MANHATTAN (CN) — The U.S. economy shrunk by nearly 5% in the first quarter of 2020, its largest drop since the Great Recession, but for Wall Street that was old news.
Advanced estimates by the Bureau of Economic Analysis found that the country’s gross domestic product fell by 4.8%, according to the report. GDP had increased by 2.1% in the fourth quarter of last year. The report includes only estimates, and more fulsome data is expected later this spring.
“The decline in first quarter GDP was, in part, due to the response to the spread of Covid-19, as governments issued ‘stay-at-home’ orders in March,” the bureau observed. “This led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and consumers canceled, restricted, or redirected their spending.”
Wall Street seemingly ignored the data, with futures rising shortly after the report’s release. At the morning bell, the Dow Jones Industrial Average gained 445 points, a nearly 2% bump. The S&P 500 and Nasdaq had even greater percentage gains at the opening.
Investors now await news out of the Federal Reserve’s open markets committee, which meets Wednesday afternoon to discuss future interest rates.
The Fed already lowered interest rates to near-zero in March to combat the economic fallout from the Covid-19 pandemic, while also purchasing corporate bonds and establishing a lending program for mid-sized businesses.
Chairman Jerome Powell has said the central bank would “continue to use these powers forcefully, proactively and aggressively until we are confident that we are solidly on the road to recovery.”
Several earnings reports released Tuesday afternoon and early Wednesday have painted a grimmer picture of the economic landscape for many industries.
Predictably, aircraft manufacturers saw a steep drop in net revenue as fewer people fly.
In Boeing’s case, revenue dropped year-over-year from nearly $23 billion during the first quarter in 2019 to almost $17 billion last quarter, a 26% decline. The company has already asked for $60 billion in government aid to keep its businesses from crashing.
Airbus posted a 15% drop in revenues, from $12 billion in the first quarter of 2019 to $10.6 billion last quarter. The Amsterdam-based company has secured about $16.3 billion in loans, issued a $2.7 billion bond and suspended some of its pension funding.
Tech has largely done well during the pandemic. In its quarterly earnings report, released after Tuesday’s market close, Google holding company Alphabet reported a $4 billion increase in revenue year over year to $41 billion. Most of the 13% increase in revenues were driven by its search, YouTube and cloud segments, which are understandably used more as consumers hunker down during stay-at-home orders.
The company reported a sharp drop in advertising revenue in March, but company CFO Ruth Porat said during an investor call ad revenue hasn’t fallen much further this month.
“People are relying on Google’s services more than ever and we’ve marshalled our resources and product development in this urgent moment,” CEO Sundar Pichai said in a statement.
Microsoft and Facebook are scheduled to release their earnings after the markets close on Wednesday.
A lack of consumer spending has also hurt beverage companies. In its second-quarter earnings report, Starbucks reported $6 billion in net revenues, a 5% decrease from last year. The coffee giant operates on a different schedule than many other companies.
Most Asian markets gained slightly on Wednesday, with Australia’s ASX 200 outperforming other markets to finish 1.5% higher. The lone outlier was Japan’s Nikkei, which closed barely under zero for the day.
European markets, likely hoping for some inkling of news from the Fed, were mixed. As of 8 a.m. EST, the pan-European Stoxx 600 was flat, though markets in Germany and the United Kingdom both were up marginally.
About 3.1 million people worldwide have been confirmed infected by Covid-19, according to data from researchers at Johns Hopkins University, and more than 218,000 have died. In the United States, more than 1 million people have contracted the novel coronavirus and 58,000 have died.
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