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The market bounce at the beginning of the week was partly driven by expectations that the Federal Reserve would step in to mitigate the coronavirus impact by cutting the key interest rates.
Stocks made quite of a ricochet yesterday after their worst week since the financial crisis back in 2008. The Dow Jones Industrial Average posted its best gain in more than 10 years mostly boosted by the expectation that the Fed will lower interest rates.
Dow Jones Industrial Average jumped over 1,290 points in the last minutes of trading as it recorded its biggest jump since 2009. Meanwhile, President Donald Trump met with representatives of pharmaceutical companies in the White House to discuss the U.S. coronavirus response. Earlier in the day, the U.S. confirmed that six people died in the country from the virus officially known as Covid-19.
The Dow surged 5.09% at the end of the day, recording its largest daily point gain in history. Apple Inc (NASDAQ: AAPL) led the index higher by increasing by 9.30%. The Nasdaq 100 ended 4.92% higher, with JD.com finishing 12.46% up after its earnings. The S&P 500 gained 4.61% at the closing bell as Costco Wholesale Corporation (NASDAQ: COST) stocks jumped 9.92%.
Dow Demonstrates New Gain: after the Rain Comes the Sun?
Keith Buchanan, portfolio manager at GLOBALT noted:
“The market has been conditioned to buy on any weakness. We’ve grown accustomed to bad days being followed by a few good days in a row.”
Peter Cardillo, chief market economist at Spartan Capital Securities is, however, still pretty skeptical about the worst being over. He noted longer-dated U.S. Treasuries are still trading near record levels.
Strategists at MRB Partners wrote:
“Global investors will be prone to panic as the virus arrives at their doorstep, underscoring the need for near-run prudence and patience before augmenting favored holdings. The outlook is uncertain, or rather certainly bearish in the near term as quarantining spreads around the world, but with considerable doubt as to the duration and depth of the economic fallout.”
Unstoppable Coronavirus Raises Investment Risk
Coronavirus definitely took a huge piece of the market. At the time of writing, information show that there are more than 90,900 cases of contamination confirmed around the world along with more than 3,100 virus-related deaths. Seattle-area officials reported four new coronavirus deaths in Washington state on Monday, bringing U.S. total to six. The first two deaths and several new cases were confirmed over the weekend by public health officials in Seattle.
Washington state currently has at least 18 cases of coronavirus, while 29 other cases are pending test results. The number of COVID-19 cases in South Korea increased by 600 in the past day to reach 4,812, Korea Centers for Disease Control & Prevention (KCDC) confirmed. The death toll due to the deadly virus stands at 34, with 3 new deaths reported in the country during the past 2 days.
The number of infected people in the UK rose to 39, with the four newest cases recorded being linked to travel to Italy, the hardest-hit country in Europe with the coronavirus. In the meantime, the European Union has raised coronavirus risk level to “moderate high” in all member states.
China’s National Health Commission, on the other hand, revealed on Tuesday the number of deaths due to the COVID-19 epidemic increased by 31 in the past day, bringing the total nationwide death toll to 2,943.
ECB Ready to Help, All Eyes on Fed
ECB chief Christine Lagarde has released a statement, saying the ECB ‘stands ready’ to help.
“The coronavirus outbreak is a fast developing situation, which creates risks for the economic outlook and the functioning of financial markets. The ECB is closely monitoring developments and their implications for the economy, medium-term inflation and the transmission of our monetary policy. We stand ready to take appropriate and targeted measures, as necessary and commensurate with the underlying risks.”
Be it as it may, investors are definitely having their eyes turned to Fed. CME Group’s FedWatch tool showed traders said there is a 100% probability of a 50 basis-point rate cut later this month. Expectations for another rate cut in April hover around 70%.