Market Rally Ends as Soon as It Began as Senate Awaits Fed Chair

MANHATTAN (CN) — Markets coughed up some of the huge gains from Monday, as investors eagerly await testimony from the Federal Reserve chairman later in the morning. 

After Monday’s rally concluded, which was spurred mostly by rising oil prices and promising news on a Covid-19 vaccine, the Dow Jones Industrial Average had gained more than 900 points.

But the Dow began Tuesday with minor losses, dropping 73 points at the opening bell. The S&P 500 and Nasdaq followed suit, with minimal decreases. 

Many investors will likely keep one ear tuned to the Senate Banking Committee later Tuesday morning, where Fed Chairman Jerome Powell will testify on further efforts to strengthen the economy. 

A statement the Fed released this morning shows Powell intends to say the sharp rise in unemployment and drop in output makes the current downturn unprecedented. “By these measures and many others, the scope and speed of this downturn are without modern precedent and are significantly worse than any recession since World War II,” he is expected to tell the committee during virtual testimony.

The speech itself does not offer much new, but senators will likely grill the central bank chief on what other measures the Fed may take. “When economic and financial conditions improve, we will put these tools back in the toolbox,” Powell will say, according to his testimony.

Some investors are not champing at the bit for the Fed to take additional steps, however, noting the Fed’s liquidity programs could distort prices and deepen the national debt.

“I’m glad that Powell acknowledged that the actions of the Fed is just part of the fiscal/monetary response, but we should fear more steps by the Fed, not cheer them,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, wrote in an investor’s note Tuesday morning. “More Treasury buying means more monetization of our rising debts and deficits, something only a banana republic should like.”

Treasury Secretary Steven Mnuchin will also testify before the committee about the various fiscal measures taken to stabilize the economy. His brief prepared remarks merely list the various stimulus packages passed, though Mnuchin also predicts the economy will improve during the third and fourth quarters of 2020. 

“Together we will destroy the Covid-19 virus, and our country will emerge from the pandemic stronger than ever,” Mnuchin is expected to say.

Rounding out the day were a number of earnings reports from retailers, showing drops in sales for some stores but not for others.

In its release, Kohl’s showed its net sales fell from $3.82 billion during Q1 2019 to $2.16 billion during Q1 2020, a 43% drop. “We have begun the rebuilding process, recently reopening about 50% of our stores across the country,” CEO Michelle Gass said in a statement. “As we look ahead, we know this experience will have a lasting impact to customer behavior and the retail landscape, and we are evolving our strategies to ensure our relevance and to capture market share.”

It wasn’t all doom and gloom for retail, though. Due mostly to a sizeable increase in food and consumables, WalMart saw a 10% uptick in its net sales year over year, from $80 billion during last year’s first quarter to $88 billion during the first three months of 2020. The discount retailer’s revenue also increased about $11 billion year over year.

Home Depot reported a 7.1% year-over-year increase in its sales, from $26 billion in Q1 2019 to $28 billion in Q1 2020. The company’s net earnings fell nearly 11% during that period, however, from $2.5 billion during last year’s first quarter to $2.2 billion during the first quarter of 2020.

In a statement, CEO Craig Menear credited the company’s “robust and flexible interconnected infrastructure” with allowing it to quickly adapt to Covid-19 and customer preferences. 

Urban Outfitters is expected to release their earnings reports after markets close.

More than 4.8 million people worldwide have been confirmed infected by Covid-19, according to data from researchers at Johns Hopkins University, and roughly 319,000 have died. In the United States, more than 1.5 million people have contracted the novel coronavirus and more than 90,000 have died.

Follow @NickRummell

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