Stock markets reeling after Fed’s emergency coronavirus cuts
Global stock markets are sliding after the Federal Reserve cut its benchmark interest rate to near zero Sunday evening to help blunt the economic damage from the fast-spreading novel coronavirus. Fed Chairman Jerome Powell called the actions “ ” but the emergency rate cut — the second in two weeks and an unusually large one-percentage-point cut at that — seemed to unnerve investors.
Stock-market futures indicated the Dow would plunge more than 1,000 points, and the S&P 500 would fall by 5%, when stocks begin trading in the U,S. on Monday morning. Those futures began dropping almost immediately after the Fed announced the rate cut on Sunday. The central bank also said it was upping what’s known as purchases of Treasuries and other bonds by $700 billion, a policy known as “quantitative easing,” to encourage lending by financial institutions.
“The Fed’s latest move does not change our expectation that the economy will slow dramatically in the near term,” Rubeela Farooqi, chief U.S. economist with High Frequency Economics, told investors in a report after the Fed’s rate cut.
Investors in Asian markets were more mixed in their initial reactions. The Japanese Nikkei index rose slightly when it opened on Monday morning in Tokyo. China’s mainland Shanghai exchange index was largely flat. Hong Kong’s stock market fell nearly 3%.
Stocks in Australia were also down 5%, indicating that investors there are concerned the coronavirus will continue to slow economic activity in China as well as throughout the region.
Some Wall Street economists were optimistic that the Fed’s emergency moves could save the economy from sinking into a prolonged recession, and even spur a market rebound later this year.
“Broad fiscal spending and rate cuts are blunt instruments for dealing with the short-term economic impact of the virus, but should provide investors with some confidence that growth can be strong once the recovery gets underway,” Mark Haefele, a chief investment officer at UBS’s wealth management division, said. “We expect the market to end the year at much higher levels than today.”
But that optimism was not widely shared. Bank of America’s top U.S. economist, Michelle Meyer, predicted Sunday that the Fed’s moves would be not be enough to arrest an economic slide driven by restrictions on public activity.
“Businesses are shutting doors globally and households are moving into quarantine,” Meyer wrote in a note to clients on Sunday night. “We are already forecasting negative GDP growth in the second quarter but the risk is that it proves to be a much deeper and more prolonged contraction in economic activity.”