Dow plunges nearly 800 points after Fed move raises worries about coronavirus impact on US economy

Traders work on the floor at the New York Stock Exchange.
Traders work on the floor at the New York Stock Exchange.PHOTO: REUTERS

NEW YORK (AFP) - Wall Street stocks finished sharply lower on Tuesday (March 3), reflecting scepticism at a surprise Federal Reserve interest rate cut while the 10-year US Treasury hit an all-time low.

The Dow Jones Industrial Average ended at 25,917.41, down 2.9 per cent, a loss of nearly 800 points.

The broad-based S&P 500 sank 2.8 per cent to finish the day at 3,003.37, while the tech-rich Nasdaq Composite Index slid 3 per cent to 8,684.09.

The pullback came a day after a major stock rally. It pushed the market back towards last week's sentiment, when coronavirus worries led to major indices suffering their worst weekly losses since 2008.

Across the world, 3,155 people have died from the virus. More than 92,723 have been infected in 78 countries and territories.

In a surprise move, the Fed slashed its key interest rate by a half point to a range of 1 per cent to 1.25 per cent, a bigger cut than usual.

While US economic fundamentals "remain strong," the "coronavirus poses evolving risks to economic activity," the Federal Open Market Committee said in a statement.

Stocks initially rallied on the Fed announcement, but soon pulled back.

"The Fed's emergency rate cut was supposed to boost confidence but it may wind up raising fears that the coronavirus is likely to cause a major economic downturn," economist Joel Naroff said.

 
 

CNBC host Jim Cramer said that the Fed’s emergency rate cut makes him more concerned about the possible economic risks from the coronavirus.

“I’m now nervous. I’m more nervous than I was before,” Cramer said on “Squawk on the Street” on Tuesday, 

He said the move helps Wall Street but does little to persuade consumers worried about catching the coronavirus to leave their home and spend money.

Briefing.com analyst Patrick O'Hare said the Fed's action "could ultimately erode market psychology because when you act that quickly, that aggressively in that short amount of time, it does raise a concern that things are going to get potentially must worse than what was presumed."

As for the Treasury market, yields on the 10-year have repeatedly hit all-time lows in recent days, but did not tumble below 1 per cent until the Fed's emergency move, which came 15 days before its regularly scheduled meeting.

Treasury bonds are among the refuge-type assets that tend to attract buyers during periods of uncertainty.

JPMorgan Chase put the odds that US interest rates would hit zero in 2020 at 50 per cent, but said the "base case" called for 10-year rates to hit 1.3 per cent at midyear and 1.6 per cent by year-end.