/Dow tumbles almost 800 points as the Feds unexpected rate cut fails to calm investor nerves over a slowing economy

Dow tumbles almost 800 points as the Feds unexpected rate cut fails to calm investor nerves over a slowing economy

NYSE TradersBrendan McDermid/Reuters

  • Stocks slipped from initial gains on Tuesday, closing deeply in the red, after the Federal Reserve’s emergency rate cut failed to soothe investors’ worries.
  • The 50-basis-point adjustment is the first cut to arrive between Federal Open Market Committee meetings since the 2008 financial crisis.
  • All major US indexes surged higher in the minutes following the announcement before reversing their gains and tumbling more than 3% at intraday lows.
  • Stocks remain well below their record highs as coronavirus uncertainty continues to stifle risk-asset valuations. The outbreak has so far killed more than 3,000 people and infected more than 90,000.
  • Visit Business Insider’s homepage for more stories.

Stocks slipped on Tuesday after the Federal Reserve’s 50 basis point rate cut failed to ease investors’ fears of a coronavirus-rattled economy. Fed Chair Jerome Powell said during a press conference that global virus contagion could impact economic activity “for some time.”

The central bank lowered the federal-funds rate to a range of 1% to 1.25%, delivering an unexpected cut in between Federal Open Market Committee meetings. The cut is the first emergency adjustment since the 2008 financial crisis.

The S&P 500 jumped as much as 1.4% immediately following the announcement. The Dow Jones industrial average gained as many as 380 points, or roughly 1.4%. The intraday high quickly faded in the hour after the Fed announcement as the economic stimulus did little to boost Wall Street optimism.

Here’s where major US indexes stood as of the market close on Tuesday:

S&P 500: 3,002.19, down 2.9%

Dow Jones industrial average: 25,914.70, down 3% (789 points)

Nasdaq Composite: 8,684.09, down 3%

Markets had already priced in a 100% chance of a 25-basis-point cut in March, but the Tuesday announcement arrived two weeks before the scheduled FOMC meeting. The Fed signaled additional stimulus is in the cards as it keeps an eye on the global outbreak.

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“The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity,” the central bank said in a statement. “The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.”

The central bank’s action comes after markets experienced their worst week since the financial crisis to close out February. Equities tanked as new coronavirus breakouts in Iran, Italy, and South Korea heightened the risk of the outbreak becoming a pandemic. Stocks entered correction territory on Thursday and slipped further the following trading session as investors saw little hope for ailing markets.

Some experts are skeptical that a lower interest rate will protect from an economic downturn. Coronavirus is kicking off a strain on global supply as countries shut down factories to stem contagion. Even if central banks boost consumer spending, restricted inventories could create a sticker problem for national economies, Seema Shah, chief investment strategist at Principal Global Investors, said Tuesday.

Read more: 2 Wall Street firms lay out scenarios for a coronavirus-fueled recession – including how far stocks will ultimately plunge

“Markets will quickly see through central bank pledges and realize that the only relevant action is the pace of increase in the number of cases outside China, and what measures governments adopt to contain the spread of the virus,” Shah said in an emailed statement.

The FOMC next meets on March 17-18. Fed Chair Jerome Powell is scheduled to hold a press conference Tuesday at 11 a.m. ET.

The coronavirus outbreak has so far killed more than 3,000 people and infected more than 90,000. Though the infection rate in China has recently slowed, surging breakouts in Iran, Italy, South Korea, and Japan pose new risks.

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