MANHATTAN (CN) — Monday’s buying spree on Wall Street turned into selloff in the afternoon as news broke the Trump administration was pushing for more loans to small businesses.
In addition to the Dow Jones Industrial Average losing all of the 900 points that had been gained in early morning trading, closing slightly down at 22,653 points, the S&P 500 and Nasdaq saw similar drops after early buying.
The losses coincided with calls by Treasury Secretary Steven Mnuchin for an additional $250 billion in small business loans to help prop up the Small Business Administration’s troubled $349 billion lending program.
The additional funds have received approval by leaders in the Senate, as well as President Trump, who has vowed to keep the tap open for small businesses.
“It’s the engine of our country, small business is the engine. They need a little help, and we’re going to give ’em a little help,” President Trump said during an afternoon roundtable with leading banks and credit card companies.
In recent days Wall Street has enjoyed a brief rally, but experts now wonder whether Main Street will see any reprieve.
“It is fairly disconnected, what happens with the stock market,” Holly Wade, director of research at the National Federation of Independent Businesses, said in an interview. “All the nonessential [businesses] have had to close down; there is nothing Wall Street can do to reverse that.”
A survey released Tuesday by the NFIB showed its small optimism index fell by 8.1 points in March, the largest monthly declined in the survey’s 34-year history.
Half of the small businesses surveyed by the association said they can survive for two more months, at most, in the current economic atmosphere. Only 5% reported they expected the economy to improve in the next six months.
“You could just see the deterioration of the small business sector between the first half and the second half of March,” Wade said. “We’re certainly expecting things to worsen for them this month.”
As part of the $2.2 trillion stimulus package, the SBA opened up lending last Friday to small businesses, capping loans at $10 million per borrower.
The program was almost immediately beset with problems, with some banks, even larger ones like Citigroup, not yet equipped to handle the loans. Those that were prepared were swarmed by small businesses looking to stay afloat.
As a result of the run, some banks, including Wells Fargo, announced they will no longer take applications. Others, such as Bank of America, initially rejected small businesses that did not have existing loans through the bank. Bank of America later reportedly changed its criteria to allow certain noncustomers to apply.
During a roundtable with President Trump and financial institutes Tuesday afternoon, Bank of America CEO Brian Moynihan said the bank was getting “several thousand applications per hour” from small businesses.
“The rollout was very bumpy and disruptive,” Wade said, noting some companies have had trouble finding participating banks while applications have bottlenecked at other lenders. “It was a bit restrictive, it was very confusing, it was very stressful.”
To counter the problems, the Federal Reserve announced Monday it would soon roll out a program to provide term financing backed by the SBA’s loans. Further details on the program will be released later this week, a spokeswoman said.
Lawmakers also have pushed for an infusion of cash into the SBA’s program to help.
Earlier Tuesday Senate Majority Leader Mitch McConnell said he would work to add more funds to the program. “It is quickly becoming clear that Congress will need to provide more funding or this crucial program may run dry,” McConnell said in a statement. “That cannot happen.”
The Senate is scheduled to vote on the extra funds on Thursday, with the House expected to vote on a new package on Friday.
The SBA did not respond to emails seeking comment on the program.
Wall Street is unlikely to try to bail out many smaller companies, as investors will likely flock more to established companies, said Ted Zoller, a professor at the University of North Carolina’s Kenan-Flagler Business School during a Tuesday conference call with reporters.
“Money already committed to the market has taken such a hit that equity investors are now leery about putting more in,” he said, adding that about two-thirds of investment capital will be reserved as “dry powder” for existing companies showing progress during the economic downturn.
Consumers are also hoping to rely on government help at record numbers. Mortgage forbearance applications jumped 1,270% during the weeks of March 2 through March 16, according to data released Tuesday by the Mortgage Bankers Association.
More than 1.4 million people have been confirmed to have Covid-19, and more than 79,000 have died worldwide, according to data compiled by Johns Hopkins University. In the United States, about 383,000 have been infected by the virus, while 12,000 have died.