MANHATTAN (CN) — U.S. markets were able to avoid another major downswing on Monday, as the Federal Reserve’s long-anticipated Main Street Lending Program helped prop up investors.
The Main Street package — designed to complement the loans that struggling small- and mid-sized companies can obtain through the Small Business Administration’s Paycheck Protection Program — has been kept on the back burner for weeks but provided some much-needed comfort for flailing markets.
After the Dow Jones Industrial Average fell 580 points, a 2.2% decrease, at the morning bell, it was able to recover to close up 0.62%. The Nasdaq and S&P 500, both of which took hits early in the day, closed up 1.4% and 0.8%, respectively.
The Fed also finalized plans to purchase up to $750 billion in individual corporate bonds on the secondary market. Bond issuers must be rated BBB- or better prior to March 22, when lockdowns caused many companies to shutter.
Earlier in the day, a survey from the Federal Reserve Bank of New York, found that 36% of manufacturers in the state said conditions were better so far this month than in May, though an equal number of respondents said things have gotten worse. The general business conditions index rose 50 points, nearly returning to the zero baseline.
Optimism for the industry has risen meanwhile, with the future business conditions index increasing 27 points to 56.5, the highest level in more than a decade.
The report was better than anticipated, though analysts say they want to see the degree of improvement in the coming months to properly gauge the recovery.
Last week marked huge swings in the markets, with U.S. exchanges on Thursday posting their worst day since state lockdowns took hold in mid-March. On Friday, Wall Street swung back into positive territory with mild gains.
Technically the markets are not terribly volatile, with the VIX “fear index” hovering only at about 42 points — the index spiked to nearly 83 points back in mid-March — the huge swings have taken a toll on investor confidence.
According to an analysis by DataTrek Research, the S&P 500 has fallen more than 5% five times during the Covid-19 pandemic: four times in March, and last Thursday, when the exchange fell nearly 6%.
The Covid-19 pandemic is the second-largest driver of U.S. market volatility ever, DataTrek co-founders Nicholas Colas and Jessica Rabe wrote on Monday, ahead of the three days during the market crash of 1987. The only other crisis that led to more days of volatility was the Great Recession of 2008–09, when the S&P 500 dropped more than 5% a dozen times.
Investors have become increasingly rattled as health officials state the growing likelihood of an upswing in the Covid-19 pandemic. More than 100,000 new cases of the virus have been reported each day since May 27.
Oil prices have begun to slump on worries of a second wave of coronavirus and a related cascade of lockdowns, which would dent demand for crude. The West Texas Intermediate fell to $35 per barrel on Monday, while the international Brent index fell to just under $38 per barrel.
Concerned about fallout from the virus, BP noted on Monday that it would take up to $17.5 billion in charges and write-offs on its balance sheet, lowering its long-term oil price forecast for Brent crude to $55 from $70 per barrel.
“With the Covid-19 pandemic having continued during the second quarter of 2020, BP now sees the prospect of the pandemic having an enduring impact on the global economy, with the potential for weaker demand for energy for a sustained period,” the company said in a statement.
White House officials continue, however, to downplay fears of a second wave of coronavirus. During an interview on CNN over the weekend, administration economic adviser Larry Kudlow claimed that the increase of cases were seen “in small metropolitan areas,’’ that the rise in hospitalizations is due an increase in elective surgeries, and that fatality rates “continue to be very low.”
Kudlow — who earlier this year said “a virus is not going to sink the economy” — dismissed the idea of any kind of emergency regarding growing Covid cases, noting on “Fox & Friends” last week that “there is no second wave. I don’t know where that got started on Wall Street.”
Some analysts predict investors may become immune to sudden spikes in the virus. “Thursday’s massive sell-off could turn out to be a bump in the bullish road, rather than the beginning of a major reversal in sentiment,” David Madden of CMC Markets wrote in a Monday note. “For too long dealers largely heard stories about falling infection rates, so a relatively small increase came as a big shock. An occasional jump in cases might become the new normal.”
More than 7.9 million people have been infected by Covid-19 worldwide, while about 434,000 have died, according to data compiled by Johns Hopkins University. In the United States, 2.1 million people have contracted Covid-19, while nearly 116,000 have died.