U.S. stocks plunged Monday and were briefly halted for trading after the Federal Reserve took emergency action to cushion the economy from the coronavirus pandemic that is shutting down global business and travel.
The Dow Jones Industrial Average plunged more than 2,400 points and the benchmark Standard & Poor’s 500 index dropped more than 7% — briefly triggering an automatic shock absorber for 15 minutes after the opening bell — after the central bank cut interest rates and launched a fresh round of crisis-era bond purchases.
This marked the third time in a week that circuit breakers were set off during regular trading hours following sharp losses. The S&P 500, currently down 10%, would need to fall 13% to trigger a second circuit breaker.
“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, director of investment due diligence at Orion Advisor Solutions. “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.”
“If people are forced to stop working, they still have to pay rent at the end of the month,” says Willie Delwiche, an investment strategist at Baird. “This is a much bigger problem with an unknown solution than we’ve ever had in the past.”
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