US stock markets rebound after new Fed coronavirus action
US stock markets today clawed back around half of yesterday’s losses after their worst session since 1987’s Black Monday crash as the Fed’s move to buy companies’ short-term debt cooled fears.
The S&P 500 closed six per cent higher, the Dow Jones finished 5.2 per cent, up and the Nasdaq climbed 6.2 per cent.
The gains still left markets some way from where they started the week after yesterday’s nightmare, in which the S&P 500 plunged 12 per cent over fears of a coronavirus-induced global recession.
Traders were cheered today after the Fed said it would continue its market interventions and snap up so-called commercial paper.
Companies issue short-term debt to cover their funding needs, but the market has dried up in recent weeks as investors get nervous that the coronavirus outbreak will mean firms cannot pay them back.
The Fed said its actions will loosen up the market again and let companies access the cash they desperately need as the economy slows amid widespread quarantines and business closures.
“The Fed’s commercial paper-buying facility is very similar to what they offered in the aftermath of the 2008 financial crisis,” said Erik Norland of CME Group.
“It will help to keep the financial market’s plumbing working properly and is a necessary prerequisite to achieving an economic recovery.”
Indices also climbed on reports that the White House is asking congress for an $850bn package to boost the economy, which would mainly come in the form of tax cuts.
Such a move would boost businesses but would do little to help people who are laid off because their companies have gone under.
US stock markets are now deep in bear territory – a fall of more than 20 per cent.
Stocks plunged yesterday despite the US Federal Reserve unveiled a giant stimulus package, with investors sceptical of the effect central banks can have. Traders are clamouring for a big fiscal response from governments to support businesses.
“The immediate outlook for financial markets depends on two separate sets of forces. First, and most obviously, the spread of new cases,” said Steven Bell, chief economist at BMO Global Asset Management.
“The second set of factors relate to the functioning of markets. The regulators will be watching closely to see that markets continue to function in these difficult times.”
Yet Bell added that there were some reasons for optimism. “The fundamental supportive consideration is that the virus can and will be contained,” he said. “Markets and economies will recover.”