By
Bhushan Akolkar
April 17th, 2024
Dow Futures lost another 800 points. Futures contracts for the indices were in “limit down” territory, a situation where trading is halted after they have hit a 5% loss and can go no lower.
Trading of futures contracts has seen extreme volatility overnight, and some traders even thought of the possibility that computer trading has distorted trading moves in the market’s collapse deriving from the coronavirus outbreak. Futures on the Dow Jones Industrial Average fell 821 points, indicating a more than 1,000-point loss at Wednesday’s open. S&P 500 and Nasdaq-100 futures were also down.
This step came amid historic highs on the Cboe Volatility Index, which closed above its 2008 financial crisis peak on Monday. This is the index that oversees options prices for the S&P 500 and is also known as the “fear gauge” of Wall Street.
COVID-19 Outbreak May Lead to Recession
On Tuesday, the markets rebounded from their deepest rout since 1987 as investors grew hopeful that the Trump administration’s massive fiscal stimulus plans will rescue the economy, which is probably falling into a recession due to the coronavirus impact. President of the Federal Reserve Bank of Minneapolis Neel Kashkari warned on Tuesday that the ongoing outbreak of the coronavirus in the U.S. may amount to “a very long crisis with profound economic implications” and even result in a “recession.”
According to his base case, Kashkari pointed out, the American economy is in for a “mild recession,” the likes of which was seen following the September 11 attacks.
Delaying Tax Payments for Corporations, $1 Trillion Stimulus Package
However, futures extended losses early on Wednesday, hitting the so-called “limit down” as markets remained volatile amid the coronavirus pandemic. The “limit down” means trading is suspended when index futures rise 5% in premarket or after-hours trading.
On Tuesday, stocks surged on reports the Trump administration is preparing a $1 trillion stimulus package for the U.S. economy to help it deal with the impact of the coronavirus pandemic.
Treasury Secretary Steven Mnuchin also said corporations will have the possibility to delay their tax payments of up to $10 million while individuals could defer up to $1 million in payments to the Internal Revenue Service.
The Trump administration is prepared to present a package of $850 billion, including more than $50 billion for the airline industry, $250 billion for small-business support and $500 billion for a payroll tax holiday, although the amount could balloon above the figure by the time is unveiled, a senior government official told the news organization.
18 More Months of COVID-19?
The United States government’s plan on fighting the COVID-19 suggested the outbreak’s duration will continue for at least 18 months.
Additionally, the plan, which was brought forward last Friday, reportedly foresees a shortage of products, including medical supplies. According to the news outlet “critical infrastructure,” is also expected to become less reliable during the pandemic which will potentially affect receiving updates on the situation.
Earlier, President of the Robert Koch Institute Lothar Wieler, claimed the deadly virus could remain in circulation for up to two years, spreading in phases.
Be it as it may, the fact is that Wall Street has been on a quite bizarre plane ride amid the coronavirus turmoil, with the S&P 500 hovering around 5% or more in either direction for seven successive sessions. This tops the previous record of six consecutive days that happened in November 1929.
Fed Setting Credit Mechanism For Homes, Businesses
The United States Federal Reserve announced on Tuesday that it created a new mechanism called the Primary Dealer Credit Facility (PDCF) with the goal to support the credit needs of American households and businesses amid the coronavirus crisis.
The PDCF, whose creation was approved by U.S. Treasury Secretary Steven Mnuchin, will become available from Friday for a period of six months and will offer overnight and term funding with maturities up to 90 days.
“Signs are that the pandemic will be brought under control and that the economy will get enough support to weather the storm. Make no mistake, there will be damage. But from a market perspective, the question will be whether the damage is greater than markets now expect, or less,” said Brad McMillan, chief investment officer at Commonwealth Financial.