By Joe Wallace, Paul Vigna 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 2.2%, or 485 points, to
22122, while the S&P 500 added 2.6%. 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. Prices dropped 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 will contract 20% to 25%, and the third quarter
will 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.
U.S. crude-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.
U.S. air carriers including United Airlines Holdings, Delta Air
Lines and American Airlines Group fell as the companies cut flight
schedules and look for other ways to pare costs, including
eliminating jobs and cutting pay.
Among other movers, Abbott Laboratories jumped 7.2% after the
drugmaker said the U.S. Food and Drug Administration had approved
an emergency-use coronavirus test. Johnson & Johnson rose 6%
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
0.629% 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 Joe Wallace at Joe.Wallace@wsj.com, Paul Vigna at
paul.vigna@wsj.com and Joanne Chiu at joanne.chiu@wsj.com
(END) Dow Jones Newswires
March 30, 2020 15:11 ET (19:11 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.