By Paul Vigna, Joe Wallace and Joanne Chiu
U.S. stocks rose and oil prices approached $20 a barrel Monday
after government officials signaled that measures to contain the
coronavirus pandemic are likely to remain in place for an extended
time.
The Dow Jones Industrial Average rose 3.2%, or 688 points, to
22325 finishing the session near its high for the day, while the
S&P 500 added 3.4%. Both indexes have rallied more than 15%
since bottoming a week ago but remain down more than 20% from their
February records as the pandemic has closed businesses, reduced air
travel and pushed millions of people to work from home.
The White House on Sunday extended its social-distancing
guidelines through the end of April. The move marks a shift in
stance for President Trump, who had said that he hoped to ease some
restrictions by Easter to limit the economic damage.
U.S. crude-oil futures hit their lowest level in more than 18
years, as analysts forecast that quarantine measures are leading to
the biggest decline in oil demand in history. Oil settled down 6.6%
to $20.09 a barrel Monday, a level last seen in February 2002.
What is becoming clear is the pandemic is going to force a "very
deep recession," said Nariman Behravesh, chief economist at
research firm IHS Markit. The firm expects second-quarter gross
domestic product to contract 20% to 25%, and the third quarter to
decline as well.
The market hasn't, however, digested how slow the recovery will
be, he said. The lockdowns may not end until the summer, he said.
Myriad industries will be ravaged. Restarting supply chains will be
slow, and capital spending likely restrained. People are going to
be hesitant to go out in large group settings and reluctant to
spend, he added.
"We'll be on a lower trajectory for a long time," Mr. Behravesh
said.
The end of the first quarter, on Tuesday, will also test many
businesses' ability to pay bills. Traders, meanwhile, are bracing
for fresh constraints on liquidity in some financial markets as
investors take stock of portfolios and banks assess their balance
sheets at the end of March.
Oil prices came under renewed pressure as the restrictions on
business activity in most economies -- combined with the threat of
elevated production levels from Saudi Arabia and Russia -- raised
the prospect of a longer downturn in fuel markets.
Global oil demand is set to drop by 12 million barrels a day in
the second quarter in the steepest decline on record, according to
analysts at Bank of America. With production also set to pick up,
the bank forecasts that both U.S. and global crude futures will
fall below $20 a barrel in the coming months and the world may run
out of storage space for oil.
The price of oil is the market other traders are watching today,
said Art Cashin, the head of UBS' floor operations at the NYSE, in
a morning note. Traders are guessing there may be a "major test" at
the $17-$18 level, he said.
That level was the bottom of the late 2001-early 2002 trading
range -- U.S. crude closed at $17.45 on Nov. 15, 2001.
Despite the moves in equities, though, stock prices don't yet
reflect the level of disruption to business activity taking place
in the U.S., said Sophie Huynh, a strategist at Société
Générale.
Shares of U.S. air carriers including United Airlines Holdings,
Delta Air Lines and American Airlines Group fell Monday as the
companies cut flight schedules and looked for other ways to pare
costs, including eliminating jobs and cutting pay.
Among other movers, Abbott Laboratories jumped 6% after the
drugmaker said the U.S. Food and Drug Administration had approved
an emergency-use coronavirus test. Johnson & Johnson rose 7.2%
after the company said it had made progress on a vaccine to prevent
Covid-19 and that the product could be ready in early 2021.
In Europe, the pan-continental Stoxx Europe 600 index rose
1.3%.
In Asia, Japan's Nikkei 225 index, which logged its best week in
its history last week, pulled back 1.6%. Hong Kong's Hang Seng
Index and the Shanghai Composite in mainland China also
retreated.
In another sign of investor caution, the yield on the 10-year
U.S. Treasury note, a security that is seen as a haven, fell to
0.687% from 0.744% Friday.
Markets have entered a new phase in their response to the
pandemic, said James McCormick, a strategist at NatWest Markets.
After governments and central banks took extraordinary steps to
backstop livelihoods and the financial system in March, investors
are now attempting to assess the economic impact of the worsening
pandemic and the effectiveness with which these stimulus packages
are deployed.
"In April, we're settling into understanding a bit more about
the growth impact and looking hopefully for some signs of
flattening of the infection and mortality curves," Mr. McCormick
said.
Investors are awaiting a series of data releases this week that
will start to reveal the economic strain exerted by the pandemic
and measures to contain the spread of the virus. In the U.S.,
surveys of purchasing managers are expected to show a steep decline
in manufacturing activity, while jobless claims are likely to rise
again after last week's record surge.
Whatever damage may lie ahead for the economy, the unprecedented
moves by the Federal Reserve and other central banks likely means
the market's bottom is already in, said Thomas Kee, president of
market-analysis firm Stock Traders Daily.
"The time to play defense is already past," he said. "When you
have an unlimited buyer at the other end of the table that doesn't
care about risk or valuation, you can't really fight that."
Write to Paul Vigna at paul.vigna@wsj.com, Joe Wallace at
Joe.Wallace@wsj.com and Joanne Chiu at joanne.chiu@wsj.com
(END) Dow Jones Newswires
March 30, 2020 16:17 ET (20:17 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.