of economic depression”. Minneapolis Fed boss Neel Kashkari warned that the economic recovery would be “gradual and timid” while Dallas Fed chairman Robert Kaplan said Tuesday the economy will need more government support if the unemployment rate continues to climb. The unemployment rate jumped in April to 14.7% in the United States against 4.4% a month earlier, a record figure of 20.5 million jobs having been destroyed due to the Covid-19 crisis. Robert Kaplan also joined his voice to those of other Fed officials, firmly rejecting the possibility of negative interest rates.
On the macroeconomic front on Tuesday, the consumer price index in the United States for the month of April 2020 came out down 0.8% compared to the previous month, in line with the market consensus. Excluding food and energy, the American CPI for the month of April fell for its part by 0.4% compared to the previous month, against a consensus of -0.2%.
In addition, the trade lull between the United States and China seems to be confirmed, a week after the sharp criticisms of Washington on the Chinese management of the health crisis of coronavirus. China on Tuesday presented an additional list of 79 US products that will benefit from tariff exemptions imposed at the height of the trade war.
China’s finance ministry said the waivers would take effect on May 19 and for one year. These new exemptions, provided for in the Phase 1 agreement signed in January, relate in particular to metals from rare earths, ores treated with gold and silver.