Stocks were poised to extend losses Monday after posting their worst week since the financial crisis, as Congressional legislation to fight the coronavirus pandemic hit an impasse in Congress.
On Sunday evening, futures for the Dow Jones industrial average tumbled more than 900 points while Standard & Poor’s 500 futures fell 5%, triggering an automatic shock absorber.
Investors were monitoring negotiations between Congress and the White House in hopes of a resolution on a $1 trillion-plus economic rescue package that aims to soften the economic damage from the virus. The package, however, failed to get enough votes in a key Senate procedural vote late Sunday.
Investors are looking for the number of infections to slow before markets can bottom, analysts say. The U.S., which confirmed more than 31,000 cases and 390 deaths as of Sunday afternoon, trailed only Italy and China in reported infections.
“No one knows how long it will take for this to subside,” says Sean O’Hara, president of Pacer ETF Distributors at Pacer Financial. “What matters is how long we’re going to continue to stifle economic activity as a result of the spread of this virus. Until we open up commerce again, there’s not much Congress can really do. Those measures will certainly be helpful once we’re on the other side of this, but the market won’t bottom until the number of new cases peak.”
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Other news also unnerved markets. Sen. Rand Paul became the third member of Congress to test positive for the virus. German Chancellor Angela Merkel, meanwhile, was quarantined after a doctor who gave her a vaccination on Friday tested positive for the virus.
“The key issue to look out for in the ongoing U.S. fiscal negotiations is the speed with which any fiscal package will arrive in the hands of companies and consumers,” Torsten Slok, chief economist at Deutsche Bank Securities, said in a note. “The longer it takes, the deeper the ongoing slowdown will be.”
Global financial markets are likely headed for more turbulence this week as investors assess the economic fallout from business closures and layoffs. U.S. unemployment aid applications, released Thursday, are projected to surge to more than 2 million in the latest week, Goldman Sachs analysts forecast.
Investors have fretted over how badly the economy will get hit by the deadly pandemic and how many companies may go into bankruptcy due to a cash crunch. Wall Street is fearful that the virus will push the U.S. into recession.
St. Louis Federal Reserve President James Bullard predicted the U.S. unemployment rate could skyrocket to 30% in the coming months, a level worse than the peak of the Great Depression in the 1930s.
The Federal Reserve has made a series of emergency moves in recent weeks in an effort to shield the U.S. economy from a downturn, including cutting interest rates to near zero and launching a fresh round of crisis-era bond purchases.
“The massive amounts of stimulants being injected into the financial markets will likely avoid a total collapse of the global economy,” Peter Cardillo, chief market economist at Spartan Capital Securities, said in a note. “It is, however, too late to forestall a moderate to shallow recession, which has already started.”
Worldwide cases of confirmed coronavirus surpassed 328,000, and there were more than 13,700 deaths, according to the Johns Hopkins University data dashboard.
New York state has more cases than France or South Korea. The number of confirmed COVID-19 cases in New York has risen to 15,168, and the death toll in the state is 114, both highest in the nation.
Late Sunday, President Donald Trump said he activated the National Guard in California, New York and Washington to fight the outbreak.