Dow sinks almost 800 points despite surprise Fed interest rate cut to counter coronavirus
Investors seem unimpressed with the Federal Reserve's largest interest rate cut since 2008, pushing down stocks amid mounting concerns over the coronavirus.
The Dow fell 786 points, or almost 3%, to 25,917 on Tuesday, while the S&P 500 and tech-heavy Nasdaq indexes both slid about 3%. The decline followed a surprise move by the central bank to lower rates by 0.5% in a bid to bolster the U.S. economy as the coronavirus spreads to more states. The rate cut comes after seven major economies pledged early Tuesday to use "all appropriate tools" to deal with the outbreak.
"The subdued reaction of the equity market suggests a typical buy the rumor and sell the fact, and we continue to anticipate two weeks of high volatility in the markets," Sebastien Galy, senior macro strategist at Nordea Asset Management, said in an email after the Fed's decisions.
In another sign investors are seeking refuge from market volatility, the price of 10-year Treasury notes surged, pushing the yield to below 1% — the first time that has ever happened, according to Bloomberg. The Fed said in a statement that while the U.S. economy remains strong, "the coronavirus poses evolving risks to economic activity."
Wall Street is weighing the impact of the coronavirus as more companies warn the outbreak will crimp profitability, while others cut back on employee travel and ask employees to work from home. The market decline on Tuesday follows yesterday's surge of 5.1%, when investors were buoyed by the prospect of a Fed rate cut. The Dow last plunged more than 12%, marking the fastest recorded slide into market "correction" territory — defined as a decline of at least 10% from a previous high.
President Trump, who has repeatedly criticized Fed Chair Jerome Powell for not easing interest rates, pressed policy makers to do more even after the rate cut. "More easing and cutting!," Mr. Trump said in a tweet.
G-7 announcement
On Tuesday morning, the G-7 countries said they are "ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy."
The joint statement from the U.S., Japan, Germany, Britain, France, Italy and Canada was issued after a conference call among the finance ministers and central bank presidents, led by U.S. Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell. But investors were looking for concrete actions, analysts noted.
"Global equities were disappointed with the 175-word statement of G7 finance ministers and central bank governors," said Edward Moya, senior market strategist at OANDA, in a research note issued before the Fed cut rates. "Wall Street's patience will be tested as downward pressures grow for signs of a fiscal response."
Meanwhile, the number of coronavirus cases continues to climb in the U.S. The new disease has killed six people in the U.S., four from one nursing home near Seattle and two others in the same county. The cluster of deaths at the nursing facility in Washington state's King County highlights the serious threat the disease poses to older people and those with underlying health conditions.
There were just over 100 cases in 15 states as of Tuesday morning, with New Hampshire and Georgia being the most recent to join the battle against the virus.