U.S. stocks fell on Wednesday as dismal economic data and first-quarter earnings reports compounded concerns over the extent of damage from the coronavirus outbreak.
Shares of Bank of America and Citigroup Inc dropped as they joined JPMorgan Chase & Co and Wells Fargo & Co in reporting a slump in first-quarter profits. Also, Goldman Sachs Group Inc's quarterly profit nearly halved, as it set aside more money to cover for corporate loans expected to go bust in the coming months.
In further evidence of economic damage from the coronavirus, U.S. retail sales plunged 8.7% in March, manufacturing output dropped by the most in over 74 years and a survey showed manufacturing activity in New York state plunged in April to its lowest in the series' history.
Disappointing bank earnings are adding to worries about prospects for the rest of the corporate reporting period, said Paul Nolte, portfolio manager at Kingsview Investment Management in Chicago.
In the coming weeks, "it's going to be more important to look at companies... from a debt perspective," he said, noting: "I'm not sure the recovery is going to be as strong as everybody is saying."
The International Monetary Fund has predicted that this year the global economy would witness its sharpest slump since the 1930s.
U.S. stocks have recovered from their March trough, boosted by a raft of U.S. monetary and fiscal stimulus and on early signs that coronavirus cases were peaking in some hotspots. However, the S&P 500 is still down about 18% from its Feb. 19 record closing high.
The Dow Jones Industrial Average fell 445.41 points, or 1.86%, to 23,504.35, the S&P 500 lost 62.7 points, or 2.20%, to 2,783.36 and the Nasdaq Composite dropped 122.56 points, or 1.44%, to 8,393.18.
J.C. Penney Co Inc shares dropped 27.3% as sources said the retailer was exploring filing for bankruptcy protection after the virus outbreak upended its turnaround plans.
Shares of Citigroup and Bank of America were down more than 5% each on the day, while Goldman's stock ended nearly flat.
"Loan loss reserves were greater than expected in the first quarter, and it sounds like it might continue into the second quarter. We saw it yesterday and got a confirmation of the trend today," said Barclays analyst Jason Goldberg.
Goldman did better, he said, because "lending is a smaller component of their business."
Bank earnings have been negatively impacted by a large increase in their loan loss reserves and may remain high, while operating costs may rise to deal with bad loans, said senior research analyst Dick Bove at Odeon Capital Group LLC.
The pattern could continue into 2021, he said.
Analysts expect S&P 500 earnings to have fallen 12.8% in the first quarter, according to IBES data from Refinitiv.
The biggest U.S. health insurer UnitedHealth Group Inc rose 4.1% as it maintained its 2020 profit outlook at a time when major companies have withdrawn forecasts due to the coronavirus pandemic.
The CBOE volatility index also climbed after closing Tuesday at its lowest level since March 5.
Volume on U.S. exchanges was 10.95 billion shares, compared to the 14.28 billion average for the full session over the last 20 trading days.
Declining issues outnumbered advancing ones on the NYSE by a 4.74-to-1 ratio; on Nasdaq, a 3.43-to-1 ratio favored decliners.
The S&P 500 posted 8 new 52-week highs and 1 new lows; the Nasdaq Composite recorded 26 new highs and 27 new lows.
GLOBAL MARKETS
A double whammy of economic data showing the U.S. economy in a deep downturn and reports of persistent crude oil oversupply and collapsing demand slammed global markets on Wednesday as vivid reminders of the damage from coronavirus-related lockdowns.
Oil prices sank after the International Energy Agency (IEA) forecast a 29 million-barrel-per day dive in April crude demand to levels not seen in 25 years and said no output cut could fully offset the near-term decline facing the market.
Washington could slap tariffs on U.S. oil imports if global crude producers fail to keep pledges made over the weekend to reduce output, the top U.S. energy diplomat said.
Shares on Wall Street followed European stocks lower as a raft of dour earnings from U.S. banks and a slide in listed oil heavyweights in London and Paris due to the outlook for crude prices pushed major stock indexes lower.
Uncertainty still prevails in markets as it's not clear when economies are going to come out of the pandemic-driven slowdown, said Candice Bangsund, a global asset allocation strategist at Fiera Capital in Montreal.
"Our premise has been that uncertainty and near-term market gyrations are going to continue until we get more clarity on the status of the outbreak," Bangsund said. "Until the virus peaks globally, there's little visibility in that regard."
MSCI's gauge of stocks across the globe shed 2.16% and emerging market stocks lost 0.99%.
The pan-European STOXX 600 index slipped 3.3%, after rising almost 8% since April 6 on early signs the health crisis was ebbing and hopes sweeping lockdown measures would soon be lifted.
Chancellor Angela Merkel said some shops in Germany could reopen next week, but that social distancing rules would remain in place. England's chief medical officer said that while Britain was probably close to the epidemic's peak, it was too soon to begin thinking about next steps.
The number of COVID-19 cases reported worldwide passed 2 million on Tuesday, and the pandemic has killed 131,101, according to a Reuters tally.
Oil companies Total SA, Royal Dutch Shell Plc and BP Plc all sank in Europe, pushing the European energy index down 6.3%.
U.S. crude futures fell 1.2% to settle at $19.87 a barrel, while Brent futures fell 6.5% to settle at $27.69 a barrel.
U.S. Treasury yields fell across the board as risk aversion flared and knocked U.S. two-year yields below 0.2% for the first time in three years.
Benchmark 10-year notes rose 37/32 in price to push their yield down to 0.6348%.
The dollar firmed as investors fled risk assets for safe havens. The U.S. dollar index, which had fallen in the four previous trading days, climbed as high as 99.983.
The dollar index rose 0.708%, with the euro down 0.59% to $1.0914. The Japanese yen weakened 0.29% versus the greenback to 107.54 per dollar.
China earlier moved again to cushion its economy, cutting a key medium-term interest rate to record lows and paving the way for a similar reduction in benchmark loan rates, while reducing the amount banks must hold as reserves.
Gold prices fell, a day after scaling over seven-year highs, as the dollar firmed and investors booked profits. Concerns of a global recession put a floor under prices.
U.S. gold futures settled down 1.6% at $1,740.20 an ounce.
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