Investors received a reality check Wednesday on what happens when the world’s biggest economy comes to a near-stop in the grip of a pandemic. A series of wrenching numbers were issued on retail sales, oil prices and bank profits that knocked a stock rally off its tracks and hit the pause button on investor optimism.
The Dow Jones industrial average was in the red all day, shedding more than 700 points before closing at 23,506. That was a 443-point loss, or nearly 1.85%. The Standard & Poor’s 500 index closed down 2.2%, while the Nasdaq composite slid 1.4%. All three indexes pared losses in late afternoon on news that Germany, Europe’s biggest economy, was talking of easing its virus lockdown and after New York Gov. Andrew Cuomo said his state had made advances on the virus testing front.
The sell-off followed a blistering report on March retail sales, which plunged 8.7% for their worst monthly decline ever. The results stand in stark contrast to February’s revised 0.4% drop and blow past the 8% fall that analysts had projected from the pandemic, which has gutted consumer spending, yanked millions out of the workforce and forced people to stay home.
Markets shuddered after the major banks reported steep declines in quarterly profits as they prepared for consumers to stop paying mortgages and businesses to default on loans. Bank of America, Goldman Sachs and Citigroup all said Wednesday that first-quarter profits were down at least 40% compared with the same period last year. On Tuesday, JPMorgan Chase and Wells Fargo announced quarterly declines of 69% and 89%, respectively.
The banks, which rebounded from the 2008 financial crisis to record profits in recent years, say the dismal reports are largely driven by the billions they are setting aside to cover potential losses from the deepening coronavirus recession.