Gloom & Doom IMF Forecast Makes Little Dent on Markets

Wall Street largely brushed off a report by the International Monetary Fund warning Tuesday the world may be slipping into another Great Depression.  

Workers wearing personal protective equipment bury bodies in a trench on Hart Island, a strip of land in the Long Island Sound long used as a New York City potter’s field. It is holding the remains of people killed by Covid-19 until they can be transferred to a city cemetery, another temporary measure before final interment. (AP Photo/John Minchillo)

MANHATTAN (CN) — Stocks rose Tuesday as investors pored through corporate earnings, despite dire warnings from the International Monetary Fund predicting the worst economic downturn since the Great Depression.

In a presentation this morning, the IMF predicted global growth would fall at least 3% in 2020, “much worse” than the 2008–09 Great Recession and a major downgrade from the monetary organization’s last prediction in January.

The United States is projected to contract by 5.9% this year, the IMF report states, not nearly as bad as many European countries that are projected to lose 7% or greater in GDP. 

Most advanced economies and emerging economies will see a decline in growth, the IMF predicts. Gita Gopinath, director of IMF’s research department, called it the first time since the Great Depression that both types of countries saw negative growth.

“This is a truly global crisis,” Gopinath said during a webcast, warning global growth could decline by up to 8% globally in a worst-case scenario.

The IMF predicts global growth will recover by 5.8% in 2021, with the United States growing by 4.7% next year.

Gopinath also cautioned, however, that reductions in investment and job losses will continue to hinder growth even into 2021. “This is a deep recession,” she said. “It is a recession that involves solvency issues. It is a recession that involves unemployment rates going up dramatically, and these tend to leave scars.”

Investors in the United States were not moved much by the dire report, with opening trades tracking futures earlier from Tuesday.

The Dow Jones Industrial Average immediately recouped the 300 points it lost on Monday to gain almost 2% in the opening minutes of Tuesday’s trading. The S&P 500 and Nasdaq followed closely behind. 

Investors were keenly focused on the first wave of corporate earnings, which showed a sharp downturn in revenue among certain industries.

In the financial realm, JPMorgan Chase was one of the first out of the gate. In an earnings call with investors, JPMorgan Chase CEO Jamie Dimon said the bank “entered this crisis in a position of strength, and we remain well-capitalized and highly liquid.”

But the banking giant’s first-quarter income fell more than two-thirds year over year, from $9.1 billion in the early part of 2019 to $2.8 billion during the first quarter of 2020. 

Unsurprisingly, Dimon — who earlier this year warned investors of a “bad recession” — said the firm had built $6.8 billion in credit reserves “given the likelihood of a fairly severe recession.”

Wells Fargo also saw a major dip in net income, with $653 million during the first quarter of 2020 compared with $5.9 billion during first quarter of 2019.

In the health care arena, however, industry leader Johnson & Johnson beat Wall Street expectations by posting $5.8 billion in earnings and announcing it was raising its quarterly dividend more than 6%.

Johnson & Johnson CFO Joseph Wolk said the company’s pharmaceutical and consumer divisions will do better than in January, while its medical device division has seen a drop due to the decrease in elective procedures.

The company last month announced it had developed a lead vaccine candidate for Covid-19, with human clinical studies expected in September.

Prior to U.S. corporate earnings or the IMF report, markets in Asia had risen. Japan’s Nikkei increased more than 3%, and China’s two markets closed 1.5% to 2% higher. 

Countries in Europe fared less well, with most markets on the continent gaining less than a percentage point as of 9 a.m. EST. Only Germany’s DAX had better gains, rising more than a percentage point.

Nearly 2 million have contracted coronavirus worldwide, while 120,000 have died, according to data compiled by researchers at Johns Hopkins University. In the United States, 583,000 have been confirmed to have the virus, and 23,000 have died. 

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