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Stocks recoup their 2020 losses as weekslong rebound rolls on

Boeing stock took off Monday, advancing 12.3 percent.
Boeing stock took off Monday, advancing 12.3 percent.Ted S. Warren/Associated Press/File 2020/Associated Press

NEW YORK — Stocks on Wall Street erased their losses for the year, a remarkable milestone for a market that was reeling just a few months ago as investors feared the damage caused by the coronavirus pandemic.

The S&P 500 rose more than 1 percent on Monday, adding to a weekslong rebound that has been fueled by hopes for a quick economic recovery, significant intervention by the Federal Reserve, and a disregard for the serious risks that businesses and consumers still face.

A familiar list of companies has been leading the recent gains. Airlines have been lifted by signs that domestic travel is starting to pick up, and they rallied again on Monday, along with Boeing. With oil prices rebounding, crude briefly crossed above $40 a barrel for the first time in months, and energy companies have also surged.

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Stocks have been on an upward trajectory for weeks as investors have responded to signs around the world that the virus was abating. New York, the center of the coronavirus outbreak in the United States, on Monday began to lift some restrictions on construction, manufacturing, and retail operations.

Progress like that, and early evidence that it means people are returning to work, helped fuel a nearly 5 percent gain in the S&P 500 last week — its biggest weekly run since early April. But the market’s rebound really began in March, after the Federal Reserve signaled its willingness to funnel unlimited amounts of liquidity into financial markets. Since then, stocks have risen more than 44 percent.

Investors have plenty of reasons to be wary, of course: A second wave of the coronavirus outbreak that forces governments to clamp down on public activity again, a premature end to government spending or a slower-than-expected return of business could all dampen enthusiasm for stocks.

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The Federal Reserve announced a series of changes to its loan program for mid-size businesses that should make it more attractive to borrowers and banks, responding to widespread concern that the program’s terms were too restrictive and would discourage use, potentially hindering the economic recovery.

The Fed said that smaller loans would be eligible for the Main Street program, which will purchase eligible business loans from banks in order to encourage more lending. Besides dropping the minimum loan size to $250,000 from $500,000, the Fed said it would extend the loan period to five years from four, giving borrowers more flexibility in paying the funds back.

The central bank also said that it would take on more risk, holding 95 percent of the loans, while banks will have to retain just a 5 percent slice. Previously, the Fed had said that banks would need to retain 15 percent of loans made to more indebted companies.

“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,” Fed chair Jerome Powell said in a statement.

The Main Street program is a new experiment for the Fed, which has never offered loans directly to a broad array of businesses, but which is now doing so through its emergency lending powers. The Treasury Department has pledged $75 billion in congressionally appropriated funding to absorb any credit losses that happen in the program.

The coronavirus pandemic, which has shuttered businesses and halted travel around the world, will shrink the global economy by 5.2 percent this year, marking the deepest recession since World War II, according to a World Bank forecast released Monday.

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The projection comes as economies are gradually reopening after months of lockdowns that were imposed to slow the spread of the virus and reflects the deep hole that countries will be facing as they look to resume economic activity. The forecast is more dire than the 3.3 percent contraction the International Monetary Fund predicted in April.

“This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges,” said Ceyla Pazarbasioglu, a World Bank vice president.

According to the report, countries that rely on global trade, tourism, commodity exports, and external financing will face the most severe hit this year. The World Bank expects the US economy to shrink by 6.1 percent and the euro area’s by 9.1 percent. In China, however, where the virus originated and where the most draconian containment measures were taken, growth will slow to 1 percent this year.

The World Bank expects the global economy to rebound next year, with 4.2 percent growth. But, it warns, a protracted pandemic that leads to a breakdown in financial markets and global trade could darken the outlook.

The pandemic is a disaster for the eurozone economy but also a chance to fight climate change and make better use of information technology, Europe’s top central banker said Monday.

“The crisis can be an opportunity to modernize our economies to make them fit for the future,” Christine Lagarde, president of the European Central Bank, told the European Parliament.

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The hundreds of billions of euros the European Union is spending on crisis relief should be deployed in ways that accelerate the shift to a green economy, Lagarde said. She did not give specifics, but the term usually refers to technology that is less dependent on fossil fuels and produces less carbon dioxide.

Speaking by videoconference, Lagarde also said the pandemic has helped promote digital technology, an area in which Europe often lags the United States.

“Now is the time to expedite the digital transformation on a more permanent basis and bring the EU to the frontier of the digital economy,” she said.