Market Flatlines With Manufacturing Pulse Check

MANHATTAN (CN) — This week on Wall Street began and ended with bad news, but investors took it in stride.

Early in the week investors took a beating when the West Texas Intermediate’s domestic oil futures May contract plummeted more than 300% to settle at about -$37. The contract for June prices spent the week slowly crawling out of the pit to reach about $17 Friday afternoon.

By mid-week, the markets started feeling better — even sky-high unemployment claims released Thursday failed to dent optimism too much since the data jived with analyst expectations. 

Then came Friday.

Data from the U.S. Census Bureau showed that new orders for big-ticket manufactured goods fell 14.4% in March, the highest drop since 2014. The data do not include orders canceled during April, when shutdowns from the coronavirus and physical-distancing guidelines began to accelerate.

According to the report, demand for transportation equipment — such as cars and commercial airliners — decreased more than 40%. Civilian aircraft showed a huge 300% drop in March from February, as fewer people are flying due to the Covid-19 pandemic.

The two largest civilian aircraft manufacturers, Boeing and Airbus, are scheduled to release their first-quarter 2020 earnings report on Wednesday. Lockheed Martin, the third-largest plane manufacturer, has reported $1.3 billion in additional sales year-over-year for the first quarter 2020.

Added to the poor manufacturing data, the Congressional Budget Office reported Friday it predicts the U.S. economy will shrink by 12% in the second quarter of 2020. The nonpartisan legislative agency forecasts the federal debt held by the public will represent 101% of the gross domestic product by the end of the fiscal year. 

While the CBO said things will likely improve in 2021, when 2.8% growth is predicted, unemployment may also remain as high as 10% next year. 

Investors pinning their hopes to Gilead Sciences’ drug remdesivir were rattled after a Financial Times report on Thursday indicated the drug had no positive effect on Covid-19 patients. The report cited a Chinese clinical trial accidentally disclosed by the World Health Organization.

While markets had anemic gains most of the day, minutes before the closing bell investors rallied. The Dow Jones Industrial Average finished at 23,771 points, still under where it closed last Thursday. 

The S&P 500 and Nasdaq had similar increases, of 1.4% and 1.6%, respectively.

Markets were temporarily lifted midday Friday when President Trump signed into law a new stimulus package that includes $310 billion for the Small Business Administration’s Paycheck Protection Program. 

The funding is a welcome spot of good news for investors and a lifeline for many small businesses, many of which have been shut out of the immensely popular lending program due to a run at the banks. 

Hoping to allay concerns that larger publicly traded companies and franchises may continue to tap into the program, the Treasury Department released guidance Thursday warning that applicant companies need to certify their PPP loans are necessary to maintain the company’s ongoing business.

“It is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith,” the guidance warns. 

Senator Marco Rubio, who has been one of the leading proponents of the PPP, said the Treasury guidance will help add to the $310 billion. 

“We already know of hundreds of millions of dollars potentially that are already being returned,” the Florida Republican said in a video tweet. “Some of these big companies you read about that got PPP, that was never the intention, have begun to return the money. That money will be added onto whatever Congress appropriated.”

The Federal Reserve also announced on Thursday it would expand its liquidity facility to additional banks to help facilitate additional PPP loans. The Fed also will soon begin disclosing the names of participants and details of loans using its lending programs.

The PPP resumes 10:30 a.m. EST on Monday. Some banking groups worry, however, that the $310 billion will last only a few days. Democrats reportedly are already working on legislation that will infuse the PPP with additional funds. 

Worldwide more than 2.7 million people have been confirmed infected by Covid-19, according to data from researchers at Johns Hopkins University, and more than 194,000 have died. About 884,000 people in the United States have contracted the virus, while more than 50,000 have died.

Follow @NickRummell

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