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Stocks fell sharply on Monday even after the Federal Reserve cut rates amid the coronavirus outbreak. The S&P 500 dropped 9.3% while the Dow Jones Industrial Average lost 2,174 points. The Nasdaq Composite traded 9.3% lower.
After the circuit breaker was lifted following a 15-minute halt in trading due to the S&P 500‘s fall of over 9% on Monday, stocks on Wall Street continued plunging amid extended coronavirus fears. Dow Jones has also experienced another loss and dropped by 9.4%.
In case the S&P 500 drops by 13%, another 15-minute break will take place and it the index falls 20%, trading will be halted for the day. The United States Federal Reserve announced on Sunday that the Federal Open Market Committee (FOMC) decided to cut the target range for the federal funds rate to 0%-0.25% due to the coronavirus which has “harmed communities and disrupted economic activity.
Fed Blasted Its Monetary Bazooka
Peter Boockvar, chief investment officer at Bleakley Advisory Group commented this move by Fed saying:
“The Fed blasted its monetary bazooka for sure. This better work because I don’t know what they have left and no amount of money raining from the sky will cure this virus. Only time and medicine will.”
The Dow Jones Industrial Average dropped over 2,777. points, as it lost 12.01% at 9:47, am ET. JPMorgan Chase & Co (NYSE: JPM) was the worst performer with the stock sliding 18.17% at the open. The Nasdaq 100 fell 11.48% at 9:47 am CET with United Airlines Holdings falling 21.64%. The S&P 500 dropped 10.91% at the same time. TechnipFMC PLC (NYSE: FTI) went down by 24.09%.
Quincy Krosby, chief market strategist at Prudential Financial says Fed’s decision to cut rates even more, “coupled with an important fiscal package, should help cushion the economic downside from the virus’ effect on economic activity.”
“It’s going to be positive, but the market is at the mercy of the virus and at the mercy of whether the containment policies work.”
Speed of Impact on the USA Is Still Unprecedented
However, Dan Deming, managing director at KKM Financial says that the main problem this time as to other market disruptions is the abrupt closure of economic activity. “The speed of the impact to middle America, let alone the global community is relatively unprecedented,” he said.
There are more analysts that are pleased with the Fed’s latest decision. Michael O’Rourke, chief market strategist at JonesTrading claims:
“They blew it. The Fed panicked and the market is spooked. The S&P 500 registered all time highs less than a month ago and the Fed has expended all its conventional and unconventional tools. The key takeaway will be that they have truly expended all of their ammunition and this is the action of a central bank that is scared.”
Monetary Policy Itself Isn’t Enough
The fact is global equities are still getting pretty much slammed. Markets are worried about the growth of infection among the population and want to see a noticeable fiscal response. On the side of the monetary policy, it will probably not have the same potency for financial markets. Monetary policy clearly isn’t enough to stand all by itself and there aren’t many bullets left. This theme has been clearly on display in markets since the Fed’s first rate cut two weeks back.
However, we cannot say that this means the end of monetary policy per se, not even in the long-term. The thing is, fiscal policy announcements will now be watched more closely and discounted more quickly by financial markets.
“Overall, I believe the package is robust, but it also left something to be desired in some areas, like the unclear forward guidance and the reliance on the heavily stigmatized discount window. Nonetheless, Powell was clear that the Fed reserves the right to use other tools if appropriate,” said Roberto Perli, partner at Cornerstone Macro LLC.