U.S. stock futures plunged Monday at the start of another turbulent week after the Federal Reserve took emergency action to cushion the economy from the coronavirus pandemic that is shutting down global business and travel.
Futures for the Dow Jones Industrial Average plunged more than 1,000 points and benchmark S&P 500 index dropped nearly 5% — triggering an automatic shock absorber — after the central bank cut interest rates and launched a fresh round of crisis-era bond purchases.
“Investors aren’t happy because these rate cuts won’t stimulate the economy in the near term. You can’t stimulate demand if everyone is stuck in their house,” says Shana Sissel, a senior portfolio manager at CLS Investments. “This isn’t a financial failure. This is a global pandemic that affects everyone across the globe. The quickest way to ramp everything back up is to provide them with a safety net in the meantime.”
Investors were anxiously awaiting an aid package from Washington that investors hope can help cushion the economy from the slowdown in economic activity. The Senate is expected to vote Monday on legislation to provide economic relief to Americans affected by the deadly coronavirus pandemic. Trump said Friday he would support the sweeping measure.
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“Monetary and fiscal policy need to work together to bridge the next several months until the virus recedes and the economy gets back on its feet,” says Michael Sheldon, chief investment officer and executive director at investment advisor RDM Financial Group at Hightower. “Actions by multiple central banks around the world should help over time, but greater fiscal policy will likely be needed to help those affected.”
On Monday, Japan’s central bank expanded asset purchases to inject money into the economy and promised no-interest loans to help companies cope with the crisis.
Global markets were battered overnight after China reported retail sales fell 20.5% from a year ago in January and February after shopping malls and other businesses were closed. Factory output declined by a record 13.5% after the Lunar New Year holiday was extended to keep manufacturing workers at home.
The figures were even bleaker than economists expected. Some cut their forecasts for the world’s second-largest economy. ING said this year’s growth might fall as low as 3.6%, the weakest since at least the 1970s.
Overseas, Paris tumbled 9% shortly after the open, London sank 7% and Frankfurt gave up 7.5%. Sydney’s benchmark plunged 9.7%, Hong Kong’s Hang Seng lost 3.4% and India shed 5.9%.
Contributing: The Associated Press