US Stocks Open Sharply Lower After Fed Slashes Rates
By Investors Hub
The major U.S. index futures are currently pointing to a sharply lower open on Monday, with stocks likely to give back ground following the rally seen going into the close of trading last Friday.
Traders may look to cash in on the previous session’s gains amid escalating concerns about the economic impact of the coronavirus pandemic.
Central banks around the world, including the Federal Reserve, are taking steps to provide economic stimulus to combat the effects of the virus, but the moves may only serve to exacerbate concerns about the impact of the outbreak.
On Sunday, the Fed took the unusual step of slashing interest rates by 100 basis points just days ahead of its scheduled monetary policy meeting this week.
The Fed lowered the target range for the federal funds rate to zero to 0.25 percent from 1 to 1.25 percent, noting the coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the U.S.
The central bank said it expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.
In addition to cutting rates, the Fed also announced a new quantitative easing program, revealing plans to increase its holdings of Treasury and mortgage-backed securities by at least $700 billion.
“The Fed’s decision to slash interest rates to near-zero won’t stop the economy falling into a recession, but the package of liquidity-boosting measures will help prevent credit markets seizing up, reducing the risks a deeper downturn,” said Michael Pearce, Senior U.S. Economist at Capital Economics.
He added, “We expect the Fed to do whatever it takes to keep markets functioning smoothly, and to announce further QE & forward guidance to support demand should the crisis worsen significantly.”
The drastic moves by the Fed, which come ahead of the two-day monetary policy meeting set to begin on Tuesday, have raised some concerns that central banks around the world will run out of ammunition to deal with a deepening crisis.
A day after the worst drop by the Dow in over thirty years, stocks showed a substantial move back to the upside during trading on Friday. The major averages fluctuated over the course of the session before experiencing a late-day rally.
The major averages spiked going into the close of trading, ending the session at their best levels of the day. The Dow soared 1,985.00 points or 9.4 percent to 23,185.62, the Nasdaq skyrocketed 673.00 points or 9.3 percent to 7,874.80 and the S&P 500 surged up 230.38 points or 9.3 percent to 2,711.02.
Despite the rebound on the day, the major averages moved sharply lower for the week. The Dow plummeted by 10.4 percent, while the Nasdaq and the S&P 500 plunged by 8.2 percent and 8.8 percent, respectively.
The late-day spike on Wall Street came after President Donald Trump declared the coronavirus outbreak a national emergency.
The declaration by Trump would free up as much as $50 billion in additional funding to combat the outbreak and allow officials to waive certain regulations to accelerate testing and care for coronavirus patients.
Trump said during a press conference in the White House Rose Garden that he expects the U.S. to have 1.4 million coronavirus test kits available within a week and a total of 5 million kits within the next month.
The president said he is also working with private sector companies to develop “drive thru” testing facilities across the country.
However, Trump said he does not want everybody running out and taking the test, saying only people with certain symptoms should be tested.
Adding to the positive sentiment, a coronavirus test developed by Swiss drug giant Roche has been granted emergency use authorization by the FDA.
The FDA said this is the first commercially distributed diagnostic test to receive emergency authorization during the coronavirus outbreak.
Roche said it is committed to delivering as many tests as possible and is going to the limits of its production capacity.
The emergency authorization of the Roche test comes amid rising concerns about the relatively low levels of coronavirus testing in the U.S.
In U.S. economic news, a report released by the University of Michigan showed a relatively modest deterioration in consumer sentiment in the month of March in light of the rampant fear over the coronavirus outbreak and the subsequent sell-off on Wall Street.
The report showed the consumer sentiment index slid to 95.9 in March after rising to 101.0 in February, although the index still came in above economist estimates for a reading of 95.0.
“Importantly, the initial response to the pandemic has not generated the type of economic panic among consumers that was present in the runup to the Great Recession,” said Surveys of Consumers chief economist Richard Curtin.
He added, “Nonetheless, the data suggest that additional declines in confidence are still likely to occur as the spread of the virus continues to accelerate.”
Banking stocks saw considerable strength amid a continued increase in treasury yields, with the KBW Bank Index soaring by 14.8 percent.
Substantial strength also emerged among energy stocks in late-day trading after Trump pledged to purchase oil at the currently severely reduced prices to fill the U.S. strategic petroleum reserve.
Software stocks also moved sharply higher over the course of the session, driving the Dow Jones U.S. Software Index up by 12.7 percent. The index ended the previous session at a nine-month closing low.
Oracle (ORCL) and Adobe (ADBE) posted standout gains within the software sector after reporting better than expected quarterly earnings.
Steel, semiconductor, brokerage, and transportation stocks also moved sharply higher, while gold stocks bucked the uptrend amid a steep drop by the price of the precious metal.
