(Updated: 11:35 a.m. EST, March 16, 2020)
Topline: The stock market plunged again on Monday, with steep losses triggering an early halt in trading even after the Fed’s massive interest rate cut did little to stem Wall Street fears over slowing economic growth due to the coronavirus pandemic.
- The Dow Jones Industrial Average started Monday morning down almost 10%, while the S&P 500 and Nasdaq both dropped by over 9%. Stocks pared back earlier losses somewhat, and are now down around 6% by midday.
- Mounting losses briefly triggered the market’s circuit breaker mechanism, halting trading soon after opening: Pre-market futures showed that would happen, with all three major indexes hitting their limit-down levels of 5% or lower.
- The market sell-off comes even after the Federal Reserve on Sunday night cut interest rates to zero and announced that it would purchase $700 billion in government debt in an extraordinary effort to stabilize the U.S. economy.
- The new target benchmark for the federal funds rate is now at its lowest level since 2015, sitting between 0.0% and 0.25%—and marking a huge drop from the previous target of between 1.00% and 1.25%.
- In a press conference on Sunday night, Fed chair Jerome Powell said that the coronavirus “presents significant economic challenges.”
- The move comes after the Fed said last Thursday that it would inject $1.5 trillion into the overnight repo market—a bid to preserve liquidity in the banking system—as coronavirus continues to roil markets.
What to watch for: While investors have been trying to gauge the economic impact of the coronavirus pandemic, one of the first indicators is a new survey from the New York Federal Reserve, which shows business conditions falling to their lowest level since 2009. The decline from February to March was the largest on record.
Key background: This isn’t the first time that trading has had to be halted to stop the market from going into free-fall: circuit breaker mechanisms kicked in several times last week. The losses on Monday come after the stock market had its worst week since 2008 last week, with especially large sell-offs taking place on both Monday and Thursday. The Dow fell 10%—more than 2,300 points, for its worst drop since the 1987 ‘Black Monday’ market crash, on Thursday alone, while the S&P 500 and Nasdaq were down by 9.5%. European stocks also had their worst day ever, falling 11%. Global markets lost a total of $4.7 trillion on Thursday, according to S&P. U.S. stocks are now well into bear market territory—when that happens, a recession has followed 80% of the time, according to Bloomberg. Stocks briefly rallied on Friday, after President Trump declared the coronavirus pandemic a national emergency, invoking powers under the Stafford Act to allow substantially more federal aid to states and local governments.
Chief critic: “Thus far the fiscal and monetary reactions have been too little too late but there are indications that some parties are moving into the “whatever it takes” mode,” according to billionaire investor Ray Dalio, who is head of Bridgewater Associates, one of the world’s largest hedge funds. He predicts that the Fed “can’t do much” to stop the coronavirus sell-off in markets, beyond providing plenty of liquidity.
Crucial quotes: “Stocks are suffering enormous losses so far this morning as a series of emergency central bank measures failed to stabilize sentiment,” according to Vital Knowledge founder Adam Crisafulli. “Clearly markets remain in an extraordinary state of flux and the huge price swings are unlikely to end soon,” though he does predict an eventual rebound.
“The stock market continues to try and price in how much of a drop in consumer spending and economic activity we are likely to see and for how long that will last,” says Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “The only certainty at this point is more volatility and I would expect the market to price in a recession.”
Crucial statistics: There are now more than 3,700 reported cases in the U.S. and at least 69 deaths, according to data from Johns Hopkins University. Worldwide cases have risen to almost 170,000 infected and more than 6,500 dead.
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