But the euphoria was short-lived; sending the Dow tumbling more than 560 points before reversing course again. By early afternoon, the Dow was roughly 600 points in the negative column, or 2.3 percent. The Standard & Poor’s 500 and Nasdaq composite, meanwhile, were off about 1.8 percent.
The Fed, whose leaders voted unanimously for the rate cut, has not taken such an emergency step since 2008. The move would reduce the current interest rate to just below 1.25 percent.
Speaking at an 11 a.m. news conference, Fed Chair Jerome H. Powell said the central bank took action in response to the economic risks that have emerged in recent weeks. He said the Fed is in active discussions with other central banks and that any future changes to monetary policy would come based on the best information available at that time.
“We do recognize the rate cut will not reduce the rate of infection. It won’t fix the broken supply chain. We get that...but we do believe our action will provide a meaningful boost to the economy," Powell said.
The Fed has been under increasing pressure to take action to quell the anxiety that has roiled global markets for days and is now filtering down to consumers, who are cleaning out store shelves of water, disinfectant and shelf-stable food in anticipation of quarantines and shortages. But interest rates were already at low levels, and economists worry that any further reductions will give the central bank less leeway in the event of a downturn.
“The Fed’s rate cut is a psychological palliative but I have severe doubts it will make a difference to economic growth going forward,” said Daniel P. Wiener, chairman of Adviser Investments. “The rate cut is not going to drive consumers out of their homes and into the malls if they fear contagion.”
Vanguard Group, the mutual fund giant with more than $6 trillion under management, called the Fed cut “premature, given the lack of data suggesting a significant drag on the economy.”
”Today’s announcement could send the wrong signal to market participants, including individual investors who are concerned with recent market volatility,” according to a statement from Roger Aliaga-Diaz, Vanguard’s chief economist for the Americas.
Early Tuesday morning, before the rate cut, President Trump attacked its leader, Jerome H. Powell, for not doing enough to boost the economy. Even after the announcement, Trump called for further measures.
“The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors,” Trump tweeted. “We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!”
The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors. We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!
— Donald J. Trump (@realDonaldTrump) March 3, 2020
The volatility carried through almost every point of Tuesday morning, with futures initially pointing upward and then staging a U-turn. Group of Seven finance ministers and central bankers held a call to discuss how to respond to the outbreak. But a statement released afterward contained no specific actions, prompting the futures drop.
“Alongside strengthening efforts to expand health services, G-7 finance ministers are ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase,” the finance ministers and central bank governors said in a statement.
The whirlwind morning came just after Wall Street staged an explosive rally on Monday, shaking off its worst week since the 2008 financial crisis. The Dow Jones industrial average, the Standard & Poor’s 500 and the Nasdaq composite all exited correction territory, and the Dow rose nearly 1,300 points, closing up 5.1 percent, its largest percentage gain since March 2009.
Markets appeared more stable in Europe. Britain’s FTSE 100 climbed roughly 2.25 percent, and Germany’s DAX rose 2.8 percent. Asian stocks dipped, with Japan’s Nikkei down 1.2 percent and Hong Kong’s Hang Seng essentially flat.
Arturo Bris, professor of finance and lead of the IMD World Competitiveness Center at the IMD business school in Lausanne, Switzerland, said that markets and companies could hopefully come out of the outbreak with crisis response plans “that prevent the overreaction and panic we’re in now — and help keep markets and economies stable even during the unthinkable.”
“The virus, of course, is serious, but this is not the end of the world,” Bris said. “In addition to making preparations for a pandemic, they also need to be planning for what comes after a pandemic, when things return to normal.”
For weeks now, coronavirus has caused a rupture in global supply chains, particularly for goods manufactured and produced in China, where economic activity has largely stalled. And the longer fears swirl around the virus’ spread, shaky consumer confidence could push Americans to rein in their spending. The world economy is now expected to have its worst year of growth since 2009, according to numerous forecasts. And Goldman Sachs is predicting no growth in the second quarter, which would be the worst quarter the country has experienced in six years.
“Stocks are likely to continue reacting to ebbs and flows in the news cycle, and it is too early to tell if Monday’s 1,300 point rally in the Dow means a bottom is in place for stocks,” said David Bahnsen, chief investment officer of The Bahnsen Group, based in Newport Beach, Calif., with over $2.25 billion in assets under management. “Economic damage has certainly been done, but how severe and for how long, remains to be seen.”
In the United States, the number of confirmed cases surged past 100 in 15 states, with six people dead. There are at least 18 confirmed cases of coronavirus in Washington state, with evidence suggesting the virus may have spread undetected there for weeks.
Roughly 70 countries have reported incidences of the virus, and new countries are added to the list each day. In South Korea, the number of confirmed cases exceeded 5,000, the highest outside China. Government officials were placed on 24-hour alert, and health tests expanded in virus-hit areas. China, the epicenter of the outbreak and still the worst-hit country, announced its lowest number of new cases since late January.
Read more:
https://www.washingtonpost.com/business/2020/03/03/stock-markets-stimulus-coronavirus/
2020-03-03 18:23:00Z
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