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U.S. Stocks Whipsaw After the Fed Cuts Rates: Live Markets Updates Bond Yields Slide After the Fed Cuts Rates: Live Markets Updates
(32 minutes later)
The Federal Reserve slashed interest rates by half a point on Tuesday as fears about the economic fallout of the coronavirus mounted. Investors on Wall Street reacted to an emergency cut in interest rates by the Federal Reserve on Tuesday with renewed concern about the economic fallout of the spreading coronavirus outbreak.
“The coronavirus poses evolving risks to economic activity,” the Fed said in a statement. “In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate.” The S&P 500 fell more than 3 percent, and the yield on 10-year Treasury bonds tumbled below 1 percent for the first time ever. That suggests investors are cutting expectations for economic growth and inflation, and, perhaps, expecting the Fed to lower rates again when it makes its next monetary policy decision on March 18.
The move underlines the fraught moment economic policymakers in the United States and around the world currently face. While they can bolster confidence and help to keep borrowing cheap, there are questions about how effective rate cuts will ultimately be in counteracting the virus fallout. Central banks cannot keep disease from spreading, prevent workers from losing hours at work, or mend broken supply chains amid factory delays. “Lower rates are good but clearly this signals that investors were right to worry about lower economic growth and corporate profits,” said Randy Watts, chief investment strategist at William O’Neil, an equity research and advisory firm.
President Trump, who has no control over monetary policy, has been urging the Fed to lower interest rates when asked about the virus’ potential economic fallout. After shrugging off the potential impact of the spreading coronavirus for weeks, investors in the United States have become intensely focused on every development in the outbreak as the number of cases outside of China has grown — leading to increased measures to contain the spread. From travel bans to canceled conferences, all of these steps could hurt corporate profits and the broader economy.
Stocks in the United States rallied immediately after the Fed said it would cut interest rates, but those gains then faded. Reflecting this worry, the Federal Reserve slashed interest rates by half a point on Tuesday.
The S&P 500 was erratic after having spiked more than 1 percent immediately after the announcement. It followed the index’s biggest single-day gain since December 2018 on Monday. Britain’s FTSE 100 and Germany’s DAX were about 2 percent higher. Asian markets ended their day up. “The coronavirus poses evolving risks to economic activity,” the central bank said in a statement.
Some analysts said the Fed’s move would do little to calm investors or bolster the economy. The cut came as economists around the globe sharply downgraded their economic growth expectations for the year as the coronavirus spreads, idling factories, curtailing travel and quarantining workers.
Still, some analysts said the Fed’s move would do little to calm investors or bolster the economy.
Policymakers can bolster confidence and help to keep borrowing cheap, but there are questions about how effective rate cuts will be in counteracting the virus fallout. Central banks cannot keep disease from spreading, prevent workers from losing hours at work or mend broken supply chains amid factory delays.
“You just used a pretty big bullet that is going to be ineffective in the near term,” said Yousef Abbasi, a global market strategist at INTL FCStone, a brokerage firm.“You just used a pretty big bullet that is going to be ineffective in the near term,” said Yousef Abbasi, a global market strategist at INTL FCStone, a brokerage firm.
Randy Watts, chief investment strategist at William O’Neil, said the lower rates would make stocks more attractive than bonds and signaled that “investors were right to worry about lower economic growth and corporate profits.”
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Treasuries surged after the Fed chair, Jerome H. Powell, held a news conference on the interest rate cut, pushing the yield on the benchmark 10-year Treasury note close to record lows on Tuesday.
Before the Fed’s announcement, central bankers and political leaders of the world’s economic powers on Tuesday expressed their resolve to combat economic damage from the coronavirus, but stopped short of promising interest rate cuts or other immediate rescue measures.Before the Fed’s announcement, central bankers and political leaders of the world’s economic powers on Tuesday expressed their resolve to combat economic damage from the coronavirus, but stopped short of promising interest rate cuts or other immediate rescue measures.
The joint statement of solidarity showed that the leaders of the so-called G7 nations, which also includes Britain, Canada, France, Germany, Italy and Japan, are capable of cooperation. But the statement fell short of the more aggressive action that investors have been hoping for and that many economists say is needed to prevent the virus outbreak from undermining global growth.The joint statement of solidarity showed that the leaders of the so-called G7 nations, which also includes Britain, Canada, France, Germany, Italy and Japan, are capable of cooperation. But the statement fell short of the more aggressive action that investors have been hoping for and that many economists say is needed to prevent the virus outbreak from undermining global growth.
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Earlier Tuesday, the Reserve Bank of Australia cut its interest rates to a record low, while Malaysia’s Bank Negara cut its key lending rate for a second time this year.Earlier Tuesday, the Reserve Bank of Australia cut its interest rates to a record low, while Malaysia’s Bank Negara cut its key lending rate for a second time this year.
As governments seek to contain the economic damage from the coronavirus outbreak, prominent economists and some lawmakers are starting to wrestle with how the government might use its power to tax and spend to mitigate the economic pain.As governments seek to contain the economic damage from the coronavirus outbreak, prominent economists and some lawmakers are starting to wrestle with how the government might use its power to tax and spend to mitigate the economic pain.
The attention to fiscal policy reflects the little room remaining for the Federal Reserve to cut interest rates. The complexities of responding to a pandemic and the desire of lawmakers to show they are getting something done in an election year could strengthen the case for a fiscal boost.The attention to fiscal policy reflects the little room remaining for the Federal Reserve to cut interest rates. The complexities of responding to a pandemic and the desire of lawmakers to show they are getting something done in an election year could strengthen the case for a fiscal boost.
Talk of fiscal stimulus is still in the earliest phases, reflecting the suddenness with which signs have emerged that the new coronavirus will hurt the economy. Those who closely track the machinations of Washington believe there will be a meaningful push for some fiscal action if the economic outlook deteriorates.Talk of fiscal stimulus is still in the earliest phases, reflecting the suddenness with which signs have emerged that the new coronavirus will hurt the economy. Those who closely track the machinations of Washington believe there will be a meaningful push for some fiscal action if the economic outlook deteriorates.
Robinhood, a free trading app with more than 10 million users, experienced a systemwide shutdown for a second straight day, leaving many investors angry that they were unable to make trades in a rapidly moving market.Robinhood, a free trading app with more than 10 million users, experienced a systemwide shutdown for a second straight day, leaving many investors angry that they were unable to make trades in a rapidly moving market.
The outage kept the platform’s users from trading on Monday, when the S&P 500 was up 4.6 percent — a big gain after a painful week for the market. The company said the problem had been resolved overnight, but investors were still having trouble when the stock market opened Tuesday morning.The outage kept the platform’s users from trading on Monday, when the S&P 500 was up 4.6 percent — a big gain after a painful week for the market. The company said the problem had been resolved overnight, but investors were still having trouble when the stock market opened Tuesday morning.
“Our systems are currently experiencing downtime,” the company wrote on Twitter on Tuesday. “We’re determined to restore full functionality as soon as possible.”“Our systems are currently experiencing downtime,” the company wrote on Twitter on Tuesday. “We’re determined to restore full functionality as soon as possible.”
The problem prompted some users to threaten the company with a lawsuit. “I have lost $5k+ and counting due to being unable to sell my options for 2 days now,” one user wrote on Twitter.The problem prompted some users to threaten the company with a lawsuit. “I have lost $5k+ and counting due to being unable to sell my options for 2 days now,” one user wrote on Twitter.
Foxconn, the Taiwan-based electronics manufacturer and a crucial partner in Apple’s supply chain, said on Tuesday that it was producing at only half its required capacity for this time of the year, a sign of how hamstrung China’s factories remain even though the coronavirus outbreak appears to be subsiding in the country where it was first discovered.Foxconn, the Taiwan-based electronics manufacturer and a crucial partner in Apple’s supply chain, said on Tuesday that it was producing at only half its required capacity for this time of the year, a sign of how hamstrung China’s factories remain even though the coronavirus outbreak appears to be subsiding in the country where it was first discovered.
The company expects to get production back to full capacity by the end of the month, Foxconn’s chairman, Young-Way Liu, said in a conference call with analysts. But the virus will still have a “significant” negative impact on the company’s business in the first quarter, Mr. Liu said.The company expects to get production back to full capacity by the end of the month, Foxconn’s chairman, Young-Way Liu, said in a conference call with analysts. But the virus will still have a “significant” negative impact on the company’s business in the first quarter, Mr. Liu said.
The global outbreak has caused upheaval in stock markets and disrupted supply chains around the world. But so far, there have been few signs of widespread economic damage, at least in the United States.The global outbreak has caused upheaval in stock markets and disrupted supply chains around the world. But so far, there have been few signs of widespread economic damage, at least in the United States.
Economists say a pandemic could clearly cause a recession in the United States. But for that to happen, the effects would have to spread beyond manufacturing, travel and other sectors directly affected by the disease. The real sign of trouble, said Tara Sinclair, an economist at George Washington University, would be if companies with no direct connection to the virus started reporting a slump in business.Economists say a pandemic could clearly cause a recession in the United States. But for that to happen, the effects would have to spread beyond manufacturing, travel and other sectors directly affected by the disease. The real sign of trouble, said Tara Sinclair, an economist at George Washington University, would be if companies with no direct connection to the virus started reporting a slump in business.
“The key is to watch big macro numbers rather than obsessively watching things tied to virus and supply chains,” Ms. Sinclair said. “If people aren’t getting haircuts anymore, that’s a bad sign.”“The key is to watch big macro numbers rather than obsessively watching things tied to virus and supply chains,” Ms. Sinclair said. “If people aren’t getting haircuts anymore, that’s a bad sign.”
A recession is more than just a dip in gross domestic product. As most economists think of it, a recession involves a cycle that feeds on itself: Job cuts lead to less income, which leads to less spending, which leads to more job cuts.A recession is more than just a dip in gross domestic product. As most economists think of it, a recession involves a cycle that feeds on itself: Job cuts lead to less income, which leads to less spending, which leads to more job cuts.
Some companies have already taken precautions like limiting travel to affected countries or big international conferences. Others have asked employees to stay home because they visited a country with a more serious outbreak.Some companies have already taken precautions like limiting travel to affected countries or big international conferences. Others have asked employees to stay home because they visited a country with a more serious outbreak.
But with new unexplained cases being reported in the United States — and the first domestic death from the illness reported on Saturday — a growing number of American workers could soon be asked to alter their routines, or just stay home.But with new unexplained cases being reported in the United States — and the first domestic death from the illness reported on Saturday — a growing number of American workers could soon be asked to alter their routines, or just stay home.
Exactly how that affects you will depend on many factors, including the generosity of your employer’s benefits and where you live. U.S. workers are less likely to be covered by a paid sick leave policy than those in other developed countries.Exactly how that affects you will depend on many factors, including the generosity of your employer’s benefits and where you live. U.S. workers are less likely to be covered by a paid sick leave policy than those in other developed countries.
“This can put hourly workers in a bind, and make employees in the U.S. more likely to show up for work when they are sick,” said Joseph Deng, who specializes in employment and compensation law at Baker & McKenzie in Los Angeles.
Before Monday’s rally, the S&P 500 had dropped more than 11 percent in a week. That’s its worst weekly decline since the 2008 financial crisis, and a drop that pushed it into what’s known as a correction — a drop of 10 percent or more, representing a psychologically significant marker for investors.
But Monday’s surge meant that the correction lasted only nine days, which, according to Yardeni Research, was the shortest on record in terms of calendar days since 1928, the earliest date for which the research group has published data on the S&P.
The previous two corrections in the S&P 500 were both in 2018, when the market fell 10.2 percent for 13 days ending in February and 19.8 percent for 95 days ending in December.
Late on Monday, Hyatt Hotels withdrew its financial forecasts for 2020, in part because of the impact of travel restrictions imposed by companies since the virus outbreak, saying its ability to assess the impact of the virus “continues to be limited because of quickly changing circumstances and uncertain consumer demand for travel.”Late on Monday, Hyatt Hotels withdrew its financial forecasts for 2020, in part because of the impact of travel restrictions imposed by companies since the virus outbreak, saying its ability to assess the impact of the virus “continues to be limited because of quickly changing circumstances and uncertain consumer demand for travel.”
British Airways canceled 216 flights from London to New York, Italy, France, Germany, Belgium, Austria and Ireland from March 16 to 28. The airline had previously canceled flights to mainland China and reduced service to Italy. Ryanair, the Irish discount airline, canceled a quarter of its flights to and from Italy, from March 17 to April 8.British Airways canceled 216 flights from London to New York, Italy, France, Germany, Belgium, Austria and Ireland from March 16 to 28. The airline had previously canceled flights to mainland China and reduced service to Italy. Ryanair, the Irish discount airline, canceled a quarter of its flights to and from Italy, from March 17 to April 8.
Twitter, which had already closed offices in Japan and South Korea and banned nonessential travel, on Monday encouraged all of its employees in the United States and other countries to work from home. And its chief executive, Jack Dorsey, pulled out of a speaking engagement at South by Southwest, an annual technology conference and music festival scheduled to be held in two weeks in Austin, Tex.Twitter, which had already closed offices in Japan and South Korea and banned nonessential travel, on Monday encouraged all of its employees in the United States and other countries to work from home. And its chief executive, Jack Dorsey, pulled out of a speaking engagement at South by Southwest, an annual technology conference and music festival scheduled to be held in two weeks in Austin, Tex.
Reporting was contributed by Tara Siegel Bernard, Ben Casselman, Geneva Abdul, Kate Conger, Neil Irwin, Alexandra Stevenson, Jeanna Smialek, Raymond Zhong, Kevin Granville, Carlos Tejada, and Jack Ewing.Reporting was contributed by Tara Siegel Bernard, Ben Casselman, Geneva Abdul, Kate Conger, Neil Irwin, Alexandra Stevenson, Jeanna Smialek, Raymond Zhong, Kevin Granville, Carlos Tejada, and Jack Ewing.