The Dow Gained 1,000 Points on Hope for Stimulus
Investors are simultaneously trying to assess the damage from the coronavirus outbreak and how effectively governments can counter it.
Stocks got a twin boost from Fed action and word on what a government stimulus plan might include.
U.S. stocks closed near their highest levels of the day, boosted by word of what a federal stimulus package might look like and news of the Federal Reserve’s latest effort to keep markets running smoothly.
The rally, which lifted the Dow Jones Industrial Average by nearly 1,000 points, followed a jittery morning as investors assessed how bad the economic damage from the coronavirus will be, and government efforts to respond. Major indexes suffered their worst one-day drops since 1987’s Black Monday crash on Monday.
The fuel for Tuesday’s afternoon rebound came at an early afternoon press conference by President Donald Trump and members of the White House’s coronavirus task force detailing many of the potential stimulus measures the administration is seeking.
The Dow Jones Industrial Average closed up 1,049 points, or 5.2%, despite being weighed down by a decline in Boeing stock. The S&P 500 gained 6% and the Nasdaq Composite rose 6.2%.
All three indexes have had seven days straight of moves of at least 4%, including the three sessions of swings greater than 9%. Investors see more wild movements ahead. The Cboe Volatility Index, or VIX, fell 10% from Monday’s closing level of about 83—an extremely elevated reading for the index, which measures expectations of future volatility based on index options pricing—but remains way above normal levels..
Bond prices fell, lifting their yields. The yield on the 10-year U.S. Treasury ticked up 27 basis points, or hundredths of a percentage point, to 0.997%. That was the note’s largest one-day yield gain since September 2008. The price of gold climbed 2.9%. Both are considered haven assets, and normally rise together when riskier assets like stocks fall.
The performance of various sectors within the S&P 500 suggested a defensive posture on Tuesday. Utilities, consumer staples, and health care stocks rose 13%, 8%, and 6%, respectively. The more economically sensitive consumer discretionary and energy sectors were Tuesday’s laggards, up 3% and 0.2%, respectively.
The price of oil was down 6.3% to $26.88 a barrel. The price has fallen by close to 60% this year.
The Trump administration is speaking with Congressional legislators about an economic-stimulus package to the tune of roughly $850 billion. It is meant to counter the economic blow of the novel coronavirus outbreak and the limits on manufacturing and consumer activity required to slow its spread. The plan could include targeted stimulus for industries such as airlines that are most affected, as well as broader relief including a payroll-tax cut and emergency loans for small businesses.
Treasury Secretary Steven Mnuchin even mentioned payments to individuals, something he described as akin to “business interruption payments” for workers.
The Federal Reserve is already in full stimulus mode, having lowered its benchmark interest rate at an emergency meeting for the second time in as many weeks on Sunday, to close to zero. The central bank is also working to stimulate lending and shore up liquidity in Treasury and money markets, through vast new bond purchases of at least $700 billion, as well as other measures.
The bank said Tuesday that it would launch a commercial-paper lending facility, to help smooth out the market in which companies seek short-term funding. That echoes a move the central bank last implemented during the financial crisis in 2008.
The supportive monetary policy and potential fiscal boost come as the latest figures suggest over 4,100 confirmed cases of Covid-19—the respiratory disease caused by the novel coronavirus—in the U.S. The number that will continue to rise and authorities’ unprecedented measures to combat it will continue to weigh heavily on economic activity and corporate earnings.
The Commerce Department’s February retail sales data came in weaker than expected on Tuesday morning, at a 0.5% decline from a month earlier. Economists had forecast a 0.1% increase in spending at stores, online, and at bars and restaurants. Plummeting markets and limits on travel and public gatherings will take a major dent out of March’s retail sales figures, out on April 15.
The likelihood of avoiding at least a temporary recession is close to zero, and markets have moved to price that in with lightening speed.
Two of the five steepest U.S. market drops in history have happened in the previous three trading days. The Dow Jones Industrial Average’s 2,997-point, or 12.9%, drop on Monday ranks second-worst in the index’s history, only behind 1987’s Black Monday crash, when the index dropped 22.6%. In third and fourth place are Oct. 28 and Oct. 29, 1929—the worst two days of the Great Crash of 1929. In fifth is last Thursday’s 9.99% tumble.
The S&P 500 also had an ugly day on Monday, down 12%, while the Nasdaq Composite plummeted 12.3%.
Write to Nicholas Jasinski at firstname.lastname@example.org
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