US economy likely logged its weakest performance in 74 years in 2020
The U.S. economy likely contracted at its sharpest pace since World War Two in 2020 as COVID-19 ravaged services businesses like restaurants and airlines, throwing millions of Americans out of work and into poverty.
The Commerce Department’s snapshot of fourth-quarter gross domestic product on Thursday is also expected to show the recovery from the pandemic losing steam as the year wound down amid a resurgence in coronavirus infections and exhaustion of nearly $3 trillion in relief money from the government.
The Federal Reserve on Wednesday left its benchmark overnight interest rate near zero and pledged to continue injecting money into the economy through bond purchases, noting that “the pace of the recovery in economic activity and employment has moderated in recent months.”
President Joe Biden has unveiled a recovery plan worth $1.9 trillion, and could use the GDP report to lean on some lawmakers who have balked at the price tag soon after the government provided nearly $900 billion in additional stimulus at the end of December.
“Last year was awful for the economy,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. “This was the first service industry recession in recent memory where a lot of jobs were lost.”
Economists are forecasting that the economy contracted by as much as 3.6% in 2020, the worst performance since 1946. That would follow 2.2% growth in 2019 and would be the first annual decline in GDP since the 2007-09 Great Recession.
Market is at ‘speculative peak’ as Reddit traders fuel GameStop, money manager says
Speculation in the stock market is soaring.
Retail investors have been piling into equities at a rapid rate in the new year, building on 2020′s rush and squeezing short sellers in stocks such as GameStop, up a staggering 685% for the month as of Tuesday’s closing bell.
The GameStop frenzy even caught the attention of billionaires CEOs Chamath Palihapitiya and Elon Musk. Both referenced the action Tuesday on Twitter, with Palihapitiya saying he made an options bet on the stock and Musk sharing a link to r/wallstreetbets, a Reddit page popular with traders.
Also Tuesday, the hedge fund Melvin Capital closed out its short position after taking a huge loss, the manager of the fund told CNBC’s Andrew Ross Sorkin.
Shares of other popular names including Apple have also been seesawing this week on high trading volumes.
To a degree, this is a culmination of how 2020′s macroeconomic events impacted the stock market, said Mark Yusko, CEO, chief investment officer and founder of Morgan Creek Capital Management.
“It’s interesting that we’re talking about GameStop … in a world where investing has truly become gamified,” he told CNBC’s “ETF Edge” on Monday.
During the pandemic lockdown, people have turned to stocks as a way to entertain themselves in the absence of sports betting, Yusko said.
“I do think we’re at a speculative peak,” he said. “We don’t know, but this could be that event, that seminal event that triggers some motion downward.”
USA Today/Associated Press
There’s ‘euphoria but also a little bit of instability’: Stocks have their worst day since October
Technology companies led a broad sell-off in stocks Wednesday, knocking more than 600 points off the Dow Jones Industrial Average and handing the market its worst day in nearly three months.
The S&P 500 fell 2.6%, its biggest single-day drop since it lost 3.5% on October 28. It had set a record high just two days earlier. The Dow and tech-heavy Nasdaq composite also fell more than 2%. The sell-off left the S&P 500 and Dow in the red for the year.
Facebook, Netflix and Google’s parent company led the pullback, which started early in the day as investors sized up the latest batch of company earnings reports. The market’s skid accelerated toward the end of the day.
The sharp selling is a shift from the market’s recent record-setting run and comes as investors focus on the outlook for the economy and corporate profits amid a still-raging coronavirus pandemic. Traders were also focused on the eye-popping surge in GameStop, a money-losing video game seller that became the focus of a battle between small investors bidding it higher and big hedge funds betting it would fall.
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Expectations on Wall Street built up in recent weeks for a big economic financial boost from the Biden administration, which has proposed a $1.9 trillion stimulus plan. But Democrats’ slim majority in the Senate has raised doubts about how soon more aid might arrive and whether such a package will end up being scaled back by spending-wary lawmakers.
“The reality is setting in that the package won’t be quite as big and maybe a little bit delayed,” said Sal Bruno, chief investment officer at IndexIQ.
Fox Business/Megan Henney
Fed holds rates near zero amid fresh signs US economic recovery is slowing
The Federal Reserve said during its first meeting of the year on Wednesday that it would leave interest rates near zero and reaffirmed its commitment to other easing policies amid fresh signs the U.S. economic recovery from the coronavirus pandemic is slowing.
The U.S. central bank, as widely expected, held the benchmark federal funds rate at a range between 0% and 0.25%, where it has been since mid-March, and said it would maintain its large-scale asset purchases, a practice known as quantitative easing.
“The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic,” policymakers said in a post-meeting statement.
December marked the first time since April that job growth shrank, and retail sales tumbled for the third straight month as a surge in COVID-19 cases nationwide triggered a fresh wave of shutdowns. The number of Americans filing for jobless benefits each week has also been on the rise since November.
Officials reiterated previous guidance that the pandemic continues to “weigh on economic activity, employment, and inflation, and poses considerable risks to the economic outlook,” and said the virus — as well as vaccine distribution — will ultimately dictate the course of the economy.