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The Four Percent

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Stocks rallied on Wednesday, bolstered by indications that a drug being tested as a possible treatment for Covid-19 could be showing progress, and as investors pinned their hopes on the gradual reopening of the world’s major economies.

The S&P 500 gained nearly 3 percent, while shares in Europe were also sharply higher.

The rally came despite data that showed the U.S. economy shrank in the first quarter of the year by the most since 2008. Earnings reports from Volkswagen, Samsung, Airbus, Boeing and other giant businesses were also grim.

But investors have been shaking off bad news on the economy for weeks as they focus on progress on efforts to contain the coronavirus pandemic. A steady climb has lifted the S&P 500 by more than 31 percent since its March 23 low. With nearly half that gain coming in April, the month is on track to be the best for stocks since 1974, according to data from Howard Silverblatt, senior index analyst for S&P Dow Jones Indices.

The trading on Wednesday had all the hallmarks of a rally fueled by hopes of a return to normal, with shares of airlines and cruise operators — both industries that are dependent on the end of restrictions and the return of travelers — among the best-performing stocks in the S&P 500. Oil producers also rallied as the price of crude oil surged.

A rally in the stocks of large technology companies, which have an outsize impact on the overall market, also helped. Alphabet rose nearly 9 percent the day after it reported quarterly results that were better than expected, and Facebook was more than 6 percent higher.

Tesla on Wednesday reported a steep drop in net income in the first quarter compared with the previous quarter, as the coronavirus pandemic disrupted the electric-car maker’s operations in the United States and China, its two largest markets.

Elon Musk, the company’s chief executive, said the company would continue to face difficulties as long as it was forced to keep its plant in Fremont, Calif., closed under the state’s stay-at-home order.

“We are a bit worried about when we will be able to resume production in the Bay Area,” Mr. Musk said on a conference call with reporters.

He went on to say the stay-at-home order was “fascist” and amounted to “forcibly imprisoning people in their homes against all their constitutional rights.”

“They’re breaking people’s freedoms in ways that are wrong and are not why people came here or built this country,” he said.

California imposed the lockdown in March and required all nonessential businesses to close. But Tesla told employees at the Freemont plant to report to work unless they were sick, or to take vacation days if they stayed at home. The local sheriff’s office forced the company to obey the state order and close the plant.

Tesla’s plant in Shanghai has resumed production.

On Wednesday, the company reported $16 million in net income for the first three months of the year, a drop of 85 percent compared with the fourth quarter. Revenue in the quarter totaled $6 billion, a 20 percent drop from the previous quarter.

Tesla declined to offer guidance for the second quarter because of the uncertain economic and public health outlook. The company’s shares surged 10 percent after the market closed.

The Fed, which had already slashed interest rates to near zero at two emergency meetings, left its benchmark rate unchanged and signaled it had no plans to raise rates anytime soon.

“The depth and the duration of the economic downturn are unknown,” Mr. Powell said, adding that “the burdens are falling most heavily on those least able to carry them.”

The central bank has already taken a series of aggressive steps to try to backstop the economy, including buying enormous quantities of government and mortgage-backed debt. The Fed has also unveiled a spate of emergency programs that either buy debt or loan money into critical sectors.

U.S. gross domestic product, the broadest measure of goods and services produced in the economy, fell at a 4.8 percent annual rate in the first quarter of the year, the Commerce Department said Wednesday. That is the first decline since 2014, and the worst quarterly contraction since the country was in a deep recession more than a decade ago.

Even so, most of the quarter came before the coronavirus pandemic forced widespread shutdowns and layoffs. Economists expect figures from the current quarter to show G.D.P. contracting at an annual rate of 30 percent or more.

“They’re going to be the worst in our lifetime,” said Dan North, chief economist for the credit insurance company Euler Hermes North America.

The estimates made public on Wednesday are preliminary and based on incomplete data, particularly for March. Some economists expect final figures, due later this spring, to show an even bigger decline.

Hertz Global Holdings said in a regulatory filing Wednesday that it had missed a monthly payment on the lease it used to procure cars for its rental-car fleet.

The company said its business had been battered by the global pandemic, and it had skipped Monday’s payment to preserve cash for its core operations.

Hertz did not disclose the amount of the missed payment, but said it was in a grace period that would end on May 4.

The company was dealing with a significant decline in travel demand, said Lauren Luster, a Hertz spokeswoman. “Conversations with our lenders are ongoing and we remain in discussions with the U.S. Treasury for support,” she said.

In its filing, the company said it was talking with two groups of lenders about temporarily reducing the lease payments. One group of lenders, the holders of its vehicle-financing subsidiary’s notes, had already agreed to such a reduction, the company said. But the other group, described as its senior credit facility lenders, had not.

If Hertz cannot reach an agreement with the second group by May 4, the company could be forced into bankruptcy.

Treasury Secretary Steven Mnuchin said on Wednesday that he hoped to not lose money on the Federal Reserve lending facilities that the Treasury is supporting with its $454 billion bailout fund.

If the economic recovery plays out as he expects, the federal government will not suffer deep losses on the loans.

Mr. Mnuchin has faced criticism from some businesses for not working with the Federal Reserve to deploy the bailout fund more aggressively and for having an aversion to taking credit losses. In a virtual briefing with reporters on Zoom, Mr. Mnuchin said that he was reserving about half of the money so that he had ammunition to stabilize markets if necessary in the coming months.

“I think it’s pretty clear if Congress wanted me to lose all of the money, that money would have been designed as subsidies and grants as opposed to credit support,” Mr. Mnuchin said.

The Treasury secretary said that he was not looking at the loans from the perspective of a pension or private equity fund seeking high return, but that in the best-case scenario, the government would recover its money from the loans. However, he said there was considerable uncertainty.

“There’s plenty of scenarios where we lose all of our money,” he said. “There also could be scenarios where the world turns out better and we make money.”

The deluge of first-quarter reports this week is giving investors a detailed look at how the start of the coronavirus crisis affected businesses. Of course, second-quarter earnings this year may well be even more grim.

  • Facebook cautioned Wall Street that it could face intensifying difficulties in its advertising business as the spread of the coronavirus ripples through the global economy, although the falloff in spending has stabilized. The company’s revenue in the first quarter rose 18 percent to $17.74 billion from a year earlier, while profit more than doubled to $4.9 billion, surpassing Wall Street estimates. A year earlier, Facebook had taken a $3 billion charge to pay for a privacy settlement with the Federal Trade Commission.

  • Microsoft reported strong growth in sales and profits for the quarter ended in March, saying that the coronavirus outbreak had “minimal net impact” on its financial performance. Revenue rose 15 percent to $35 billion, compared with the analysts’ consensus forecast of $33.66 billion. Its operating earnings per share rose 23 percent to $1.40 a share in the quarter. That was well above the average estimate of Wall Street analysts of $1.26 a share, as compiled by Refinitiv, a research firm.

  • Boeing reported $16.9 billion of revenue in the first quarter of the year, a 26 percent decline from last year, as the aviation industry ground to a halt during the coronavirus pandemic. The company said Wednesday that it planned to cut its work force by about 10 percent, a reduction it hopes to achieve voluntarily, through buyouts and early retirement offers.

  • General Electric said Wednesday that overall revenue fell 8 percent to $20.5 billion in the first quarter of the year. The coronavirus pandemic especially affected the aviation division, which saw a 13 percent decline. But the health care sector of the business, which doubled its production of ventilators and increased its manufacturing of other medical equipment used in the diagnosis and treatment of Covid-19, saw revenue increase by 7 percent, to $5.3 billion.

  • The restaurant giant Yum Brands said on Wednesday that same-store sales across its brands had dropped 7 percent in the first quarter. Sales at K.F.C. shrank 8 percent, while Pizza Hut sales dropped 11 percent. But sales at Taco Bell — which has been offering drive-through service throughout the pandemic — rose 1 percent.

  • Airbus, the European aircraft giant, reported on Wednesday a net loss of 481 million euros (about $522 million) in the first quarter of 2020, a reversal from a profit of 40 million euros in the same period a year ago. The company said that it delivered 122 commercial aircraft compared with 162 in the first quarter of 2019.

  • Volkswagen, the world’s largest carmaker, said that vehicle sales fell 25 percent in the first three months of the year, a vivid indication of the havoc that the coronavirus is causing throughout the auto industry. The company, based in Wolfsburg, Germany, said that it sold 1.9 million vehicles in the first quarter compared with 2.6 million in the first quarter of 2019. Profit also collapsed, falling more than 80 percent to 517 million euros, or $562 million.

  • FedEx said on Wednesday that it would not take federal funds earmarked to pay employees under the CARES Act, one day after UPS announced the same. Lawmakers had set aside $25 billion in grants for passenger airlines and $4 billion for cargo carriers to pay workers, though the Treasury Department later classified a portion of the funds for airlines as a loan.

  • Tyson Foods said on Wednesday that it was doubling bonuses, to a total of $120 million, for its 116,000 front-line workers and truck drivers in the United States. The company also said it was increasing short-term disability coverage for employees unable to work because of illness and putting additional health screening measures into place.

  • Lyft plans to lay off 17 percent of its employees, the company said in a regulatory filing, as the ride-hailing company struggles with a downturn caused by the coronavirus pandemic. The company told staff about the cuts in an email on Wednesday. Five percent of workers will be furloughed, and remaining employees will take a pay cut. Executive pay will be reduced 30 percent, pay for vice presidents will be reduced 20 percent, and pay for other workers will be reduced 10 percent.

  • Volkswagen said on Wednesday that it would not restart production at its plant in Chattanooga, Tenn., on May 3, a date it announced just a week earlier. The German automaker did not provide a new start date, and said in a statement that it would first “weigh the readiness of the supplier base, as well as market demand and the status of the Covid-19 outbreak.”

Reporting was contributed by Alan Rappeport, Mary Williams Walsh Steve Lohr, Taylor Lorenz, Ben Casselman, Jaclyn Peiser, Stanley Reed, Jack Ewing, Ben Dooley, Keith Bradsher, Alan Rappeport, Jeanna Smialek, David Yaffe-Bellany, Jason Karaian, Kate Conger, Mike Isaac, Tara Siegel-Bernard, Neal E. Boudette, Michael Corkery, Sapna Maheshwari, Gregory Schmidt, Mohammed Hadi, Katie Robertson, Carlos Tejada, Mike Ives and Kevin Granville.

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