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The American economy will return to its pre-pandemic size by the middle of this year, even if Congress does not approve any more federal aid for the recovery, but it will be years before everyone thrown off the job by the pandemic is able to return to work, the Congressional Budget Office projected on Monday.
The new projections from the office, which is nonpartisan and issues regular budgetary and economic forecasts, are an improvement from the office’s forecasts last summer. Officials told reporters on Monday that the brightening outlook was a result of large sectors of the economy adapting better and more rapidly to the pandemic than originally expected. They also reflect increased growth from a $900 billion economic aid package that Congress passed in December.
The budget office now expects the unemployment rate to fall to 5.3 percent at the end of the year, down from an 8.4 percent projection last July. The economy is expected to grow 3.7 percent for the year, after recording a much smaller contraction in 2020 than the budget office initially expected.
The report is likely to inject even more debate into the discussions over whether to pass President Biden’s $1.9 trillion economic rescue package. It could embolden Republicans who have pushed Mr. Biden to scale back the plan significantly, saying the economy does not need so much additional federal support.
Still, the report shows little risk of “overheating” the economy, which is projected to remain below potential levels until 2025 on its current path. And big economic risks remain. The number of employed Americans will not return to its pre-pandemic levels until 2024, officials predicted, reflecting the prolonged difficulties of shaking off the virus and returning to full levels of economic activity. Officials said the rebound in growth and employment could be significantly accelerated if public health authorities were able to more rapidly deploy coronavirus vaccines across the population.
As it stands, the budget office sees little evidence of growth running hot enough in the years to come to spur a rapid increase in inflation. It forecast inflation levels below the Federal Reserve’s target of 2 percent for years to come, even with the Fed holding interest rates near zero.
Other independent forecasts, including one from the Brookings Institution last week, have projected that another dose of economic aid — like the $1.9 trillion package Mr. Biden has proposed — would help the economy grow more rapidly, topping its pre-pandemic path by year’s end.
The frantic price swings last week in stocks like GameStop and AMC Entertainment, led by retail traders aiming to take on Wall Street, have spread to a new target: silver. The price of the precious metal jumped 10 percent on Monday to the highest in eight years after online calls to create a “silver squeeze.”
The attraction to silver came as the S&P 500 index rose in early trading, following gains on European and Asian stock markets.
Retail websites for buying silver coins and bars said they were experiencing high demand and there would be delays in shipping orders. Moneymetals.com, a dealer in precious metals, said it was not taking any new silver orders until midmorning Monday and put some restrictions on gold purchases as well. The iShares Silver Trust, a large BlackRock exchange-traded product tracking the metal, reported record net inflows on Friday of $944 million.
Shares in companies that mine for silver surged higher, too. Fresnillo rose 15 percent and Polymetal International was up 7 percent, and both were among the biggest gainers on the FTSE 100 index in Britain. On the U.S. exchanges, Silvercorp Metals rose 30 percent and Fortuna Silver Mines rose 25 percent.
But the silver market is fundamentally different than that of beleaguered companies like AMC and GameStop.
The company stocks that caught the attention of the army of day traders over the past week, spurred on by memes on Reddit, had been unloved by hedge funds. By driving the price of these stocks higher, the traders “squeezed” the firms holding short positions.
Melvin Capital Management, one of the hedge funds that bet GameStop shares would fall, lost 53 percent on its portfolio in January, a person familiar with the matter said. Short sellers lose money when a company’s shares rise, and the losses are potentially limitless.
Silver prices had already been rising before the recent interest, and some users on Reddit have warned against a “silver squeeze,” saying it would benefit the same hedge funds and investors they toppled last week. Also, silver is a much bigger and deeper market, making it harder to influence.
The price of silver climbed nearly 50 percent last year, and some institutional investors expected it to outperform gold this year. Still, the traders, who appear to be mostly small investors focused only on a handful of stocks and assets, have emerged as a new risk factor for the large firms betting against stocks and regulators concerned about the smooth functioning of markets.
U.S. markets
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The S&P 500 index rose 1 percent, rebounding from a loss of more than 3 percent last week — its worst week since late October.
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GameStop’s shares fell about 10 percent in early trading, having gained 400 percent last week and more than 1,600 percent in January. Another target of the trading frenzy, AMC, rose 18 percent. It gained about 280 percent last week.
Europe
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Most European stock indexes were higher in midday trading. The Stoxx Europe 600 gained more than 1 percent, led by industrial and technology stocks.
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Asos, the online fashion retailer, bought Topshop, Miss Selfridge and other brands from Arcadia Group, once the crown jewel of Britain’s high street retailers, for 295 million pounds ($404 million). Asos shares rose more than 6 percent.
Asia
After a week of wild trading, GameStop’s shares fell about 10 percent in early trading on Monday, as some of the attention shifted to the market for silver, where the price of the precious metal jumped to the highest since 2013 and websites selling silver coins reported unusually high demand.
Last week, GameStop’s stock reached as high as $483 and fell as low as $61. It lost 44 percent on Thursday after Robinhood and other trading platforms said they would limit customers’ ability to buy certain securities, including GameStop, AMC Entertainment and BlackBerry. Then the trading app reversed some of the restrictions, and the shares rose about 65 percent on Friday.
On Reddit’s Wall Street Bets forum, posters implored others to keep holding their GameStop shares and options. GameStop’s shares closed at $325 on Friday, up 1,625 percent in January.
On Monday, AMC rose about 18 percent early in the day. Last week, the price jumped nearly 280 percent.
The interest in silver began over the weekend. Moneymetals.com, a dealer in precious metals, said it wasn’t taking any new silver orders until midmorning Monday The iShares Silver Trust, which tracks the metal, reported record net inflows on Friday of $944 million.
The Securities and Exchange Commission said Wednesday it was “actively monitoring” the volatile trading. Melvin Capital Management, one of the hedge funds that bet against GameStop’s shares, lost 53 percent on its portfolio in January, a person familiar with the matter said.
“This has been a very surreal weekend and week for me.”
So said Vlad Tenev, the chief executive of the online brokerage firm Robinhood, in a public conversation with — of all people — Elon Musk about the challenges his company has faced amid the run-up in stocks like GameStop’s, the DealBook newsletter reports.
Mr. Tenev opened up on the social network Clubhouse late on Sunday about what led Robinhood to impose curbs on trading shares in GameStop and other companies last week, drawing outrage from customers and politicians alike. Last Thursday, an arm of the Depository Trust and Clearing Corporation, Wall Street’s main clearinghouse for stock trades, had demanded $3 billion in additional collateral — “an order of magnitude” more than usual, Mr. Tenev said — to cover risky trades by its customers.
That demand was later reduced to about $700 million, but Robinhood was still forced to draw down credit lines from banks and raise $1 billion from existing investors.
“This was nerve-racking,” Mr. Tenev said.
Mr. Tenev said the clearinghouse’s decision was based on “an opaque formula,” but sought to dispel persistent rumors that Wall Street elites were behind the move. Mr. Musk, a noted provocateur on Twitter, asked whether “something really shady” was behind the collateral demand. “You’re getting into conspiracy theories a little bit,” Mr. Tenev answered, and added that other brokers were also asked to post additional cash.
“We had no choice, in this case,” Mr. Tenev said. “We had to conform to regulatory capital requirements.”
The Robinhood chief also disputed speculation that his brokerage firm had imposed the trading curbs to aid Wall Street partners, including the big financial firm Citadel, whose brokerage arm executes most of its trades and whose hedge fund had invested in a fellow investment firm that had been betting against GameStop’s share price.
When Mr. Musk asked whether Robinhood was “beholden” to Citadel, Mr. Tenev shot back, “That’s just false.”
The recent surge in GameStop’s stock — propelled by individual investors who banded together on Reddit — has put new pressure on the Biden administration’s pick for the top job at the Securities and Exchange Commission, Gary Gensler.
Mr. Gensler would inherit the agency as it faces calls to more tightly regulate online trading programs such as Robinhood that critics say enable unsophisticated investors to make risky financial bets, Deborah B. Solomon reports in The New York Times. But defenders of such platforms say they help flatten out inequities in the financial markets that have long favored deep-pocketed firms over average people. The S.E.C. said it was “closely monitoring” the situation in a statement.
“What’s going on with GameStop has almost nothing to do with GameStop as a company,” said Barbara Roper, director of investor protection for the Consumer Federation of America. “When you see the markets essentially turned into a video game or turned into a casino, that actually has some pretty serious repercussions for the way we use the markets to fund our economy.”
The question for Mr. Gensler, and the agency, will be what, if anything, they should do about concerns from people like Ms. Roper.
The S.E.C.’s role has traditionally been to ensure that companies disclose enough information for people to make informed investment decisions. But it does so by enforcing laws that were written before the advent of trading platforms such as Robinhood. Mr. Gensler’s first moves, those who know him say, will be investigating the GameStop surge to figure out who benefited, as there is speculation that it may have been fueled by some big funds after all.
Melvin Capital Management, one of the hedge funds pilloried on social media message boards for its short-selling bets that GameStop shares would fall, lost 53 percent on its portfolio in January, a person familiar with the matter said.
A principal reason was the huge losses the firm suffered when small investors bid up the stock of GameStop. The Wall Street Journal first reported the amount of Melvin Capital’s loss.
Founded by Gabe Plotkin, a protégé of the hedge fund billionaire and New York Mets owner Steven A. Cohen, Melvin Capital had $8 billion in assets under management at the end of January. That amount included $2.75 billion that Mr. Cohen’s fund, Point72, and Citadel, another hedge fund, put into Melvin Capital, as well as fresh capital from new investors, the person said.
Hedge fund returns at Citadel fell 3 percent for the month, about a third of which was caused by a $2 billion investment it made in Melvin about a week ago, according two people briefed on Citadel’s results.
Melvin Capital exited its position in GameStop after having to raise additional funds, Mr. Plotkin confirmed to CNBC last week. The firm was a main player in the market drama set off by a group of day traders who have been bidding up a handful of stocks that Wall Street had given up on — forcing losses on big hedge funds.
The traders appear to be mostly small investors focused on a handful of stocks like GameStop and AMC Entertainment. But they have emerged as a new risk factor for large firms that had bet against those companies with what are known as short sales. While the financial damage on Wall Street appears so far limited to a number of firms, the volatility shook the broader market. The S&P 500 fell 1.9 percent on Friday, finishing its worst week in three months.
The owner of The Charleston Gazette-Mail and other West Virginia news publications filed a lawsuit in federal court on Friday against Google and Facebook, accusing the companies of profiting from “anticompetitive and monopolistic practices” that have damaged the newspaper business.
The publisher, HD Media, said the lawsuit was the first of its kind to be filed by a newspaper company. The suit is focused on the centrality of Google to the online advertising market, as well as an agreement between Google and Facebook that is the center of an antitrust lawsuit brought by 10 state attorneys general. It is estimated the two tech companies together accounted for more than half of all digital advertising spending in 2019.
“Google and Facebook have monopolized the digital advertising market, thereby strangling a primary source of revenue for newspapers across the country,” HD Media said in the suit, filed in U.S. District Court of the Southern District of West Virginia.
“There is no longer a competitive market in which newspapers can fairly compete for online advertising revenue,” the suit continued.
The rise of digital media has led to sharp drops in revenue for many newspaper companies, which once depended on print ads and print subscriptions to stay in business. More than one in four American newspapers shut down between 2004 and 2018, and tens of thousands of newsroom jobs have disappeared.
In addition to The Gazette-Mail, which in 2018 won a Pulitzer Prize for investigative reporting, papers owned by HD Media include The Herald-Dispatch and The Logan Banner.
“We invite every other newspaper in America to join this cause,” Doug Reynolds, the managing partner of HD Media, said in a statement on Friday. “We are fighting not only for the future of the press but also the preservation of our democracy.”
Tech companies have come under new scrutiny in recent months. In October, the Justice Department filed suit against Google, accusing the company of illegally protecting its monopoly over internet search and the digital advertising market. In two lawsuits filed in December, dozens of states accused Google of abusing its dominance of the online ad business and thwarting competitors in search.
Last month, the lyric-annotation company Genius Media and two left-wing magazines, The Nation and The Progressive, filed an antitrust lawsuit against Google — as well as its parent company, Alphabet, and a sibling company, YouTube — citing what the suit called “anticompetitive conduct” in the digital ad market.
Google referred a request for comment to a statement the company issued this month in response to a separate complaint. In the statement, the company said its ad business “helps websites and apps make money and fund high-quality content.” Facebook did not immediately reply to a request for comment.
Robinhood, the stock platform that put restraints on trading of shares like the video game retailer GameStop and the movie theater chain AMC after a frenzy of buying and selling last week, has decreased the number of companies with trading restrictions to eight from 50, according to an update on its website.
The brokerage firm, which has attracted millions of millennials by eliminating trading fees and making stock trading easy, said last Thursday that it would limit buying of the kinds of securities that set off an enormous rally in shares of GameStop, AMC and a number of other companies.
The move drew ire from investors, as well as leaders across the political spectrum — including Representative Alexandria Ocasio-Cortez, Democrat of New York; Senator Ted Cruz, Republican of Texas; and Senator Elizabeth Warren, Democrat of Massachusetts — who accused the platform of manipulating the market to favor big traders.
“It was not because we wanted to stop people from buying these stocks,” Robinhood said in a blog post, adding that the platform had to take steps to limit the securities because “the required amount we had to deposit with the clearinghouse was so large.”
Wall Street’s main clearinghouse for stock trades on Thursday demanded $3 billion in additional collateral, Robinhood’s chief executive, Vladimir Tenev, told Elon Musk in a conversation on the social network Clubhouse late on Sunday.
Robinhood removed barriers to some trades on Friday and said it had raised $1 billion to help ensure it had enough money to cover the transactions.
The platform increased the number of restricted companies to 50 before paring down the list, which includes GameStop, BlackBerry, AMC Entertainment Holdings, Express, Genius Brands International, Koss Corporation, Naked Brand Group, and Nokia.
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