US stocks plunge again despite Fed coronavirus stimulus
US stock markets have plunged despite the US Federal Reserve last night again slashing interest rates as investors anticipate a global recession caused by the coronavirus outbreak.
The S&P 500 dropped more than eight per cent when Wall Street opened, causing a so-called circuit breaker designed to stop panic selling to kick in.
Stocks continued to fall when trading resumed but then regained some ground. The S&P 500 was last down 6.8 per cent, the Dow Jones 7.6 per cent lower, and the Nasdaq down 6.9 per cent.
The dramatic falls came despite the Fed last night unveiling its most drastic package of stimulus measures since the financial crisis in response to the coronavirus outbreak.
It slashed interest rates by 100 basis points (one percentage point) to a range of zero to 0.25 per cent and relaunched its money-printing programme with a pledge to buy $700bn (£570bn) of bonds.
However, investors have shrugged at the measures. Wall Street is now deep into bear market territory – a fall of 20 per cent since recent highs – despite two deep interest rate cuts from the US central bank.
Investors brace for a global recession
The market falls are driven by fear that coronavirus will push the world economy into a recession – often defined as less than 2.5 per cent annual growth – as well as uncertainty about how long the outbreak will last.
Coronavirus has now infected almost 170,000 people around the world and killed more than 6,500. Governments are turning to draconian measures to try to prevent the spread, such as the European travel ban by US President Donald Trump that sent airline shares crashing last week.
“Businesses are shutting doors globally and households are moving into quarantine,” said Michelle Meyer, US economist at Bank of America. “We are already forecasting negative GDP [US] growth in the second quarter but the risk is that it proves to be a much deeper and more prolonged contraction in economic activity.”
Andrew Sheets, chief cross-asset strategist at Morgan Stanley, said: “It is a negative shock to both supply and demand, one that is uniquely difficult for policy-makers to ‘fix’.”
“Low rates don’t solve a shortage of semiconductors if a factory needs to shut down,” he said.
European stocks also tumbled, but regained some ground later in the day. The UK’s FTSE 100 was 4.5 per cent lower, Germany’s Dax index was 3.1 per cent down, and France’s CAC 40 shed 4.5 per cent.
The Brent crude oil price slumped, falling nine per cent to $30.8 per barrel as fears of a recession hit commodities. It stood at almost $60 per barrel just under a month ago.
IMF calls for international effort
The fall in US stocks effectively wiped out the rally equities enjoyed on Friday after Trump declared a state of emergency, freeing up $50bn of federal funds to fight the virus.
Investors and policymakers are increasingly calling for a more joined-up effort between governments and central banks and at an international level, however.
International Monetary Fund (IMF) chief Kristalina Georgieva today said governments should ramp up spending and increase international coordination to prevent long-term economic damage.
“As the virus spreads, the case for a coordinated and synchronized global fiscal stimulus is becoming stronger by the hour,” she said.
Guilhem Savry, head of global macroeconomics at Unigestion, said that a “fiscal stimulus implemented at a global level and funded by central banks” might be necessary to fight the fallout from the virus.