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The stock market drops 2.9% after the decline in the Federal Reserve

 


(NEW YORK) – Fear and uncertainty continue to control Wall Street, and stocks fell sharply Tuesday after a drop in Federal Reserve emergency interest rates didn’t Has not reassured markets ravaged by fears that a rapidly spreading virus will cause a recession.

The Dow Jones Industrial average fell 785 points, or 2.9%. It had jumped 5% a day earlier in hopes of a broader package of stimulus packages.

While the cut gave some investors exactly what they were asking for, Federal Reserve Chairman Jerome Powell acknowledged that the ultimate solution to the challenge of the virus will have to come from health experts and Others, not central banks. Some traders are also wondering if an increase in aid is about to stabilize the market, while others felt that the Fed's decision was premature to begin with. For more than a few, the Fed's most pronounced rate cut since 2008 has reminded of the dark days of the financial crisis and has only heightened fear.

Through it all, the markets are still facing the same dilemma that has pushed stock prices down 11% since they set a record just two weeks ago: no one knows how far the virus will eventually spread before the authorities can control it, and by the amount of corporate profits that will be reduced because of it.

This uncertainty led to irregular trading in the markets on Tuesday. Stocks rallied briefly the morning after the Fed's surprise decision, but it only took 15 minutes for the gains to evaporate. The 10-year Treasury yield fell below 1% for the first time in history as investors lowered expectations for the economy and inflation. A gauge measuring the traders' fear of the upcoming stock price swings rose sharply from top to bottom throughout the day.

After jumping to 1.5% shortly after the Fed’s announcement, the S&P 500 hovered between modest gains and losses for about an hour before dropping decisively. The index ended the day down 86.86 points, or 2.8%, to 3,003.37. It made up for a loss that hit 3.7% by mid-afternoon and marks the eighth drop in the past nine days for the index.

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The Fed has a long history of rescuing the market with lower rates and other stimulus packages, which has helped this bull market in US stocks become the longest on record. Some analysts have said that the Fed's latest cut could give some more confidence.

"Confidence in the markets is crucial," said Quincy Krosby, chief market strategist at Prudential Financial. "Without confidence, you have no market."

The Dow Jones Industrial Average had jumped to its best Monday in more than a decade due to growing anticipation of help from the Fed and other central banks. Even before Tuesday's announcement, traders were confident that the Fed would cut rates by half a percentage point on March 18 at its next meeting.

But there is great doubt as to whether the drugs supplied by central banks can be as effective this time. Lower rates can encourage buyers and businesses to borrow and spend more, but they cannot reopen closed factories or fire workers due to quarantines.

After the Fed’s announcement, Powell admitted that central banks could not solve the health crisis. But he said the Fed recognizes that the rapid spread of the virus is a risk to the economy, and he cited concerns from the travel and hospitality industries. Powell said that since last week, when several Fed officials said they saw no urgent need to cut rates, "we have seen a wider spread of the virus."

The high stakes pushed the Fed to cut rates outside of a meeting scheduled for the first time since the 2008 financial crisis, when investors considered a complete collapse of the global financial system as possible, if not unlikely. This in itself may have scared the market off, as some investors have wondered if the Fed sees things as worse than we thought.

"I don't think market players woke up this morning to think we were facing a crisis similar to the global financial crisis," said Kristina Hooper, chief global market strategist at Invesco. "But that's what the Fed's actions have suggested to some."

She said investors will likely have mixed emotions about the decision for days.

Some economists have called the Fed's decision premature, since US economic data has yet to show a sharp decline due to the virus.

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"The nature of today's announcement could send the wrong signal to market participants, including individual investors who are concerned about recent market volatility," said Roger Aliaga-Diaz , chief economist of the Americas at Vanguard.

The markets will likely remain faltering until investors get a feel for the worst case scenario of this viral epidemic. Markets have been lagging behind for almost two weeks, as the virus spreads beyond China and companies across continents and industries say they expect it to reach their targets. profits.

Visa payment processor joined the extended list of companies warning investors on Tuesday. He said his quarterly revenues would be lower than previously forecast due to lower travel expenses on the cards.

"To get a floor in the markets, realistically, what we need to see is not so much a reduction in the number of new cases of coronavirus, but at least a slowdown in acceleration," said Salvatore Bruno, Director of Investments at IndexIQ. "Until then, we risk seeing a lot of volatility."

Worldwide, more than 92,000 people fell ill and more than 3,100 died. The number of countries affected by the virus has reached at least 70, Ukraine and Morocco reporting their first cases.

The topsy-turvy Tuesday started slowly in the United States. Earlier today, the Group of Seven Major Industrialized Countries promised to support the global economy, but did not announce any specific new measures. The disappointment in the lack of action helped to lower US stocks at the opening of the markets, before the Fed surprised the markets by announcing the sharp drop of the half point at 10 a.m. the east.

Investors continue to speculate that other central banks will join and lower rates and offer incentives in a coordinated effort around the world. Before the Fed's decision, the Reserve Bank of Australia lowered its key rate to a record low of 0.5%.

US markets have been hit hard by fear of the impact of the virus. Monday's surge in stocks, in the hope that central banks will come to the rescue, followed a large sale last week that wiped out the gains for 2020 and sent clues into what market observers call a "Fix", or a drop of 10% or more from a peak. Last week was the worst for the S&P 500 since the financial crisis.

MARKET OVERVIEW:

The S&P 500 lost 86.86 points, or 2.8%, to 3,003.37. The Dow Jones Industrial Average lost 785.91 points, or 2.9%, to 25,917.41, and the Nasdaq fell 268.07, or 3%, to 8,684.09.

European stock markets were generally higher, with the German DAX posting 1.1%, the French CAC 40 up 1.1% and the FTSE 100 up 1%. In Asia, the Nikkei 225 in Japan was down 1.2%, the Kospi in South Korea was up 0.6% and stocks in Shanghai were up 0.7%.

Bond yields hovered after the Fed's announcement. The yield on the 10-year Treasury bill dropped to 1.01% against 1.08% Monday evening after falling below the 1% threshold for the first time. The 10-year yield tends to drop when weak economic growth and inflation are expected. Shorter-term yields, which move more in line with Fed stocks, have fallen even more dramatically. The two-year Treasury yield fell to 0.71% from 0.81%.

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AP business writers Alex Veiga and Damian J. Troise have contributed.

Contact us to [email protected].

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