US stocks decline on recession report

The Dow Jones Industrial Average on Tuesday declined for the first time in seven days as investors pocketed profits and the market comeback paused.

The S&P 500 and Nasdaq Composite also fell as an economic report tempered optimism.

The National Bureau of Economic Research (NBER), a New York-based private organization, said the US economy slid into recession in February, ending the longest economic expansion in US history.

The standard definition of a recession is back-to-back quarters of negative growth. NBER said the breath and severity of the current downturn following 128 consecutive months of expansion led it to declare the nation was in recession

"The committee recognizes that the (coronavirus) pandemic and the public health response have resulted in a downturn with different characteristics and dynamics than prior recessions," the research organization said in a statement.

"Nonetheless, it concluded that the unprecedented magnitude and decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions."

In the first quarter of 2020, the economy contracted 4.8 percent compared with growth of 2.1 percent in the same period of 2019. The second quarter ends June 30 and will show a sharp contraction.

The cause and duration of the economic downturn are likely to affect both US policy and politics.

Congress is debating another stimulus package. It has provided $3.3 trillion in emergency spending intended to assist companies and workers. But the massive spending has raised concerns about running up the deficit, how the money will be repaid and possible inflation risks.

A strong economy was expected to be US President Donald Trump's best argument for re-election in November. It's unclear how shutting down the economy to curb the spread of COVID-19 will affect voters.

The nonpartisan Congressional Budget Office (CBO) said the nation's gross domestic product, the value of all goods and services produced in a year, is likely to be 5.6 percent smaller in the fourth quarter than a year ago.

It said the US economy may not recover from the coronavirus pandemic for as much as a decade.

But the stock market has rallied as investors bet on a quick recovery.

In response to the current economic downturn, the US Federal Reserve, the nation's central bank, slashed interest rates to 0-0.25 percent to encourage borrowing and spending and increased its purchase of government bonds to about $4.5 trillion from $1 trillion.

The Fed on Monday announced plans to extend loans to small and midsized businesses on more favorable terms and extended loam terms to five years from four while allowing enterprises to defer principal payments for the first two years.

"I am confident the changes we are making will improve the ability of the Main Street Lending Program to support employment during this difficult period," Federal Reserve Chairman Jerome Powell said in a statement.

The stock market rally isn't the only encouraging sign of a nascent turnaround.

Americans are becoming more optimistic about the economy despite what some see as inflationary pressure, the Federal Reserve Bank of New York reported.

"Consumers grew comparatively more optimistic about labor market outcomes with earnings growth, job finding and job loss expectations all slightly improving," the New York Fed said in its May survey of consumer expectations.

Despite the rebound, key survey readings remain "far below" pre-pandemic levels, the bank's report said.

Expectations of inflation jumped to 3 percent in May from 2.6 percent in April as consumers expect "sharp" increases in the cost of fuel and energy, the New York Fed said.

Nevertheless, home mortgage applications have increased as buyers take advantage of low interest rates. Airline bookings are up and some airlines plan to add flights after grounding aircraft and furloughing workers.

In early trading Tuesday, the Dow Jones Industrial Average fell 297.62 points, or 1.08 percent, to 27,274.69. The S&P 500 dipped 0.91 percent. The Nasdaq Composite slid 0.31 percent.

On Monday, the Dow gained 461.46 points, or 1.70 percent, to 27,572.44. The S&P 500 added 38.46 points, or 1.20 percent, and closed at 3,232.39. The Nasdaq Composite rose 110.66 points, or 1.13 percent, to 9,924.74.

After Monday's rally, the Dow cut year-do-date losses to 3.3 percent. The S&P 500 turned positive by 0.05 percent after being down as much as 30 percent this year. The Nasdaq Composite is now up 10.6 percent year-to-date.

"Equities continue to trend higher in anticipation of improving economic conditions," Terry Sandven, chief equity strategist at US Bank Wealth Management, told CNBC.

"But I think it's premature to declare happy days are here again. What gives us caution is the duration of Covid-19 remains unknown. We don't have treatments, we don't have prevention and we're a little bit at the mercy of how fast the virus spreads."

In early trading Tuesday, American Airlines slid 11.70 percent. Delta Airlines gave back 10.77 percent. Southwest Airlines dipped 6.01 percent. United Airlines lost 10.91 percent.

Carnival Cruise Lines fell 9.45 percent. Royal Caribbean declined 6.26 percent.

West Texas Intermediate crude oil futures, the guide for US prices, slid $0.18. to $38.02 a barrel. Brent crude, the worldwide benchmark, dipped 0.98 cents to $40.40 a barrel. The price of oil is a proxy for future economic activity. Prices have rallied on signs of an economic recovery.