Stocks Rally on Hope of Diminishing Deaths, But Many Remain Cautious

By:
Chris Gaetano
Published Date:
Apr 6, 2020
The Dow Jones Industrial Average surged Monday on hopes that the death toll from the COVID-19 pandemic might finally be past the peak, but many remain skeptical that this jump will avoid the spectacular falls that have often followed previous surges.

The Wall Street Journal reported that the Dow Jones Industrial Index, as of midday, rose by over 1,000 points, a 4.8 percent gain, while the S&P 500 climbed by 4.6 percent and the Nasdaq grew by 4.5 percent. The Journal noted that several countries, such as Italy and Spain, are reporting fewer deaths than before, as is New York, with Sunday being the first time deaths have actually declined over the course of a day. However, some traders are cautioning that volatility remains high, as figures like cross-asset correlations indicate that markets remain under significant stress. Even with today's major gains, however, major indices remained below their pre-pandemic peaks; the Dow, for example, was still down 20 percent from its previous high at midday Monday.

Another spot of relative calm has been, after major action from the Federal Reserve, the bond market. Baron's said that the panic that's been gripping the corporate bond market as credit became harder to access seems to be abating in response to news that the central bank would take the unprecedented step of directly buying debt. Record-setting withdrawals from bond funds seems to be slowing down, and billions of dollars worth of investment-grade bonds have started entering what, for weeks, had been the financial version of a ghost town. The Journal noted, however, that this springback has not been evenly distributed, as this news only really applies to the most safe and credit-worthy companies. Riskier parts of the market remain in flux, which might be fine if not for the fact that the high-yield, or junk, bonds make up between 10 percent to 15 percent of the entire corporate debt market, depending on analysis.

Further, even if current economic figures remain rosy, people must still contend with the major economic damage that has already happened. A recent report found that eight in 10 U.S. counties, representing nearly 96 percent of national output, are on lockdown orders, which has resulted in a 29 percent fall in daily output compared with the first week of March. What's more, this is likely an optimistic reading, as it only accounts for losses due to abrupt business closures and does not include factors such as incoming demand-side shocks from increased unemployment.

Major economic players continue to make dire predictions. Former Fed Chair Janet Yellen, for example, recently said that the pandemic could result in a second-quarter GDP decline of 30 percent. Economists with Citi, meanwhile, say that the world economy could see a 50 percent reduction in earnings. Jamie Dimon, JPMorgan Chase CEO, said that the COVID-19 pandemic will likely lead to a long and painful recession that will, at minimum, resemble the 2008 financial crisis. Fortune is reporting that some economists are even pondering the possibility of an actual depression.

More concretely, prices for staple foods such as rice and grain have been making rapid leaps in many parts of the world, according to Bloomberg. While overall food prices are actually a little lower due to deflationary pressures on many producers, this has not been uniform: For instance, the price of rice has been steadily rising for months, with Nigeria seeing a 30 percent increase at the retail level in just the last four days of March alone. Meanwhile, wheat futures rose more than 8 percent last month, and the price of Canadian durham wheat, used in pasta and couscous, is higher than it's been in three years. Wholesale prices for eggs and beef have also been climbing. These price increased have been attributed less to lack of supply and more to the inability of people to move that supply into areas where it's needed, combined with surging demand as people everywhere stock up on supplies.

This has meant increasing food insecurity in a world where millions upon millions were already facing difficulty getting the food they need even before the virus. Food relief organization Feeding America said that there were 37 million Americans in 2018 who experienced some form of food insecurity. The group estimated that if unemployment increases by 1.1 percentage points and poverty increases by 1.5 percentage points, 4.1 million more people will experience food insecurity; if it increases by 4.5 percent alongside a 2.6 percent poverty increase, that number will grow to 10.6 million more; and if unemployment increases by 7.6 percent and poverty increases by 4 percent, that number will be 17.1 million. CNN recently reported that food banks across the country are struggling with surging demand, 40 percent on average, while donations from food manufacturers have dropped by half.

Rent payments have also become a pain point in the economy, as a poll from small business social media platform Alignable (commissioned by the Wall Street Journal) found that about half of U.S. small businesses did not pay their full April rent. However, the residential rent side of things seems to be holding a little more steady, as Crain's NY is reporting that only 10 percent of tenants have not paid their April rents in full and on time. Related Companies, which is the largest holder of affordable housing stock in the country and is behind major projects like Hudson Yards, has reported that 88 percent of its residential rents due in April have been paid, as have 95 percent of commercial rents (though it said that only 26 percent of retail tenants have done so). While the CEO said the crisis is not an excuse not to pay rent, some other landlords are opening their hearts by suspending payments voluntarily.

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