Dow bounces back: May 20, 2020

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5:10 p.m. ET, May 20, 2020

The coronavirus GDP drop will shatter all records: BofA

The current, second quarter of this year will be an ugly one for the economy -- and for the history books.

US gross domestic product is expected to collapse by up to 40% on an annualized basis between April and June.

While economists forecast a recovery in the second half of this year, that steep decline is will drag down the full-year GDP.

Economists at Bank of America Merrill Lynch expect a decline of 8% for the GDP this year, which would put the drop from peak growth to the trough at 13%.

This breaks the previously held post-war record of -4% in the Great Recession," said the analysts, led by chief US economist Michelle Meyer.

Bank of America is thinking about the coronavirus recession in three phases.

  1. The lockdown that halted economic activity.
  2. The reopening that leads to a sharp rebound in GDP growth, consumer spending and employment numbers.
  3. Then a longer and slowed recovery, driven by a second wave of Covid-19 infections.
We now think it will take until the end of 2022, or later, to return to the pre-COVID level of GDP," Meyer & Co. said.
10:28 a.m. ET, May 20, 2020

Dow climbs 400 points

Less than an hour into the trading day, stocks are continuing their rebound rally. The Dow shot up 400 points, or 1.7%.

The S&P 500 was up 1.8%, and the Nasdaq Composite climbed 1.9%.

The stock rally doesn't have a particular driver today, but the reopening of the economy continues to fuel investor optimism in spite of worries about a second wave of infections.

11:30 a.m. ET, May 20, 2020

Royal Caribbean says demand for 2021 is strong

The late author David Foster Wallace once referred to taking a cruise as a supposedly fun thing he never wanted to do again, but it looks like many consumers disagree. Royal Caribbean said Wednesday that booking trends for next year are solid.

Royal Caribbean, which voluntarily suspended cruises in March due to the Covid-19 pandemic, reported a bigger loss for the first quarter than expected but sales that topped Wall Street's forecasts.

Shares of Royal Caribbean (RCL), which have plunged 70% this year, were down about 2% Wednesday. But Royal Caribbean said bookings for 2021 are within the usual historical range and prices for next year's cruises are up in the mid-single digits.

Of course, the rest of 2020 is likely a wash due to Covid-19. Royal Caribbean has already said that volumes for the rest of this year are "meaningfully lower" and that prices are down as well. But the company hopes to resume some cruises in mid-June and is planning more stringent safety and cleaning procedures in conjunction with the CDC.

"We understand that when our ships return to service, they will be sailing in a changed world. How well we anticipate and solve for this new environment will play a critical role in keeping our guests and crew safe and healthy," said Royal Caribbean CEO Richard Fain.

Cruise companies have been hit particularly hard by the coronavirus because several of them had passengers test positive for Covid-19. Shares of Carnival (CCL) and Norwegian Cruise Line (NCLH) have also plummeted more than 70% this year.

Norwegian said in its latest earnings report that it also was expecting healthy demand in 2021. But investors are still extremely nervous, especially since the three major cruise lines were not eligible for federal government stimulus money.

10:27 a.m. ET, May 20, 2020

JetBlue and United roll out new safety initiatives

Two airlines are making adjustments to their service as demand for air travel slightly improves and they try to instill confidence with customers that flying is safe.

  • JetBlue (JBLU) said it will continue to block middle seats on flights until at least July 6. The airline will also administer temperature checks and begin electrostatic fogging its planes in June.
  • United (UAL) launched a partnership with the Clorox Company to advise its cleaning procedures. The airline will also provide Clorox products, like sanitizing wipes, to customers at United's hubs beginning Wednesday.
9:36 a.m. ET, May 20, 2020

Stocks rebound

US stocks opened higher on Wednesdays, rebounding from the prior day's session when all three major indexes broke their three-day winning streaks.

High hopes for the reopening of the economy continue to help the market.

11:04 a.m. ET, May 20, 2020

The UK just sold its first bond with a negative interest rate

Britain is now being paid to borrow money.

It's the latest country to sell government debt at a negative yield -- meaning that investors who hang onto the bonds until their maturity point will receive a little less than they paid for them.

The UK's Debt Management Office said Wednesday that it sold £3.75 billion ($4.59 billion) worth of three-year bonds, called gilts.

The gilts, which mature in July 2023, sold at an average yield of -0.003%.

With that sale the UK joins Germany and Japan, as well as some European nations, in offering government debt with negative interest rates.

Edward Moya, senior market analyst at Oanda, said in a note to clients that "expectations for the Bank of England to cut rates continue to grow." The UK's central bank slashed interest rates to 0.1% in March.

8:43 a.m. ET, May 20, 2020

Oil giant Halliburton slashes dividend by 75%

Halliburton, one of the world's largest oilfield service providers, cut its dividend by 75% as it grapples with a sharp decline in production.

The Houston company said Wednesday that the difficult decision "reflects the current market conditions and uncertainties regarding the depth and duration of this downturn."

Halliburton (HAL) and other providers of drilling equipment and manpower have been crushed by the oil crash, which has forced a wide range of oil companies to drastically scale back production.

CEO Jeff Miller said the move will help the company "navigate these uncertain times" and position it to "take advantage of the market's eventual recovery."

Wall Street wasn't shocked by the news: Halliburton stock rose 3% in premarket trading Wednesday morning.

In addition to the dividend cut, Halliburton announced that its board of directors is taking a voluntary 20% pay cut.

Although the largest US oil companies have insisted their dividends are safe, the leading oilfield service providers are taking a different approach. Last month, rival Schlumberger (SLB) cut its dividend by 75%.

And another oil services company, Diamond Offshore (DO), filed for bankruptcy in late April.

8:54 a.m. ET, May 20, 2020

Luckin shares resume trading and promptly plunge

You might need to sit down with a cup of coffee for this. The Nasdaq exchange wants to delist scandal-ridden Chinese company Luckin after suspending trading in the stock on April 7. But before that can happen, Luckin shares are set to RESUME trading on Nasdaq Wednesday morning.

Shares of Luckin (LK) plunged more than 40% in premarket action to about $2.60 a share. The stock, which surged after a buzzy IPO in May 2019 on hopes that the company would steal sales from Starbucks (SBUX), plunged more than 75% in April after disclosing that its chief operating officer led a scheme to fabricate sales.

The COO -- as well as Luckin's CEO -- have since been fired. It's unclear what's next for the company. Luckin said in a regulatory filing that it was appealing the Nasdaq's delisting decision. Nasdaq did not explain in its release why it had decided to let the stock begin trading again.

But there has been speculation that Luckin will have to close stores or even file for bankruptcy. It seems the race to $0 for Luckin's stock has begun.

9:35 a.m. ET, May 20, 2020

Herbalife is selling $600 million worth of junk bonds to buy back its own shares

Herbalife didn't get the memo about Wall Street's allergy to stock buybacks, apparently.

The company announced yesterday it was offering $600 million of "B-rated" debt to investors, and the company intends to use the proceeds to repurchase its own shares, among other "general corporate purposes" and capital investment projects.

The pandemic has led most public companies to rethink their stock repurchase plans. Instead, companies are trying to hoard cash to keep their businesses liquid during the massive economic downturn.

Herbalife did pretty well in the first quarter, considering the last month of the quarter was consumed by job losses as stay-at-home orders began to be enforced. Sales were up nearly 8% last quarter.

The company's stock didn't bounce much on the news -- it's essentially flat this morning after rising a little over 3% yesterday.